New Solutions Vol. 3, No. 3

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As a broker, you are called upon to answer a variety of questions. The workers’ compensation modification factor is one of the more challenging aspects of a client’s workers’ compensation program. As a result, you are often expected to provide a quick analysis of a client’s mod with the simple question: “So, how’s my mod?”

Many companies have the misunderstanding that a mod of 1.0 is good. This is like saying a “C” on your grade school report card is good.

A mod of 1.0 is average. A conscientious company will strive to beat the average by decreasing their losses, thus lowering their workers’ compensation insurance costs.

A quick analysis of a client’s mod can help them determine how they are doing. The analysis will also help the client better understand the potential for savings if they control losses and lower their mod.

This article explains how our new web-based analytical tool called QuickMod.com can be used to answer the deceivingly simple question, “So, how’s my mod?” But whether you use QuickMod.com or not, don't miss three important points that you should include in your answer!


A Quick Analysis with QuickMod.com To produce a mod analysis with QuickMod.com, you simply enter a few numbers from the footer of the experience rating worksheet. As you can see on the sample input screen, we're using an example case in which both actual losses and actual primary losses exceed the expected. But two types of losses drive the mod: primary (frequency of losses) and excess (severity of losses). In this case, what is contributing most to the value of the mod? QuickMod.com generates five reports. The second report, "Your Minimum and Controllable Mod," shows that the minimum mod for this company is 0.60. This means that the current mod is 0.59 higher than the minimum. Most of the mod increase (0.40 points) is due to loss frequency (primary losses). The remaining increase (0.19) is due to loss severity (excess losses). The premium paid by this client is almost twice the minimum premium of approximately $22,000! This puts a new perspective on the 1.19 mod. The "Analysis of Your Primary and Excess Losses" report clearly states that the problem is with loss frequency (primary losses). While the mod is “only” 1.19, the level of primary losses is 1.86 times higher than expected. The "Your Aggregate Loss Sensitivity" report will help the client set a reasonable goal for lowering losses and understand the potential for lowering the mod. With this chart, you can also highlight the impact on the mod of ever increasing losses. For example, after reviewing the losses, the client may feel it is reasonable to set a long term goal of cutting losses in half. Using the chart, you can identify that this would achieve a 0.90 mod, a decrease of 0.29 in the mod. QuickMod.com takes about 3 minutes to complete. It is an effective way to quickly and accurately answer the question, “So, how’s my mod?” See the complete sample analysis and more product information at http://www.specificsoftware.com/quickmod/.	Special Limited Time Offer Try QuickMod.com FREE until November 1st, 2001! When you go to the QuickMod.com site, click the "Online Tools" link and sign on with user name "newsolutions" and password "sample". We encourage you to let us know if you have any questions or comments about QuickMod.com. We Know a Secret A Note from Tim Coomer I speak with agents and brokers across the country on a daily basis. Two issues that I am hearing a lot about this year are the price of insurance coverage and an increased focus on alternative loss financing. Agents and brokers are being motivated by both of these issues to be a better resource for their clients. You may already use our software to provide value added services to your clients. Many customers tell us that their use of ModMaster helps differentiate their services from others. But why not take things a few steps higher and add actuarial consulting services to the solutions that you offer? Insureds and brokers alike tell me that resources are what differentiate the top ten brokerage firms. The secret we know is that our sister company, SIGMA Actuarial Consulting Group, is an actuarial resource for several of these top firms! SIGMA has designed specific services that add profit to your bottom line. Without any overhead or startup expenses, you can provide actuarial consulting resources and thus bring your business to a new level. Contact SIGMA's Al Rhodes by e-mail or at 615-352-3944 to learn more.

Don't Miss These Three Points in Your Answer! There are three points you should make in response to the question, “So, how’s my mod?” A mod of 1.0 is not the goal. The goal is getting as close to the minimum mod as possible. The minimum varies depending on the size of the client. You want to determine which type of loss, loss frequency (primary) or loss severity (excess), is driving the mod higher. A given percentage decrease in losses (i.e. 50%) will not cut your mod by that same percentage but will lower your mod by the given percentage times the controllable mod. In this case 50% decrease times controllable mod of 0.59 equals 0.29. So a 50% decrease in losses equals a new mod of 1.19-0.29 or 0.90. NOTE: a 50% decrease in losses does not lower the mod to 0.60 (1.19 * 50%). This type of analysis will help your client receive more meaningful information from their experience worksheet and identify opportunities for improvement and significant savings.