New Solutions Vol. 4, No. 1

Volume 4, Number 1

The Ever Increasing Mod

At First, You're a Hero

But Then a Problem

"I thought my mod was coming down!"

View the Video: Anticipating an Ever Increasing Mod with Mod Forecaster

ModMaster Prevents Unwanted Surprises

ModMaster FAQ Highlight:
What if the mod calculated by ModMaster doesn't match the bureau's value?

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Have you ever had a mod that seems to contradict good loss experience? In recent months, I have spoken with several ModMaster subscribers who have had challenges with an “ever increasing mod.” So we're addressing that situation in this edition of NewSolutions. We're also taking the opportunity to remind you of our growing area of FAQs, highlighting the question "What if the mod calculated by ModMaster doesn't match the bureau's value?"

The Ever Increasing Mod

XYZ Company is a fast growing organization which has experienced an increase in workers compensation claims during the past few years. After a couple of years of ignoring the problem, the management of the company has decided to switch to a new broker and implement some loss prevention services. You are fortunate enough to land this new account. With a steadily increasing workers comp mod during the past few years, as shown in the table below, you see a significant opportunity to assist this client.

Effective Date	Mod
6/1/1998	0.97
6/1/1999	1.20
6/1/2000	1.41

For more details on how you can use ModMaster to anticipate the mod,
view the case study video!

At First, You're a Hero

During the first year of account management (6/1/2000 – 6/1/2001 policy period), you assist the client with:

implementation of appropriate loss prevention training,
improved case management,
and implementation of new procedures and rapid response to workers compensation claims.

The results are evident after only one year: losses are down and the client is satisfied! The expectation is set for a lower workers compensation mod and lower premium. You explain to the client that the mod for the coming year will not yet reflect the improvements because the mod looks at a three-year period that excludes the most recently completed year. The mod issued 6/1/2001 is 1.44. You continue through another year of improved loss experience and eagerly await the new mod for the following year.

But Then a Problem:

Now after two years of managing the account and showing significant improvement in loss experience, it is time for the payback: a lower workers comp mod and significantly reduced premium. But that’s not what happens! The client’s mod sheet arrives and instead of the good news you both anticipated, the mod is even higher than in previous years! The client is confused and dissatisfied and wondering why his improved loss experience is not being recognized. We call this challenge “the ever increasing mod.”

“I thought my mod was coming down!”

A mod that seems to contradict good loss experience is common in organizations where there is fast growth in the size of the organization and faster than expected growth in actual workers compensation losses. With improving loss experience, a new year that is rolled into the mod calculation may look "better" than the previous year. However, the relationship of actual vs. expected losses in the oldest year being rolled out of the calculation as compared to the new year coming in is what actually affects the mod value, as you can see in the example at left and in the case study video.

You can use ModMaster to anticipate mod changes well in advance of the promulgation date and prevent those unwanted surprises! Watch out for the “ever increasing mod” scenario for fast growing companies with rapidly rising losses.

The 6/1/2001 mod for an organization includes the

6/1/1997,
6/1/1998 and
6/1/1999 policy period data.

The 6/1/2002 mod includes

6/1/1998,
6/1/1999 and
6/1/2000 policy period data.

When the 2002 mod is calculated, the 6/1/2000 data replaces the 6/1/1997 data, but both mods have the 6/1/98 and 6/1/99 years in common. In most cases, if the new year (6/1/2000) is not better than the old year (6/1/1997) in terms of actual versus expected losses, then you will still see a lagging increase in the mod.

Also, as the company grows, the weighting value increases and places more weight on the actual loss experience, which in this case is bad, and further increases the mod.

ModMaster FAQ Highlight

Aided by the implementation of new technology earlier this year, we are proactively identifying common questions regarding ModMaster and experience rating and adding those questions to our FAQ database. New questions are being added biweekly! Remember, the more you use the database, the better we'll be able to make it! Here's a recent question we've added:

What if the mod calculated by ModMaster doesn't match the bureau's value?

We also encourage you to check out our ModMaster WebHelp tutorials and videos, another method we're using to bring even more value and understanding to our products.

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We love hearing from you! If you have questions or suggestions for the newsletter, e-mail us at NewSolutions@specificsoftware.com.

Sincerely,
Tim Coomer
President, Specific Software Solutions, LLC

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