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How to Get Your Workers Comp Experience Modifier below 1.0 (or at least lower): 

How to Get Your Workers Comp Experience Modifier below 1.0 (or at least lower) By “Tall” Ed Collins Roe Insurance ed@roeins.com

PowerPoint Presentation: 

2/7/2012 Page 2

Where does it come from? NCCI (Your HS math club nerds) : 

2/7/2012 Page 3 Where does it come from? NCCI (Your HS math club nerds) Where can I find it? Look here!

What is an Experience Modifier (Mod) and what does it do?: 

2/7/2012 Page 4 What is an Experience Modifier (Mod) and what does it do? A type of WC credit score Do you run “safe” job sites? A way for the insurance company to collect more $$$ from riskier contractors Something GC’s use to pre-qualify subcontractors Something that you can use to win more jobs (seriously)

Workers Compensation insurance – A Quick Review: 

2/7/2012 Page 5 Workers Compensation insurance – A Quick Review Look for your NCCI worksheet and your Experience Modifier or “mod rate” If your mod rate is 1.20 then you pay 20% more than the “average” contractor If your mod rate is .80 then you pay 20% less

PowerPoint Presentation: 

2/7/2012 Page 6 This means that if you pay $50,000 in work comp insurance with a 1.0 “mod” then: With a 1.2 mod you pay $60,000 With a .80 mod you pay $40,000 This is for EACH year. Losses stay on your mod for 3. In this case that could be $60,000 difference between two identical contractors! Which mod would you rather have? Think of your “mod” as an insurance “credit rating” that you have 100% control of! Work Comp (continued)

Quick “Math Class” (from slide 3): 

2/7/2012 Page 7 Quick “Math Class” (from slide 3) Primary Losses Stabilizing Value Ratable Excess Totals Experience Modifier Actual Losses $30,855 $98,939 $16,455 $146,239 Expected Losses $18,947 $98,939 $11,483 $129,369 1.13 Primary Losses Stabilizing Value Ratable Excess Totals Experience Modifier Actual Losses $0.00 $98,939 $0.00 $98,939 Expected Losses $18,947 $98,939 $11,483 $129,369 0.76 + = + + + = /

So what can this tell you?: 

2/7/2012 Page 8 So what can this tell you? By eliminating all of the “actual” losses, you get an idea of how much you are spending (real life) vs. how much you could be spending (best case scenario) In this case, the company would save 0.37 on their experience modifier. Their annual WC premium is $171,014, this would amount to $63,275 dollars EACH YEAR or $189,825 over the entire three year period!

Why every single $$$ saved is extra critical!: 

2/7/2012 Page 9 Why every single $$$ saved is extra critical! Increased Premium $5,000 This is the “skeptics” example Soft costs $0.00 This is the “I don’t believe in soft costs” version Total cost $5,000 Hard costs plus soft costs = total cost Current profit margin 5% Just go with me on this one for now Additional revenue required to offset this ONE loss $100,000 Revenue = $5000/.05

Why every single $$$ is extra critical! Part II: 

2/7/2012 Page 10 Why every single $$$ is extra critical! Part II Hard Cost $15,000 You will see why I picked this number… Soft Cost $0 You can add whatever number you want to here Total Cost $15,000 Add the two together Profit margin 3% Based upon some of my clients stories Revenue required to offset this one loss $500,000 How hard is it to win a $500,000 job these days? Revenue = 15,000/.03

How management decisions impact your “Mod”: 

2/7/2012 Page 11 How management decisions impact your “Mod” Med Pay claims – employee is back to work in 1 week (light duty) - claim is discounted 70% before it goes into the formula Frequency Claims – Under $5000 – 100% goes into formula on under Actual Primary Losses – MOST EXPENSIVE TYPE OF CLAIM Severity Claims – Claims over $5000 – In this case (A=014) only 14% of any claim over $5000 even goes into the formula. In short, severe claims are discounted. How does light duty look now?

How to forecast your “Mod” for next years bid: 

2/7/2012 Page 12 How to forecast your “Mod” for next years bid The formula includes 3 years of recent loss history excluding both the current policy year AND the last complete policy year Step #1 – exclude (subtract) the claims on the NCCI worksheet from the oldest policy period. Update the totals in The Formula from slide 7 Step #2 – obtain your current loss runs from your WC carrier. In particular you want the most recent COMPLETE policy period Step #3 – Break down the claims from that policy period into Med Pay, Frequency, and Severity claims. Apply any discounts from slide 11. If you did have claims that year, add those to the actual primary and excess losses. Step #4 Recalculate The Formula and this will be your “Mod” next year

When to “petition” NCCI to lower your “Mod”: 

2/7/2012 Page 13 When to “petition” NCCI to lower your “Mod” Aggravated Inequity – Anything that would change your “Mod” by at least 0.05 points Subrogation recovery that exceeds 10% of the gross claim Discovery of clerical error

What if you are stuck above 1.0?: 

2/7/2012 Page 14 What if you are stuck above 1.0? Letter from agent Detailed claims experience Provide past 3-5 years of “Mod” history You are not alone if you noticed your number keeps creeping up each year Proactive engagement of your Project Owners or GC’s risk manager

Proposed Change to The Formula Starting 2013: 

2/7/2012 Page 15 Proposed Change to The Formula Starting 2013 Change to “split point” in The Formula “Med Pay” claims will be unaffected This means “Frequency” claims will go up to $10,000 from the current $5,000 in 2013 Severity claim “discount” will then start at $10,000 and above Split point will increase each year and will be indexed for inflation Split point as proposed: $10,000 in 2013 $13,500 in 2014 $15,000 in 2015 (estimated but will be indexed to inflation)

What does this mean to your company?: 

2/7/2012 Page 16 What does this mean to your company? If your “Mod” is below 1.0 it will probably go lower If your “Mod” is above 1.0 it will probably go higher The time to act is now! Review loss runs Close open claims Have reserves lowered Be aware of impact when bidding on jobs that start in 2013 and beyond!

Any Questions?: 

2/7/2012 Page 17 Any Questions? If you have any questions about this information, or would like any help obtaining your Experience Modifier worksheet from NCCI or interpreting it, you can contact me at the following: Roe Insurance “Tall Ed” Collins ed@roeins.com 813.495.3115 727.753.1024