As a workers’ compensation insurance agent, you know that the experience modification factor, or “mod,” is central to the cost of your clients’ premiums. However, many business owners and even some in the industry believe that a mod below 1.0 means the company is performing well, and that’s the end of the story. This perspective can cost companies significantly if they’re using this “below 1.0” assumption as a standard rather than optimizing toward their true potential, known as the minimum mod.
In reality, interpreting the experience mod is much more nuanced. Let’s unpack why thinking of the mod as a “grade” on a report card can help reframe expectations and drive better outcomes for your clients.
Use this resource to educate prospects on this concept: Interpreting Your Mod as a Grade.
Understanding the Experience Mod Factor
The experience modification factor (often called the ex-mod or mod) is a score used by insurance companies to determine a company’s workers’ compensation premiums. This score is based on past claims history and industry averages, serving as a predictor of future losses. It is typically benchmarked against an average value of 1.0, where:
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- A mod of 1.0 means the company’s claims experience is on par with industry peers
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- A mod above 1.0 indicates higher-than-average claims, leading to increased premiums
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- A mod below 1.0 suggests fewer-than-expected claims, resulting in reduced premiums
The lower a company’s mod, the less it theoretically pays in premiums, making it beneficial for employers to strive for a low mod. However, stopping at a number just below 1.0 may lead clients to miss out on further potential savings.
Debunking the “Anything Below 1.0 is Good” Myth
While a sub-1.0 mod may suggest a company is performing better than average, it doesn’t necessarily mean it’s performing at its best. This myth overlooks an important concept: the minimum mod. Think of the minimum mod as the equivalent of an “A” on a school report card, while a 1.0 would only equate to a “C.” Here’s how to explain it to clients:
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- 1.0 as a C Grade: Just like a “C” grade indicates average performance, a 1.0 mod represents average safety performance within the company’s industry. But no one strives for just “average.” For many companies, it’s possible—and financially rewarding—to aim higher.
- Minimum Mod as an A Grade: Each company has a unique minimum mod based on factors like its size, industry, and payroll. This minimum mod represents the best possible score the company could achieve with excellent safety practices and effective claims management. Think of this as an “A” grade on the report card—a goal that’s tough but achievable.
- Leaving Money on the Table: If a company’s mod is 0.95, that’s better than 1.0, but if its minimum mod is 0.65, the company could be paying more in premiums than necessary. By striving to meet its minimum mod, the company could maximize savings and invest that money back into the business.
- Imagine for this hypothetical company that a 1.0 mod represents $100,000 in premiums
- .95 would equate to $95,000 in premiums
- The minimum mod, .65, would equate to $65,000 in premiums, which is $30,000 in potential savings if the example company reduce its mod further.
Why the Minimum Mod Matters
The minimum mod provides a tough but achievable goal for companies to strive toward. It reflects the lowest possible mod achievable under ideal safety and claim conditions. Working to reduce the mod closer to this minimum can lead to:
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- Lower Premiums: The closer a company is to its minimum mod, the lower its premiums will be. For some large companies, even a slight decrease in the mod could mean substantial savings.
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- Enhanced Workplace Safety: Focusing on reducing the mod often drives investments in safety programs, reducing the risk of workplace injuries and protecting employees.
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- Improved Reputation and Compliance: Lower claim frequency can boost a company’s reputation for safety, benefiting its relationship with employees, clients, and regulatory agencies.
Reframing the Mod as a Grade: A Teaching Tool for Agents
When explaining the mod to clients and prospects, positioning it as a grade helps clarify the concept and provides a relatable framework. Here are some key points agents can use to educate clients:
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- Benchmark 1.0 as Average: Remind clients that 1.0 simply means they’re on par with other companies in their industry. Just as students aim higher than a “C,” companies can and should aim to get closer to their minimum mod.
- Explain the Benefits of an “A” Grade: Help clients see the value in working toward their minimum mod. This score reflects not only cost savings but also a safer work environment, which can positively impact employee morale and productivity.
- Position Yourself as a Partner in Improvement: By educating clients about their minimum mod and guiding them in achieving it, agents provide valuable support beyond basic policy placement. This can strengthen client relationships and position the agent as an expert and trusted advisor.
Factors That Impact the Experience Mod
Achieving a company’s minimum mod isn’t just about reducing claims; it involves several strategic areas:
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- Claims Management: Efficient claims management helps control the impact of claims on the mod. Encourage clients to respond promptly to incidents, process claims accurately, and use return-to-work programs to minimize lost workdays.
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- Safety Programs: A strong safety culture and consistent training can prevent accidents, reducing the frequency of claims. Point clients toward resources for regular safety training and encourage management buy-in for these programs.
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- Claims Frequency vs. Severity: Explain to clients that the frequency of claims affects the mod more than severity. This means that focusing on preventing frequent, minor injuries can often have a larger impact on the mod than one-off major incidents.
Building Client Relationships Through Mod Education
For agents, guiding clients in mod improvement offers a unique opportunity to add value beyond policy placement. By educating clients on the true meaning of their mod—and how aiming for their minimum mod can benefit their business—you’re showing them how to save money and improve safety. This not only strengthens client relationships but also helps establish your expertise in a complex, often misunderstood area of workers’ compensation.
Encourage clients to think of their mod as a grade that they can always improve. With the right focus on safety and claims management, clients can work toward an “A,” unlocking cost savings and a safer workplace along the way.
Undermine the Competition
Because the experience mod is often misunderstood by employers (and even agents), educating on this concept is also an excellent prospecting strategy. If an incumbent agent hasn’t explained this to their clients, it can be a very persuasive topic if the client realizes they’re paying more in premiums than they could be with a different approach.