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Use And Misuse Of Experience Mods As Qualifiers For New Business

Updated: Jan 5, 2022

I read another article this week suggesting the use of Experience Modification Rates as qualifiers for new business. So, I thought to update a post of mine from April 2019. At that time I had seen two pieces warning about the practice. Here's one of them: article 2.

That article from 2019 provoked so many thoughts on the matter that I thought it possible to write a series on this. My first experience with this issue occurred fifteen or more years ago. A client called me and asked if I'd review their new, renewal NCCI Experience Modification for them. The only thing odd to me about the request was that we were only one year removed from their last full premium audit I had performed for them, and we recovered a substantial refund. I didn't think there would be much to "clean up," but of course I agreed to take a look.

The new mod had gone up to a 1.01 from a .98, I did find data errors to reduce the mod to a .99, and I sent the client an invoice for a percentage of the savings (which wasn't much on this 2-point mod reduction). They were so happy though. Enough so that I asked why they seemed more excited about this relatively small refund compared to the large refund they received the prior year. My client informed me that they were faced with having to pull a crew from a project because their renewal mod had gone above a 1.00 and my work saved them a small fortune in revenue had they lost this project. That's when I learned.

A few years later I received a call from a CFO to personally thank me for the work I did identifying errors and reducing their mod. This client is a transportation/relocation company that does a lot of commercial work. The CFO explained that they had always had the "right" contact at a large, Fortune 500 company whose business they wanted to win, but their mod was too high for their proposals to be considered. However, with a new mod below the threshold their prospect maintained, my client had won a new, lucrative contract.

You see circumstances in this business where the system is truly unfair to some great businesses who are very serious and good with safety management. I reviewed a mod for a client that watched their mod go over a 1.00 due to two motor vehicle accidents where their drivers were rear ended at stop lights. Both drivers filed work comp claims and the insurance carrier anticipated 100% subrogation on both, but the claims had to remain on the mod until the subrogation process was complete and the money recovered. Of course that can take a long time, and who knows how much harm was done in the meantime.

If you are a business that must submit its experience modification rate for new business and your experience modification rate is approaching a danger zone, don't take it lying down. Keep in mind that experience rating errors DO happen and they can be costly. A mod is only as good as the data submitted to NCCI, and insurance companies do make mistakes that inflate mods and premiums. Feel free to call or email if you have questions or would like a consultation.

Stuart Cytron, MBA has been published in trade journals such Construction Forum St. Louis and St. Louis Business Journal among others. You can read more about Stuart and how he developed a passion for helping businesses reduce work comp expenses on his website.

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