The Impact of Claim Frequency and Severity on a Landscape Company’s Experience MODs
Author, Drew Garcia, Vice President, Landscape Group, Rancho Mesa Insurance Services, Inc.
The experience modification rate (ExMod or MOD) is a measure produced by insurance rating bureaus to summarize a company’s claim history versus their industry peers. A rating generated below 1.00 is considered a credit to the workers’ compensation policy while a number above 1.00 is a debit. The ExMod has a direct impact on the cost of workers’ compensation insurance.
In exploring the impact of frequency and severity on the ExMod, it is important to understand a few terms.
Lowest Possible MOD = The best outcome for a company who has no claims in the experience window.
Unity MOD = 1.00 or the average against your industry
Actual MOD = Your final published ExMod.
In an effort to better display the impact of frequency and severity on the ExMod, in the following scenarios, we will use a three-year aggregate payroll of $3,000,000 a three-year aggregate claim cost of $55,000 and the lowest possible ExMod of 66.
Scenario 1
In this scenario, the landscape company had one $50,000 claim and one $5,000 claim. The actual ExMod was calculated at 93.
Scenario 2
In this scenario, the landscape company had five $10,000 claims and one $5,000 claim. The actual ExMod was calculated at 136. That is a 43% higher ExMod than in scenario 1, even though the total of all the claims were the same.
Both scenarios had identical payroll, claim value and lowest possible ExMod. The only difference was scenario 2 broke the $50,000 into five $10,000 claims. The ExMod was impacted more by frequency than severity.
It is a best practice to examine your ExMod and injury history for key trends to help identify areas where employees need more training.
Using Rancho Mesa’s SafetyOne™ platform, schedule both online trainings and regular toolbox talks from the mobile app to ensure employees are properly trained on safety within their job duties. These steps can help build a stronger safety program for the future.
For questions about best practices for managing your company’s experience mod, contact me at drewgarcia@ranchomesa.com or (619) 937-0200.