By Kevin Ring, CWCA
The Experience Modification Factor is the most often applied –– and probably the least understood –– part of a Workers’ Compensation policy.
Most insurance agents know that the Mod is a function of payroll and losses, but they can’t explain to their clients and prospects how the numbers are derived, and more importantly, what those numbers mean to the client, other than an increase or decrease in premium.
Through the Experience Mod, employers reimburse the insurance company for Workers’ Compensation claims. In most cases for claims under $5,000, they pay the money back at 300% interest. For claims above $5,000, the interest rates decline, but at different rates for different businesses. For a $1 million claim, the payback over three years may not even be 10% of the cost.
Showing employers how individual claims impact a Mod is the single most powerful message agents can share with their prospects and clients. Without this knowledge, it’s easy for employers to say, “Our Workers’ Comp bill is what it is and I can’t do anything about it.” Or, even worse, “Why should we make the effort and to have fewer work-related injuries, the insurance company is going to use that money somewhere else if we don’t have claims.”
Neither views could be further from the truth. Although employers have no control over regulations and insurance company rates, they have an enormous amount of control over their Workers’ Compensation costs.
It’s really quite simple: when employers reduce the amount of money that an insurance company spends on their claims, they are putting money back in their pocket, not additional money in the insurance company’s pocket.
Just telling clients and prospects the truth isn’t enough. It takes more than that to get the message across. You have to show them. By illustrating the real dollars that are at stake, you can move the sales process forward with a prospect and monetize your value with a client.
How low can a Mod go?
The first step of “Mod enlightenment” is the minimum mod. Every client has one, and each one is unique, year-to-year. The minimum Mod is place to start showing a client how much of their premium they truly control.
The minimum Experience Mod is what an employer’s Experience Mod would be if they had no losses during the Mod’s coverage period.
In this example, the employer’s Mod is 1.11 and their minimum Mod .80. The 1.11 represents a $15,500 difference for this particular year. Extrapolated over a period of three years, their premium will be $46,500 higher than necessary and is more than a full year’s premium over one year. In effect, this employer is essentially buying three years coverage for the price of four. That’s not a very good deal!
Another way to look at this is to show a prospect graphically just how much more they are paying than necessary.
Here, we see in both Mod points and premium dollars how much more they are paying than required. The red sections of the bar graph are the controllable portion of the Experience Mod. This clearly demonstrates to the employer how much work they have to do to get to their minimum Mod. When you can present a plan to help them get there, you are offering them with a compelling reason to give you the account.
When it comes to monetizing, you value to a client, a great way to do it is to show them how the work you have done has impacted their Mod over time.
This employer’s Experience Mod has dropped from well above 1.5 to 1.1 over the last five years. Great work! Now, you can prove to your client that you provide far more than just a good quote every year. You are actually doing real, tangible work to drive their costs down.
Suppose you have a client and you’re trying to prove to them why you should be their agent of choice. It’s not enough to just tell them. You should also show them the work you’ve done. When you can use your client list and demonstrate to a prospective client how you have reduced your clients’ Mods over time, you have built a powerful case for them to engage you as their insurance agent.
When you can demonstrate your value by using the Experience Mod, you can go from just being another one of a long line of agents trying to snag an account with the lowest quote to demonstrating your expertise in Workers’ Compensation.
If you aren’t analyzing the Experience Mod for employers, they are left to fend for themselves and wallow in ignorance about why they are paying what they pay each year. That is, until someone else comes and shows them what they are missing.
Workers’ comp is one of the largest insurance expenses for every business and every business needs your help.