Moore: Are X-Mod Predictions Accurate?

Friday, June 30, 2023 | 0

Most experience modification predictions can be a tedious process that has confounded most people working in the world of workers’ comp for decades. 

James Moore

Let us look at the definition of experience mods from the Workers' Compensation Insurance Rating Bureau of California and a quick video from the National Council on Compensation Insurance. These are the two largest workers' comp rating bureaus.

WCIRB definition

[E]xperience modification is calculated by comparing the actual losses to the expected losses. Actual losses are the medical and indemnity claim costs resulting from a work-related injury that an insurance company has paid or expects to pay in the future.

Expected losses represent a business’s projected losses for the industry in which it operates. In other words, given its classifications and payroll, its expected losses represent the statistical average losses that a business of a similar size in the same industry is expected to incur.

Given two businesses within the same industry, the larger the business, in terms of payroll, the more losses that business is expected to incur.

NCCI video

The video is 1 minute long. There are many more videos on X-mods in NCCI’s Microlearning Center.

Predictions already built in

The rating bureaus usually calculate (promulgate) a company’s X-mod three to four months before the start of your new policy (inception). But wait, you say. What if you want X-mod predictions beyond the upcoming renewal?

We at J&L do those quite often. You can buy an estimator or have an expert do it for you. Two areas to cover are incurred but not reported and other outside factors.

Outside factors

Outside factors can change the prediction immediately. How so? Let’s cover a few:

• State rating values: The state can change rating values at any time. That means one of the states that you are operating in has changed its rating values and reported them to NCCI. The goal posts have been moved.
• Late carrier reporting: J&L monitors all of our clients’ X-mod changes. We have seen a maximum of 17 mod changes due to the insurance carrier reporting data late in one year.
• A  string of accidents: If your company, has a lower X-mod, for instance, and you have a few or many accidents, any of your X-mod predictions will not have a large amount of validity. On the other side of the coin, if your predicted X-mod accounted for multiple accidents and you have a safe year with no accidents, the predicted mod will not be accurate. Your company will require a mod recalculation.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.