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Why Assuming Your Workers Comp Experience Mod is Correct Could be a Dangerous Calculation Business Articles | May 30, 2008 This article illustrates the importance and complexity involved in making sure a company's workers compensation experience mod is calculated correctly.
Quick MrMrsMs Businessowner! What does the following formula mean to you?
M = AC+E(LC)+E(1.00-C) E
No. It has nothing to do with Einstein's famous equation. However, it could mean the difference between a fat bottom line or permanently hanging up the "closed" sign. Give up yet? It's the calculation that determines your workers compensation experience modifier (mod). You know Johnny Cueto Dominican Republic Jersey , the number that can save you or cost you thousands on your workers comp premium.
Just in case you've forgotten, most businesses are assigned a number based on their workers compensation claims history. In Pennsylvania, this number is calculated and placed on your workers compensation policy by the Pennsylvania Compensation Rating Bureau (PCRB). The PCRB calculates the expected losses for each class of business in the Commonwealth. The number 1.000 means that your organization's workers compensation losses are average for your line of business. A number over 1.000 (such as 1.100) means that your company's losses are higher than expected. A number under 1.000 (such as 0.900) means that your losses are lower than expected. But what it really means is that you are either surcharged or credited based on your loss history.
For instance Bartolo Colon Dominican Republic Jersey , let's say you run a construction company. Assume that your workers compensation premium is $100,000 for your carpenters, salespeople Alex Colome Dominican Republic Jersey , and clerical staff. If your claims are in line with what is determined to be average for a construction company, your premium will remain $100,000. However Santiago Casilla Dominican Republic Jersey , if you've experienced more claims than usual, your mod might be 1.105. Therefore, your premium would be $110 Dellin Betances Dominican Republic Jersey ,500 or 10,500 more than average. On the other hand, if you had fewer claims Fernando Abad Dominican Republic Jersey , your mod might be 0.850. Your premium would be $85,000. Thus the difference between a 1.105 mod and a 0.850 mod is $25,500 for this hypothetical company. Do you think the company with a lower mod could gain a competitive advantage? Do you think the company with the higher mod could have its long term viability threatened?
So now that we understand why calculating your mod is important. Let's review just how it's calculated. Here are the steps necessary in the equation above.
1. (A) Actual losses are multiplied by (C) Credibility;
2. (E) Expected losses are multiplied by the (L) limitation charge times the C) Credibility.
4. The results of steps 1 through 3 are added together and divided by (E) Expected losses
Actual losses are determined by your insurance company. The Credibility, Expected losses, and Limitation charge are listed in the PCRB rating manual.
So that was easy wasn't it? I forgot to mention that there are several other rules that will factor into your ultimate assigned mod despite completion of the mod equation. For instance Dominican Republic Baseball Jerseys , despite what the number comes out to be, it cannot be more or less than 25% of your prior year's mod.