When it comes to managing your workers’ comp premiums, many business owners focus on large claims, thinking they have the most significant impact. However, the reality is that smaller claims, occurring more frequently, can actually hurt your workers’ comp mod even more. Understanding the difference between frequency and severity, and how they affect your mod, is essential for controlling costs and minimizing your insurance expenses.
In this blog, we’ll discuss how claims frequency and claims severity play a role in shaping your workers’ comp mod. We’ll also explore strategies to reduce both, helping you lower your workers’ comp costs.
1. What is a Workers’ Comp Mod and How Does It Affect Your Premium?
Understanding Your Workers’ Comp Mod
Your workers’ comp mod is a numerical value that compares your company’s historical claims to the industry average. It helps insurance companies determine how much to charge you for workers’ compensation coverage. A mod higher than 1.0 means your business is paying more for insurance than the industry average. A lower mod results in lower workers’ comp premiums.
How Mod Calculations Work
The workers’ comp mod is calculated based on your business’s claim history, payroll, and class codes. It compares your actual losses to expected losses, which are based on your business type and industry. The frequency and severity of claims directly affect your mod. Frequent small claims can cause a higher mod, increasing your workers’ comp premium.
The Importance of Maintaining a Low Mod
Maintaining a low workers’ comp mod is essential for keeping insurance costs manageable. Fewer claims and smaller claims result in a better mod, which translates to lower premiums. By understanding the factors that impact your mod, such as claims frequency and severity, you can take proactive steps to reduce your workers’ comp premium.
2. Frequency Versus Severity: Which Impacts Your Workers’ Comp Mod More?
Frequency of Claims: Small Claims Add Up
While large claims often attract attention, frequent smaller claims have a more significant impact on your workers’ comp mod. Multiple small claims over time can result in a higher mod, causing your workers’ comp premiums to rise. For small businesses, the cumulative effect of frequent claims can be devastating.
Severity of Claims: Big Claims Don’t Always Hurt More
It’s a common misconception that large claims have a more significant impact on your workers’ comp mod. In reality, primary losses (the first portion of any claim) have a more substantial impact. For example, multiple smaller claims can exceed the primary loss threshold, while a single large claim may only affect a smaller portion of your mod.
How Frequency Affects Your Mod
For smaller employers, frequent small claims can quickly push your workers’ comp mod higher. Since the claims are frequent, they create a pattern that impacts your mod more than one large claim would. In the case of larger employers, a few large claims may not affect the mod as much because the company’s size helps absorb the losses.
3. Understanding Primary Versus Excess Losses in Mod Calculations
What Are Primary Losses?
Primary losses are the initial portion of a claim, usually the first $17,000 in Florida. This portion of the claim counts 100% towards your workers’ comp mod. For smaller claims that fall under this threshold, the full amount impacts your mod. That’s why frequent small claims are particularly harmful for smaller businesses, as they often surpass this primary loss threshold.
Excess Losses and Their Impact
Excess losses, on the other hand, are the part of a claim that exceeds the primary loss amount. While excess losses still affect your workers’ comp mod, their impact is much less significant. For example, if a claim exceeds $17,000, only the amount above this threshold is considered excess and is discounted when calculating your mod.
How the Split Point Affects Your Mod
In Florida, the split point is currently $17,000. Any claim that exceeds this amount is split into primary and excess losses. For smaller businesses with multiple small claims, the primary portion can add up quickly, resulting in a higher workers’ comp mod. Understanding this split is essential for managing your workers’ comp premiums effectively.
4. Why Small Claims Hurt Small Businesses More
The Impact of Multiple Small Claims
Small businesses are particularly vulnerable to the negative impact of frequent claims. Since their workers’ comp mod is calculated based on the overall losses, small claims can quickly add up, causing premiums to rise. A small contracting company with frequent claims may see their mod increase, leading to higher workers’ comp premiums.
How Small Claims Drive Up Your Mod
When multiple small claims accumulate, they push your workers’ comp mod above the industry average, making your business appear riskier to insurance companies. As a result, your premiums increase. Small businesses must be vigilant in managing both the frequency and severity of claims to keep their workers’ comp premiums in check.
The Hidden Cost of Small Claims
The cumulative cost of small claims often goes unnoticed, but over time, it can add up to a significant increase in workers’ comp premiums. These costs not only affect your bottom line but can also impact your company’s financial health. Small businesses should address claims early to avoid these hidden costs and lower workers’ comp costs in the long run.
5. Practical Steps to Minimize Frequency and Severity of Claims
Hazard Elimination: Fix the Root Cause
The first step in reducing both the frequency and severity of claims is to address hazards before they cause injuries. Eliminate trip hazards, replace worn equipment, and make safety upgrades. By tackling these problems proactively, you can prevent injuries and lower workers’ comp costs.
Injury Triage: Prevent Claims from Escalating
Setting up a nurse triage line for employees to speak with a medical professional immediately can prevent minor injuries from turning into full-blown claims. Many issues can be addressed before they require a formal claim, saving both time and money, while also keeping your workers’ comp mod low.
Rapid Return-to-Work Programs
Getting employees back to work quickly whether on modified duty or in a light-duty role which can significantly reduce workers’ comp costs. It helps reduce indemnity payments and shows insurance carriers that you’re proactive in managing injuries. A strong return-to-work program helps keep both the frequency and severity of claims in check.
6. Using Trend Analysis to Identify Risk Areas
Look at Your Loss Runs
Regularly reviewing your loss runs can help you identify recurring types of injuries. If the same issues keep arising, it’s a sign that something in your operation needs improvement. By addressing these trends, you can reduce both the frequency and severity of claims, leading to lower workers’ comp costs.
Spot Problem Areas Before They Escalate
Using trend analysis, you can pinpoint problem areas within your operations. Whether it’s certain machinery, tasks, or employees, identifying these risk factors early helps prevent accidents from happening. This proactive approach reduces claims and helps you maintain a favorable workers’ comp mod.
Implementing Corrective Actions
Once you’ve identified problem areas, it’s important to take corrective action. Whether it’s adjusting safety protocols, changing work schedules, or upgrading equipment, taking these steps can prevent future claims and reduce the financial impact of workers’ comp costs.
7. The Bottom Line: Control Frequency, Severity, and Your Workers’ Comp Premiums
Small Claims Add Up Quickly
While large claims grab attention, frequent smaller claims are the real culprit behind rising workers’ comp premiums. Small businesses are especially vulnerable, as these claims quickly impact the workers’ comp mod. Proactively managing claim frequency is key to controlling workers’ comp costs.
A Strong Safety Program Is Your Best Defense
The best way to prevent frequent and severe claims is to implement a strong safety program. Regular training, hazard elimination, and return-to-work programs can significantly reduce injuries and lower workers’ comp costs.
Proactive Claims Management Saves Money
By addressing claims early, implementing injury triage systems, and analyzing trends, businesses can reduce both claim frequency and severity. This leads to a lower workers’ comp mod, which results in reduced workers’ comp premiums and lower overall costs.
