Unexperienced in Experience Modification Factors?

Written by on 7/13/2016 2:26 AM in , , . It has 0 Comments.

The mechanics of experience modification factors can be confusing, with potential adjustments throwing a wrench into your understanding of this relatively straightforward practice. How does experience modification affect your Minnesota workman's comp insurance costs?

Comprehending calculations
Once your eligibility for an experience rating is determined, your experience modification is calculated by comparing your actual losses to those you expected to incur.

  • Actual losses:
    Medical/indemnity claim costs from work-related injuries that an insurance company has paid/will pay.
  • Expected losses:
    Projected losses based on statistics within the industry in which a business operates, given classifications, payroll, and business size.

Circumventing extremes
While this process of predicting injury frequency is simple in theory; in practice, determining whether smaller businesses will actually experience an accident is difficult. This leads to less reliability and the possibility of over-inflated Minnesota workman's comp insurance costs due to an unreasonably high experience modification.

Thus, compensating for this requires adjustments to modify the expected losses and actual losses for those businesses whose experience is not fully credible, in order to control experience modification volatility from year to year:

  • Split Point
    Varying by state and rating agency, the split point separates losses for a claim into primary and excess. Minnesota's current split point, subject to annual adjustment, is set at $16,250. The first $16,250 of a claim is counted as the primary loss and anything over is counted as excess. The state rating bureau places weight on the primary portion - claim frequency - over total cost/severity.
  • Primary/excess credibility adjustments
    Taken together, primary and excess credibility values represent the weight given in the experience rating formula to your business’ actual loss experience. Larger businesses have more weight (credibility) attributable to actual experience, whereas smaller businesses have less weight (credibility) given to their actual experience.

Confused by a factor of 2? Minnesota Comp Advisor can help. Contact us today.

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