Have you ever heard the term Debit Mod or Debit Modifier on your workers’ compensation policy and wondered what that means? Well, anything above a 1.00 is known as a debt modification, debit modifier, or debit mod. Ultimately, it means your business is going to pay more in workers’ compensation premium.
My name is Todd Thams, Founder of Mod Advisor and I have been an insurance broker for over 20 years. I have a passion for work comp and thought I would answer the question “what is a max debit mod”? So let’s break it down.
Max Debit Mod Breakdown
Sometimes I have been asked, how high can a mod go or what is the highest mod you have ever seen. Personally, the highest mod factor that I have seen was just higher than 3.5 and the account had numerous losses. Recently I looked at an experience mod worksheet where the mod was 1.75, but it should have been 2.8? So why wasn’t it?
Well, in most states the company that establishes experience modification factors for businesses is NCCI and they have specific rules and formulas that are used to calculate an experience mod. They also know that there needs to be some limiting factors for businesses when it comes to how much their experience mod factor can move.
Let’s break down the example.
Debit Mod Example
The rule that I’m talking about here is produced by NCCI in the 2003 Experience Rating Plan Manual 2003 Section 2. D. 2 – Max Debit Modification. In order to limit experience rating or the effects of large claims, many times businesses will not see the full extent that claims have on their experience mod.
To determine the Experience Mod Factor the formula is to take Actual Losses/ Expected Losses = Experience Mod.
- Actual Losses (J) – $113,795
- Expected Losses (after weighting) (K) – $40,429
- $113,795 / $40,429 = 2.81, but the worksheet said only 1.75? How can this be?
The rule states that experience mods are subject to a cap if the debit modification exceeds a certain amount.
The formula is as follows.
Maximum debit modification factor = 1.10 + (0.0004 x (Expected Losses/The Individual States Average cost per claim/1,000)). Sounds real easy right?
- 75 = 1.10 + (0.0004) x (15,929/9.8)
How do you know if a debit mod is applied?
To determine expected losses you’ll want to look at Box D on the Workers Compensation Experience Rating Worksheet. To determine what the Individual States Average cost per claim is you’ll need a subscription to NCCI to access the experience rating values or many times this can be found on the State Insurance Division website.
The reality is unless you are really digging into the numbers on an experience mod worksheet, you probably won’t even know if a debit mod is being applied. More often than not, most people just look at the value that has been calculated to get the experience mod.
If you are a business that is reading this, I hope this was helpful, but I understand that debit mods can be confusing. Make sure you check in with your work comp professional to help you dissect your experience mod worksheet and understand your premium.
If you are an insurance agent, we make it pretty easy to educate your clients and prospects on experience mods and debit mods. Our software allows you to explain a debit mod and its effects on premium with ease. Please feel free to reach out at [email protected] with any questions or to schedule a demo.