What is the Difference Between “Loss Ratio” and "Experience Mod”?

The loss ratio is a percentage that is a comparison of claim reserves (Paid + Outstanding) to earned premium (paid to date).

The loss ratio for a given policy year is not “firm” until all claims are closed, and the total premium has been paid. Nevertheless, a loss ratio greater than 50% in the current policy year can be an indication of potential problems.

An employer can use a current year loss ratio as a management tool to determine hazards, identify injury trends within the company, and address safety or training issues in order to prevent new injuries. For existing open claims, it is an opportunity to reduce claims costs with a Return To Work program that keeps injured employees at work with modified duties during recovery. Employees who are working are also less likely to retain an attorney that adds to the total cost of a claim.

To calculate your loss ratio, divide the total claims reserves by the paid premium amount. For example, 4 claims with total reserves of $40,000; paid-to-date premium of $50,000: $40,000/ $50,000=80% loss ratio.

This 80% loss ratio in the current policy year could be an indicator of a future increase in your experience modification or X-Mod.  The current X-Mod does not include the current payroll and losses. Thus, the effects of any claims in the current year will not impact the X-Mod until the next policy year. For example, an 90% X-Mod for the 1/1/23-24 policy includes payroll and losses from 1/1/21-22, 1/1/20-21, 1/1/19-20. For the 1/1/24-25 policy year’s X-Mod, the 1/1/22-23 year rolls on and the 1/1/19-20 year rolls off.

Analyzing your loss ratio gives you prior notice to implement change before your X-Mod is impacted. This data helps you identify trends and focus your attention on safety initiatives for injury prevention and proactive management of your claims.

Please contact your ESM Advocate if you have any questions.