There Is No Such Thing As A Small Claim - Part II - The Math

Please see my post from September 27th. This is part two of that post.

In the 9/27/08 post, I had pointed out that the first $5,000 of the Total Incurred of a Workers Comp claim can cost up to 500% more than the the reserves beyond $5,000.

The math goes something like this - it may be good to have your company's Experience Modification Worksheet from the NCCI or your state's Rating Bureau sheet with you to look at for comparison. I will refer to the NCCI sheet. In the next post I will cover where to find this info on a few of the State Rating Bureau sheets.

I am reviewing one of our clients E-Mod sheets from an NCCI state. The page I am looking at is the one at the very end of the last page with some variables (A) through (I) on it along with the E-Mod. There is a variable on the left side under (A). That number represents a sort of discount factor. In the one I am examining, the factor is .79.

In the calculations to set your E-Mod, the (A) variable is subtracted from 1.0. In this example 1- (A) = 1 -.79 = .21. This is the factor for any Total Incurred above $5,000. Let's look at how that affects your E-Mod:

• The first $5,000 or the Primary Loss is not discounted or it is equal to 1.o
• Any part of the loss after $5,000 would be charged to the E-Mod at .21 or 21% of the first $5,000

Looking at this a little further, this means that the first $5,000 of any loss will cost as much as the next $23,800.

What does this mean to you? There is no such thing as a small claim(c). See my next post on how to even the playing field in light of this revelation.