The Power of Intentionality, Part 3: The Cost of Knowledge

We all have various areas of expertise that are – or that we think should be - worth something to others.

As many of you know, Specific Software and SIGMA are located in the greater Nashville area, so it was inevitable: the inspiration for today’s WorkCompEdge blog comes straight from a country song. A few years ago, singer Alan Jackson had a hit called “The Talkin’ Song Repair Blues.” (Alan doesn't want it embedded on other sites, but you can watch the music video here on YouTube). In the song, a well-known songwriter has to take his car to a mechanic, who rattles off a long list of everything that’s wrong. It seems the list – and the cost – won’t end. Then the mechanic, realizing he’s talking to a famous songster, says “Hey, let me play you a song.” The songwriter turns the tables, telling the mechanic all that’s wrong with the song… “a broken hook,” “you’ve been using a cut-rate thesaurus,” and much more. The chorus cleverly applies whether the mechanic or the songwriter is speaking:

“Don't be downhearted, I can fix it for you, sonny;
It won't take too long, it'll just take money."

This punch line, of course, underscores the fact that we all have various areas of expertise that are – or that we think should be - worth something to others.

Let’s shift from the songwriter and mechanic back to our own Tony King, the actuarial analyst with the marathon goals we’ve been talking about in our series about the power of intentionality. You may remember that Tony decided to increase his expertise on the subject of running by buying and reading a book on the subject. While that sounds like a simple enough thing to do, it implies some deeper things about Tony’s commitment to his goal:

• First, Tony was willing to spend some money on a knowledge resource that he believed would benefit him.


• Second, Tony was willing to spend the time to make the most of that resource.

Knowledge is worth an investment of money

Tony can certainly develop his running knowledge from many free resources on the Internet. I’m sure he also asks other runners for their experience and advice. But when he got serious about his goal, he did some research and decided to mostly focus on a single resource to guide him. And he didn’t just borrow this resource from the library – he made the decision to own it. Owning the book signaled his intention to engage with it for longer than the two weeks the library would let him have it. Owning the book also demonstrated his belief that knowledge, and not just new running shoes, could help him reach his goal.

In a similar way, you can find all sorts of good information on workers comp on the Internet in the form of blogs, articles posted by various organizations, lawyers, risk management professionals, and more. We encourage you to make use of all that free information. But when you’re ready to get serious about implementing your work comp vision, we think you need to think about paying for a few resources that will help you as much as possible to reach your goals in an optimal amount of time.

Well, of course, you're probably saying. We're developers of a subscription site, so we think you need to pay for some resources, right? Shameless self-promotion aside, WorkCompEdge - and other resources - cost money because someone spends a lot of time and energy developing their knowledge and conveying it to you in a (hopefully) organized way and with a big-picture view. We’re the first to admit that the scope of work comp is so broad that you may need a few resources to address all of your goals. The point is, “you get what you pay for” is not just a cliché; it’s wisdom. Use of a few good resources will bring you expertise that's focused and yet comprehensive.

Learning - even from the right experts - takes some time

As high school teachers have admonished legions of students over the years, it's not enough to have the book: you've got to read it. "You're not going to get it by osmosis," I can hear my high school physics teacher saying. Tony could’ve bought that book with the best of intentions, then parked it on the coffee table in the den while he spent his evenings dozing on the couch in front of ESPN. Or helping with his kids’ homework and chauffering them to games. Or cooking dinner. Or mowing the lawn. You get the idea: like all of us, Tony undoubtedly could’ve had a hundred excuses for not getting to that book. But he prioritized making use of his resource. You have to do the same when it comes to utilizing WorkCompEdge or other resources to increase your understanding of workers compensation. It will be worth it!

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Compare Your Company to Industry Standards Using Data from the Mod

One of the more dreaded phrases in the English language – particularly on high school and college campuses – is probably “compare and contrast.” As in:

• For 20 points, compare and contrast mitosis and meiosis.


• For 30 points, compare and contrast the style and theme of Shakespeare's "Sonnet 18" to "A Red, Red Rose" by Robert Burns.


• For 50 points, compare and contrast the economic, political, and social structures of ancient Athens to modern-day Iraq.

Comparing and contrasting your work comp experience to industry standards isn't difficult with the right information and tools. (Shakespeare would insist on complete sentences, of course.)

If these questions (which I found on the Internet, by the way) give you a not-so-nostalgic pit-in-the-stomach feeling, you’re definitely not alone. If you’re like me, you’re grateful such academic gymnastics are in your past. But here’s a compare and contrast exercise that will be useful to your company today:

Compare and contrast your company’s work comp losses to the average for your industry. Use actual and expected losses on total, primary and excess amounts. Include comparisons on a policy period basis. Use complete sentences.

OK, you don't have to use complete sentences. Even without that directive, this analysis can still sound a bit intimidating. However, if you have a mod worksheet from NCCI or another bureau, all the data you need is on the worksheet – and at least some of it is already summarized and ready to use.

The whole purpose of the mod calculation formula is to compare your company’s loss experience with the average for your industry. The code word for this in mod-speak is “expected.” On your worksheet, you see total expected losses, total expected primary losses, and total expected excess losses. If you don't know the differences between all these expecteds yet, don't worry. It's enough to know that these values reflect the standard, or average, for your industry for a theoretical company that has the same payroll you do.

The mod itself tells a story, comparatively speaking: if your mod is over 1.0, your compare unfavorably to other businesses in your industry. If your mod is under 1.0, you compare favorably; you are, as we’ve said in other blog entries, “beating the average.” But the formula can be broken into components which can be analyzed for additional insight. So let’s take this exercise in pieces:

1. Compare your company’s total losses to the industry average.

Why you want to do this: This comparison provides a general indicator of your loss experience.

How to do this: Divide your total actual losses (box H on the NCCI bureau report) by total expected losses (box D).

2. Compare your company’s total primary losses to the industry average.

Why you want to do this: This comparison provides an indicator of whether too MANY losses are keeping you from reaching your minimum mod.

How to do this: Divide total primary losses (Box I) by expected primary losses (Box E).

3. Compare your company’s total excess losses to the industry average.

Why you want to do this: This comparison provides an indicator of whether the SEVERITY of your losses is keeping you from reaching your minimum mod.

How to do this: Divide total actual excess losses (Box F) by expected excess (Box C).

In all three of the comparisons above, you will get a number that’s more or less around 1.0 or, converted to a percentage, 100%. The lower the number, the better; and any percentages over 100% warrant your attention.

Now, for the trickier stuff: compare your actual versus expected losses for each policy period in the mod. This is harder to do because all of the totals that you need – by policy period - are often not shown on the bureau worksheet. So, you’ve got to haul out the slide rule, calculator, Excel workbook, or (ahem) ModMaster software to make this easier.

This seems like a good time to mention the WorkCompEdge Proposal Report that employers or (more likely) their insurance agents can print from ModMaster. We discussed the first part of this report, about what your mod is costing you, in another blog entry. Now let’s look at the second part – How Your Company Compares to Industry Standards.

Here's a snippet of a sample WorkCompEdge Proposal Report that shows how you can use mod data to compare your company to industry standards - and identify trends that will affect your future mods.

The first 4 bullet points in the report excerpt correspond to the comparisons we discussed in items 1-3 above (note the wonderfully complete sentences), and the graph on the left, Actual vs. Expected Losses, visually shows the same information. In this sample, when so many of the percentages look so good, the 134% ratio of the primary loss comparison stands out. While this company has a pretty healthy mod, that 134% points to a clear opportunity to reduce the number of losses they’re experiencing and thus drive their mod even lower, for even more cost savings.

The graph on the right, Loss Trend, shows the actual losses and expected losses for each policy period. This graph is really helpful for two reasons:

First, it shows us the general trend of losses for our own company versus the industry average. In this particular example, we see that this company has never exceeded industry norms, and that in the most recent year they’ve beat the average by quite a bit.

That’s important information, but we can also discern more. This graph also lets us see the anomalies that a certain period may be contributing to the mod. In this case, the “blip” of increased actual losses in 2006 is probably the principal contributor to the mod. So, until 2006 comes out of the calculation (after one more year), the mod is going to stay a little higher. When policy year 2006 no longer affects the calculation, provided that the latest trend has continued, THAT’s when the mod will really decrease.

So, for real cost savings – not points on a test - compare your work comp losses with industry averages using mod analysis.

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