The twinkie has gone the way of the dough-dough bird: it’s gone by-by. And now that big data has gotten bigger, faster, and better at creating more granular and predictive loss information, will the ex mod go the way of the Twinkie?
If you read and listen to the expert of ex mods, Frank Pennachio, you may think so. And he has some credibility from which to speak. He’s consulted for hundreds of agents and agency principles during his long career selling workers compensation.
Seventeen years ago, I learned from Pennachio to lead my practice with comp. And frankly, he was right. Ex mods are prospective clients with known problems–well, at least the professionals know the clients have problems.
And since the ex-mod was what drove the client’s ultimate pricing–and I say was, not is– the logical conclusion was to look for prospects who had high mods. Then once you started showing results by improving their situation, you created a good referral generating customer. One who may give you other lines of business because of your success.
But that was then, this is now. Before modern computing increased in speed so quickly that even the WCIRB and NCCI actuaries couldn’t keep up with insurers own predictive analytics modeling capabilities and the data geeks who make it possible.
As Penachio now points out: “Computer hardware and software advancements, along with smart people, now allow insurers to quickly process millions of calculations, analyze the data they produce and promptly validate their emerging predictive models. Prior to these technological advances, insurers relied on the rating bureaus, such as NCCI, to collect and manage the data.”
What Penachio further implies is that insurer’s penchants for individual risks may or may not fit their appetite––even if the client has a great track record of controlling their mod. And if the client’s experience differs significantly from the insurer’s own individual data on a particular class of business, the insurer would have to apply debits to secure the pricing needed to meet the insurer’s model.
So is leading with comp still a good strategy for your agency’s future?
