There was a time during my 25-plus year career as an insuranceagent, and in the early days of my work as a consultant and trainerto insurance agents, that I would assert, "Your ExperienceModification is x, and I will help you lower it to y, and you willsave this many dollars." With few exceptions, I've found thisstatement is no longer correct. Yet, too many insurance agents, andsome consultants and trainers, are unwilling to let go of anoutdated era and method of worker's comp insurancepricing. 

Insurance agents who continue to cling to and spread this zombieidea may be ill-informed, which is understandable as contrarypositions are still present in the marketplace. However, someagents and their consultants don't want to know any differentbecause they are familiar and comfortable with this type of salesapproach, and employers are not aware of the changes to pricingmodels … yet. It's long past time to put this specious salesapproach to rest and move on to more effective and valuable ways ofassisting employers and employees.   

Related: Keeping aging workers safe on thejob

According to the workers' compensation rating bureaus, theexperience modification factor, which has been around since theearly 1920s, is a "predictive indicator of future losses," andserves as a "pricing tool for work comp insurance." But with theuse of big data, artificial intelligence, machine learning andcloud computing in underwriting, it should be no surprise thatindividual insurance companies are building their own and moresophisticated pricing models. Thus, they rely less, or not at all,on the rating bureaus' experience mod factor. 

In addition, data storage, which used to cost hundreds ofthousands of dollars per gigabyte in the late 1970s and early1980s, is less than a penny a gigabyte today. Practically free datastorage and computer processing speed that has doubled every twoyears for the past 50 years has transformed the art and science ofwork comp underwriting. 

It's all about the data

As one data analyst told me, "Underwriters traditionally haveused only 6 to 8 data points to underwrite and price a risk. We'rebuilding predictive pricing models with 800 to 1,000 data points,which are pushed into their workstations with a just fewkeystrokes." Some of smartest people from the most prestigiousschools in the country are dedicating their professional lives toimproving predictive models of insurance pricing. The experiencemod is quickly becoming a Model T in a Tesla world.

Related: How to use actionable data to manage workplaceinjury risk

Old ideas don't die easily, however, and some are pushing backby asserting that the eroding influence of the experience mod onpricing is not occurring. You still read articles in trade journalsand may even pay to attend a workshop, in person or online, wherethe experience mod is touted and explained as if nothing haschanged. As Upton Sinclair said, ""It is difficult to get a man tounderstand something, when his salary depends on his notunderstanding it." Sinclair's use of "salary," can easily bereplaced by "commissions" and" fees."

It's unlikely the experience mod will disappear from theworkers' comp policy's declarations page anytime soon due to stateregulations and inertia. But it doesn't take much imagination, ormathematical acumen, to recognize how underwriters are able todetermine the final premium, and reverse engineer that price bymodifying the component rates with the use of loss cost multipliersand schedule rating. 

Change is hard, especially, when you have a sales strategythat's much easier to explain than the complexities and effect ofdata analytics. But agents would be wise to get in alignment withthe dramatic changes occurring in workers' comp underwriting andpricing, and stop saying, "I can lower your mod, which will loweryour price." If agents don't pivot away from these and otheroutdated sales methods, they will likely lose credibility, andrelevance.

Related: 9 things insurance agents can do to help employersmanage workers' comp costs

Frank Pennachio is a partner with and cofounder of OceanusPartners, Lutz, Fla. He can be reached at [email protected].Opinions expressed are the author's own.