Changes in the Way Work Comp Experience Modifiers are Computed Could Have a Big Impact on Your Business

The National Council on Compensation Insurance (NCCI) is phasing in a new way to calculate Experience Modifiers that will have a big impact, especially for companies that have recently suffered large workers compensation losses.

An Experience Modifier is an adjustment made to a work comp premium based on the loss experience of the employer.  If the employer has a loss history that is lower than expected for the type of work being performed then they will receive a credit (reduction) to the amount of premium paid in comparison to an employer with losses in line with industry averages.  In the case of higher than expected losses, the employer receives a debit(increase) in premium.

The purpose of this system of credits and debits is to encourage safety practices by rewarding employers who control their losses, while penalizing employers who have adverse loss experience.  One of the key principals in calculating the experience modifier is that it penalizes employers with a high frequency of incidents versus an employer with a small number of severe losses.  This is done in the calculation by establishing a “split point” in the claim amount.  Any loss amount below the “split point” is considered the “primary” portion of the claim and any amount over the “split point” is considered excess.  The formula considers all of the “primary” portion of the claim in the calculation but only a small percentage (typically 5%-15%) of the “excess” portion.  Therefore if you are an employer with 100 claims of $1000 each you would have a much higher experience modifier than an employer who had 1 claim of $100,000.

Starting on 01/01/2013 the split point was raised from $5,000 to $10,000 and it will increase over the next two years to $15,000 by 2015.  What this means for employers is that more of the claim amount from a large loss is considered in the “primary” portion of the calculation.  This could have a big impact on your experience modification going forward and will result in an increase in premiums if you have suffered large losses in the past 4 years.

What can be done if you are in this situation?  There may be ways to work with your workers compensation carrier to reduce your premium or keep it from increasing.  Don’t hesitate! contact your insurance agent for more assistance and as always one of the insurance professionals  at Jerry Hay, Inc. will be happy to speak with you.  Contact us today for more information.

Additional  Resources:

https://www.ncci.com/NCCIMain/Education/ExperienceRating/Pages/default.aspx

https://www.ncci.com/documents/ABCs_Exp_Rating_2012.pdf

Leave a Reply

Your email address will not be published. Required fields are marked *