Workers Compensation Experience Modification Factor; Changes Forthcoming
The National Council on Compensation Insurance (NCCI) has recently announced a plan to change the way your experience modification factor (ex-mod) will be calculated. In the past, the NCCI’s formula has given more weight to the frequency of loss rather than the severity of the loss. It has also included a “split point” of $5,000 per loss. The first $5,000 of a loss is calculated as Primary Actual Losses and anything above that is calculated as Excess Losses. This theory was designed to place greater emphasis on loss frequency than on loss severity, with the assumption that severity of loss is more accidental.
Frequency leads to severity. The NCCI has not changed its severity factors for many years. As severity has increased, the NCCI now feels it necessary to change the formula wherein the severity of loss will have an increased impact on your ex-mod. Frequency of loss clearly still drives your ex-mod, but severity will now play a bigger role than in the past.
Due to the continued rising cost of workers compensation claims, the NCCI will be increasing the split point threshold from $5,000 to $15,000 over a three year period. Beginning on October 1, 2013, the split point will increase to $10,000. On October 1, 2014 it will increase to $13,500 and on October 1, 2015, the split point will increase to $15,000. This simply means that larger losses will have a greater impact on your ex-mod.
The “split point” is the amount of larger claims that will be calculated as Primary Actual Losses. Increasing the “split point” from $5,000 to $15,000 will result in higher ex-mods for companies that have claims in excess of $5,000. Using a higher split point is simply acknowledging the fact that severity has been increasing.
On a statewide basis, the NCCI has indicated the overall impact will be “revenue neutral.” While this calculation may be neutral to statewide workers compensation premiums, individual ex-mod debits and credits will be affected. It is important to understand these changes, and how they can impact your business. If you have any questions regarding your ex-mod, or what preventive actions you can take from a safety standpoint, please contact our office at 414-421-3800.