Wednesday, February 29, 2012

New Experience Mod Formula Coming

For many companies, their Experience Modification Factor is more than just an important element of their Workers Comp insurance premium charges.  For many in the construction trades, the Experience Mod is also a critical benchmark used by customers and potential customers.  A mod higher than 1.00 can prevent a company from even bidding on certain projects.

Starting next year, NCCI (National Council on Compensation Insurance) will be changing the formula they use to calculate experience modifiers.  Since most states use NCCI as their Workers Comp rating bureau, this means that most employers will be affected by this change.  Our initial analysis indicates that the changes will lower mods for some employers, and raise them for others.

The bottom line is that companies that control Workers Comp claims will probably benefit from the new NCCI formula, while companies that have more significant claims costs in their history will see mods increase dramatically.

What NCCI is doing to create these changes is to alter the threshold at which a claim is discounted in the rating formula.  The old formula discounts any single claim over $5,000, so that only the first $5,000 of any claim is fully counted in calculating the experience modifier.  But the new formula will increase that threshold in graduated steps, so that by 2015 the threshold will be $15,000.

You can find a more technical explanation of the upcoming changes in NCCI modifier calculations at:
https://www.ncci.com/nccimain/industryinformation/regulatoryactivities/pages/iteme-1402-rev-expratingplan-excesssplit.aspx?s=E