North Carolina Mid State Safety Council
I presented yesterday at the North Carolina Mid State Safety Council’s conference on Ways to Cut Workers Compensation Costs. When I brought up the subject of how $25,000 = $100,000, I received a few questions after the conference. I thought it would be good to share it with the blog readers.
We do have potential clients call and ask why did their E-Mod increased when they have had no large claims. This post may explain some of the reasons.
The easiest way for me to explain this one is for everyone to look at their Workers Compensation Experience Mod sheets from the NCCI or your state rating bureau.
The Workers Compensation system is designed to penalize employers that have many small claims versus an employer that has one very large claim. Why? Because the likelihood of a group of small claims having one or more of those claims turn into a big claim is very likely from a larger group of small claims.
How this works is that the Primary Loss portion of a claim is capped at $5,000. The Excess Portion (anything above $5,000) of the claim has no cap, but has a discount factor. Look at the bottom of column A on the NCCI sheet. There should be a number there such as 020, which is actually 20%. The Excess Portion of the claim is multiplied by this factor, which in essence gives you an 80% discount on the Excess Portion of all claims. It is much more complicated than that, but we are just keeping it simple here.
OK, hang with me on this one.
- $100,000 claim = $5,000 Primary + ($95,000 *.2) = 24,000 applied to Mod Calculation
- Five $5,000 claims = 25,000 Primary = 25,000 applied to Mod Calculation
The conclusion to draw from this is that there are NO SMALL claims. The first $5,000 is being applied at a rate of FIVE TIMES the rate of everything after the first $5,000.
Please note this does not count the Medical Only claims.
What should an employer do to combat the NO SMALL CLAIM costs? I will cover that in my next post.
©J&L Risk Management Inc Copyright Notice