Expected Losses – What Are They and Where To Find Them?
The Expected Losses for an employer is the amount of loss an average firm reporting the same exposures in the same classifications would have had during the Experience Period (usually three policy years).
Each rating year the NCCI or respective rating bureau calculates the Expected Loss Rates for each classification and each of the three years in the Experience Period. These rates are based on the reported exposures and claim costs for injuries occurring during the Experience Period within each classification for all companies in their respective state.
They are split into two types of losses. In most states, NCCI splits the Expected Losses as
- Expected Primary – Up To 15,000 of Total Incurred (Paid + Reserved). The Primary portion charges more to the Mod than the Excess Losses.
- Expected Excess – Over 15,000 of Total Incurred.
An insured’s Expected Loss is calculated for each classification and each year in the Experience Period by multiplying the Expected Loss Rate by the insured’s reported exposures by year and classification. The sum of these amounts is the insured’s Expected Loss.
The very basic formula for an E-Mod is Actual Losses / Expected Losses. If the Actual is more than the Expected Losses, the E-Mod or X-Mod is will be greater than one. If the opposite is true, then the E-Mod X-Mod will be less than one.
If your business is safer than your competitor’s operations, then the E-mod or X-Mod system will promulgate a lower Mod for your company. Promulgate means to calculate and publish a Mod.
Any Rating Bureau’s system increases the Mod more if a company or organization has multiple small claims where the claim was considered an indemnity claim. A number of small indemnity claims will increase the Mod more than one big claim. Why?
The Mod systems look at the number of claims increasing in a policy year. An employer’s risk of one or more of those claims as turning into a larger file increases if there are many claims in a policy year.
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