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Experience Mods Will Decrease For Some Employers – Really?

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Experience Mods Decrease When NCCI Increases Primary Loss?

The NCCI had reported Experience Mods will decrease  for certain employers.   One of the new twists to the Workers Comp Experience Modification Factor calculations is that NCCI is going to raise the Primary Loss part of the calculation for your E-Mods (also called EMR, Ex-Mods, Mods). In most states the Primary Loss will double to $10,000 and then another 50% will be phased in totaling $15,000.

Picture Of Hand Drawing Bar Graph Experience Mods Decrease
StockUnlimited

The reasoning NCCI had for increasing the primary losses made sense to me. They have not altered this area of the formula in decades. Adjustments did have to occur across the board. Their article on the changes is here.

You may want to obtain a copy of your most recent rating sheet to examine the areas that I am referring to on the Experience Mod Rating Sheets. I walked through the basic formula for Expected Losses here

I was just reading another supposedly cutting edge blog’s answer to what that will cause in the Workers Comp market. They had said that a wait and see attitude is best. I am not so sure if a company should wait and see what will happen. It may be best to take corrective action now.

 

The changes to the NCCI formula will cause the following:

  • Man Using Crutches Experience Mods Injured
    StockUnlimited

    Employers with multiple injuries are going to see their E-Mods jump significantly

  • The buffer that was in place in case an employer had a few large losses is now reduced causing an increased effect on even large claims
  • States that do not have NCCI as the rating bureau will follow this idea, even California.

If large accidents or multiple small accidents will cause your E-Mod to increase, which employers will see a decrease in their E-Mod? The answer will likely be the ones with low E-Mods already in place. An employer with a very low E-Mod will see it decrease even more.

The savior will likely be the ELR or Expected Loss Ratio. The ELR is basically the expected loss level for a certain classification code in a certain state for a given year. The Expected Primary Losses should increase significantly. See the link above on how that may affect your E-Mod.

For instance if you have a loss of $23,500 the old loss split would have been:

  • $5,000 Primary Loss
  • $18,500 Excess Loss

The new NCCI rules would have the same loss as:

  • $15,000 Primary Loss
  • $8,500 Excess Loss
Picture Of Hand Presenting Experience Mods Arrow Down With Dollar Sign
StockUnlimited

Even with adjustments in the ELR, I do not see how that the E-Mods overall will stay the same. I have gone through a few artificial calculations through by changing the old E-Mod Rating Sheets and even artificially adjusting the Expected Loss Ratios. I did not see one E-Mod decrease. Then again, I am using our client’s E-Mod sheets. Our E-Mod clients do not usually come to us with a rosy E-Mod picture.

This and all changes in the E-Mod system are really down to one area. SAFETY The best risk management method is to make sure that your company does not have too many entries on your E-Mod sheets. I used to say that keeping the numbers of claims down will always lower your E-Mod. I am now convinced that you will need to have no claims hitting your Experience Mod sheets.

There are many alternatives (even for very small employers) to the traditional insurance market. The possible alternatives are PEO’s and Rent-A- Captives. PEO’s have received a large amount of bad press for a very few unscrupulous providers that have been removed from the system. Rent-A-Captives are not new on the scene and can be designed for small employers.

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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