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.
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:
- 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
Even with adjustments in the ELR, I do not see how the E-Mods overall will stay the same. I have gone through a few artificial calculations 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 number 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 PEOs and Rent-A-Captives. PEOs 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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