Unsafe Companies – NCCI Says Pay Your Fair Share
The NCCI (National Council on Compensation Insurance) has dramatically changed the way that companies will be rated for any polices that are effective after 1/1/2013. Unsafe companies are now going to have higher E-Mods. Companies with much better loss histories will see their E-Mods shrink on any 2013 renewals.
I was one of the first Workers Comp advisers that warned about these upcoming changes to the E-Mod system. There is a 27 minute video here that explains the changes.
I will summarize them for those who do not want to watch the video. Nowhere in the video is there mention of a change to any type of classification codes. Classification codes have been changed in a systematic process since 2008.
The basic premise of the way NCCI calculates E-Mods is there are two facets to any claims.
Primary Loss = the first $5,000 of any Workers Comp claim
Excess Loss = any part of the loss above $5,000
The new rating system doubles the Primary Loss:
Primary Loss = the first $10,000 of any Workers Comp claim
Excess Loss = any part of the loss above $10,000
Primary losses increase a company’s E-Mod much more dramatically than Excess Losses. Excess Losses are multiplied by a reduction factor. The reason is NCCI and all rating bureaus think that many smaller claims are much more risky than one or two large claims.
The rating bureaus do not penalize a company for one large loss. Even safe companies statistically cannot prevent one big loss. A batch of small losses is much more likely to produce a few or many large losses. This is one of the major underpinnings of the E-Mod system.
When your company renews its policy in 2013, you will likely be under this system. The most expensive part of the claim (Primary Loss) will be twice the size that it was in the past. This means unsafe companies with many losses could see their E-Mods jump dramatically.
I am not saying that I totally agree with the E-Mod system. However, it is the system in place. We all have to deal with the system. Knowing how to best work within the framework will save $, time, and aggravation.
Your company’s safety program is now worth than in the past. Due to the present economic conditions, I have seen Safety/Risk Management departments significantly reduced or eliminated overall. Reviving or enhancing a safety department is a shrewd business move.
I will cover more on the upcoming changes in one of the next articles by comparing losses under the old system and the one upcoming in 2013. There is even a more shocking development with the NCCI for 2014.
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