2015 E-Mod Changes Makes Safety So Important
In 2015 more E-Mod Changes were produced by the NCCI. A few weeks ago, I discussed the upcoming changes to the E-Mod calculation and gave an example. I then blogged on what will happen to the E-Mod calculation in 2014. Believe it or not, there will also be an increase to the E-Mods for unsafe employers for 2015.
For example, if a state publishes its ratings on 4/1/2015, then any polices starting AFTER 4/1/2015 will be affected due to the changes. I had planned on commenting on the 2015 changes later in the year. Due to the number of questions that I received, I will do it now.
On January 1, 2015, the Primary Loss split point (ceiling) increases to 15,000. As I mentioned, in the prior three articles on the E-mod changes, I want to keep everything very basic. The basic E-Mod Formula is Actual Losses / Expected Losses.
Adding in the Primary and Excess Loss variables –
(Actual Primary Losses + Actual Excess Losses) / Expected Losses
If we break that down further the formula would be
E-Mod = (Total Actual Primary Losses + (Total Actual Excess Losses * Discount Factor))/Total Expected Losses
This is the example table for pre-2013 polices. As in the last example, we are going to use a .3 discount factor for the excess losses. The Expected Losses are 57,750. The Expected Loss figure basically is calculated from payroll per classification code.
The E-Mod is calculated as:
(35,150 + (87,780 *.3))/57,750 = 1.06
After 2014 the numbers would change dramatically
The E-Mod is calculated as:
(72,430 + (50,500 *.3))/57,750 = 1.52
This results in an E-Mod of:
- 2012 – 1.06
- 2013 – 1.41
- 2014 – 1.48
- 2015 – 1.52
The increase (3%) is not that large from 2013 to 2014. However there was a three year increase of 31%. This type of E-Mod increase can affect your company in two significant ways:
- If your company is bidding on contracts, the main contracting company will usually only accept bids from a 1.0 E-Mod sub-contractor. The other side of the coin is that it will be much tougher to slow down an increasing E-Mod.
- The increase can push a company into the risk pool where Workers Comp becomes prohibitively expensive in an already bad economy. The voluntary market is very rarely going to write a company with an E-Mod above 1.5.
As mentioned in one of the previous articles, this example was taken from an actual policy and rating bureau/NCCI Experience Rating Sheets. I do realize there are scheduled debit/credits etc. that would figure into the final premium paid.
All of the examples I gave were for comparison purposes only. Employers with many accidents are going to see their E-Mod jump significantly even with no additional claims or reserve increases.
There are many techniques to reducing your company’s E-Mod. This blog has many recommendations on how to decrease your Mod for any company. The main concept to remember is the E-Mod (X-Mod in California) system is a delayed system. A company cannot wait a few months to start an E-Mod reduction program. The time is today, not tomorrow or next week.
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