The Large Loss Caps Effect On Premiums
Capping the large losses incurred by an employer is one way for a State Rating Bureau or NCCI to help control Workers Comp costs. Large loss caps function as a stop gap measure to keep one claim from completely harming an employer’s EMod (XMod).
For instance, if an adjuster sets the reserves on a serious file to $385,000, the complete amount will never impact the employer’s Mod. If the state’s cap on any loss is $175,000, then the employers E-Mod will never be impacted fully. The $175,000 would be the loss that is input into the EMod formula.
As I have mentioned very often in the past, the idea of the Experience Modification system is to penalize the unsafe employers with repetitive injuries and to lessen the impact of one or two very serious claims.
I was recently reading that NCCI had increased Illinois large loss caps (limitations) almost 300% in the last 11 years from $133,000 to $370,500. Unless I am mistaken, IL now has the highest ones in the nation.
The loss caps can be viewed as another method of keeping a safe employer with one bad accident from paying out more premiums than an employer with large group of smaller accidents. The State Rating Bureaus and the NCCI have this concept as one of the underpinnings of their respective E-Mod systems.
If you have access to your Workers Comp loss runs, there is a very quick way to tell if your company has had one of the caps limit a loss. Most State Rating Bureaus and the NCCI will note it by a “#” next to the total incurred figure.
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