California Xmods = Heavy Penalty For Repetitive Accidents

March 1, 2016 By JL Risk Management Consultants

California Insurance Commissioner Approves 2017 Changes

California Xmods also known as Experience Modification Factors calculations are changing drastically in 2017. A very important term for California employers in the next few years is the term variable split point.

graphic of two hand protect California Xmods insurance

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Split points are the amount at which the Total Incurred for a claim has much more of an effect on an employer’s X-Mod.

Variable split points are not the same as the split point changes enacted by NCCI over the previous years. NCCI now has its split point set at $15,000 from $5,000 just a few years ago. Search the term split points in the search box for more articles on the changes by NCCI.

How variable split points work is the total expected losses for the Experience Period have much more of an effect than just the prior California split point of $7,000. In other words, the size of the employer will determine the split point.

According to the WCRIB:

Approximately 90 Primary Threshold split points
Values range from $4,500 to $75,000
Ranges based on employer’s total expected losses in the experience period
Final values will be updated and proposed to Insurance Commissioner in 2016 WCIRB Regulatory Filing

The interesting fact is the effect on California Xmods may not be known until the Insurance Commissioner approves the final levels.

The most important fact is the 2017 and forward X-Mod system is going to punish employers that have repetitive accidents. The concept of a variable X-Mod will also lessen the effect of one huge claim on a small
employer.

The claim amounts up to split point are used fully in x-mod calculation. This is the same as NCCI’s split points with one major exception.

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Claim amounts above split point are not used in x-mod calculation. One of the main differences between the NCCI and WCIRB split points is that NCCI still uses the Excess loss in its calculations. NCCI excess losses are in a roundabout way – discounted. California will be basically creating the split point as more of a ceiling.

You can find the PowerPoint(r) slides here on the changes to the X-Mods.

Unsafe smaller employers have already seen a major change to the way their X-Mods are calculated by the WCIRB. I attended a 2013 WCIRB conference which introduced a new X-Mod formula that removed a credit for small employers.

The goal here is plain and simple- safety.

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NCCI NCRB New Mod Calculation Presentation This Week

March 4, 2013 By JL Risk Management Consultants

My Upcoming Mod Calculation Presentation

The NCCI NCRB new Mod calculation are the subject of my upcoming presentation.

Picture Of Man Working Mod Calculation On Table

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I will be presenting on Tuesday March 5th for the Charlotte Association of Insurance Professionals on the new E-Mod (Experience Modification Factor) calculation. All North Carolina Workers Compensation policies that are renewed after 4/1/2013 will see these changes.

I had written on the possible implications of the new Mod calculations last year. The new circulation letter concerning E-mod changes from the North Carolina Rate Bureau is contained below.

November 8, 2011
CIRCULAR LETTER TO ALL MEMBER COMPANIES
Re: Workers Compensation Insurance
NCCI Item E-1402 – Experience Rating Plan Changes

The North Carolina Rate Bureau recently filed and the North Carolina Commissioner of Insurance
approved changes to NCCI’s Experience Rating Plan Manual for Workers Compensation and
Employers Liability Insurance based on information shown in the above referenced NCCI item
filing. A copy of this filing is attached.

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The Experience Rating Plan changes are designed to:

1. Update the Primary/Excess Split point;
2. Revise the Maximum Debit Modification formula; and
3. Revise NCCI’s Experience Rating Plan Manual for Workers Compensation and
Employers Liability Insurance.

The proposal would update the Primary/Excess Split point to $10,000 as of April 1, 2013, to $13,500
as of April 1, 2014, and to an increased, indexed value as of April 1, 2015. An increase in this split
point will make the Experience Rating Plan more responsive to small losses.

The Maximum Debit Modification formula would change, allowing even the smallest experience rated
risks to have a maximum debit modification of 1.10 compared to the 1.00 that applies today.
The attached Informational Exhibits provide preliminary details regarding the nature of these changes.
For the purpose of comparison, North Carolina’s G value as of 4/1/2012 is 9.95 (or equivalently, a
State Average Claim Cost or SACC of $9,950).

Additional information, including details on required changes to rating variables, will be included with
the respective rate filings.

Contact the Information Center at 919-582-1056 or via email at [email protected], if you require
additional information
Sincerely,
Sue Taylor
Director of Insurance Operations

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Safety and EMods – Highlights From My Presentation From Today

October 10, 2012 By JL Risk Management Consultants

Presentation Highlights – Safety and EMods Are Very Related

How Safety and EMods intermingle was the basis for most of the highlights from my presentation. The NC Mid State Safety Council was kind enough to ask me to do a presentation on how safety programs impact an employer’s bottom line from a Workers Comp standpoint. I am the Treasurer for the organization.

The highlights from my presentation were (you may want to print this one):

Safety Departments can be easily scored by their E-Mods. It is the same as a personal credit score but much harder to improve quickly.
Self Insureds do have an EMod, better known as an LDF (Loss Development Factor). If your company is self insured and does not have an LDF, you are operating a blind WC budget
Due to the economy, there are now temporary employment agencies that may not have their WC policy in force. In this case, the employer will often get stuck with the bill if a temporary employee is injured on the job.
Subcontractors that are operating without a valid insurance policy or with an expired policy actually become employees as the Workers Comp courts are going to go up the Ladder of Insurance (c) to make sure the injured employee will receive WC benefits
Calling the carrier (not the agent) that is listed on the WC certificate of insurance is a good idea just to make sure there is coverage in place for temporary agencies and subcontractors
Do not use your company’s Workers Comp funds to pursue a fraud prosecution.
Workers Comp supplements paid to an injured employee will only make them much more resistant to return to
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work
The Four Ways To Cut Work Comp Costs from a claims standpoint are:
- Filing First Report of Injury to carrier immediately
- Medical treatment network in place
- Return to Work program in place
- Treat the injured employee as if they are still on the job as they are still your employee
North Carolina Scheduled Rating Plan – discounts are available if a great safety program is in place and your carrier understands your company’s safety measures
An example of how not having a medical network in place = $1.1 million dollar claim
The new NCCI split points can be a benefit or a curse to a safety program
- High EMod companies are going to take a hit
- Lower Emod companies will experience a benefit
- Safety programs and professionals will be worth their weight in gold for the next few years
Bottom Line – Safety is going to be heavily judged by their WC E-Mod even though the safety department may not be involved in some of the WC decisions

©J&L Risk Management Inc Copyright Notice

Split Points – Largest Workers Comp Concern Presently

October 8, 2012 By JL Risk Management Consultants

Largest Workers Comp Concern Today Seen As Split Points

The Split Points became the Largest Workers Comp concern presently. I am presenting at the North Carolina Mid State Safety Council conference tomorrow. A few weeks ago I was contemplating what would be the largest concern for safety, human resource, and risk management personnel.

Picture Of Hand Touching Largest Workers Comp Concern Question Icon

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After speaking with a few of my peers and our clients, the subject of the upcoming NCCI and State Rating Bureaus (other than CA, OH, and NJ) split points came up as the most popular topic of concern. My question to my peers was “Why are split points the topic that is causing the greatest concern presently?”

I received many different answers. The top one was the way our Workers Comp is calculated will now change very quickly at our next renewal.

The other concerns were:

A new variable that may cause an increase to our E-Mod that is beyond our control
We cannot budget for the unknown increase, if there is going to be one
There is a 100% increase in the Primary Loss the first year
There are subsequent increases in the Primary Loss for the next two years
If we go over 1.0 on our E-mod, we cannot bid on government contracts
We are confused as to whether or not our next policy renewal will be affected

Business Strategy Concept Largest Workers Comp Concern Vector

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When I looked over all of the concerns I had received and went back to the responses to my previous posts on this subject, I think the main area of concern can be summed up by saying there is now an unknown variable thrown into the mix that a company cannot prepare for in the future.

My response to that concern would be:

NCCI said only 18% of the companies would be affected. I analyzed one of the reports that came up with this %. I had thought it would be at least 25%
If your E-Mod is .9 or lower, you may actually see a decrease in your E-Mod if your Workers Comp claims status is not worse than in the past
If you have many smaller claims (less than 10,000), your E-mod will likely increase heavily no matter your current E-Mod. The new rating system is going to very heavily penalize employers with multiple injuries.
Your safety and risk management departments are now going to become more of a critical component to your business. If your company has considered WC just a cost of doing business, you may want to get out the checkbook and make sure you have plenty of checks.
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If your company has an E-Mod of 1.2 or higher, you need to take drastic steps to reduce your injury rate.
The reserves on all of your Workers Comp claims will now be even more important. If you do not have online access, it may be good to check with your carrier to see if online access is available. When choosing among carriers at renewal, online access to your WC claims is now even more important
Alternative insurance arrangements such as large deductibles, PEO’s, self insurance, loss groups, risk retention groups, and captives may now be more attractive and cost effective
If your company is in the Assigned Risk Pool because you cannot find coverage in the voluntary marketplace, you need to immediately institute or increase the efforts of your safety program. You may also want to begin considering viable alternative insurance arrangements.

If you are not in a state that is going to be affected by the split point changes, then now is a good time to start preparing for the change. Most states eventually follow NCCI’s lead.

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Split Point Question Concerning E-Mods and NCCI Changes

September 27, 2012 By JL Risk Management Consultants

E-Mods Concern – NCCI Split Point

Many of the split point changes by NCCI are starting to hit the radar screens. I received this question last week from one of our blog readers on split points.

“We have a .98 E-Mod. Our E-Mod has always been between .90 and 1.0 since we have been in business.

Picture of Man Pointing Both Side Split Point Concept

Will the new rules concerning E-Mods cause ours to go over 1.0?

If so, we would look a large chunk of our business as we would no longer be able to bid on government contracts that require a 1.0 or less Mod. ”

My answer – Your E-Mod could go over 1.0 without the new NCCI rules if you had a bad claims year. If not, then from everything I have seen, the answer would be no.

You may want to check my initial post on the NCCI split point updates that I posted a few months ago. The NCCI rules are not designed to penalize a safe employer.

Picture Woman Consoling Her Troubled Husband Split Point Concern

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Your company has a Mod of less than 1.0 which means you are safer than the same company doing the same type of work. Your safety program is to be commended.

NCCI and the State Rating Bureaus have always structured their E-Mod (X-Mod in California) to penalize the unsafe employers that have many accidents.

Their view is the more accidents a company has over time, the more likely that a few of them will turn into serious claims. I have seen this occur in files for years.

You may want to check out my earlier post on Loss Limitations. Even if you have one serious accident, you are not penalized that heavily.

If your company has many accidents compared to a similar company, the E-Mod system will increase your premiums over time.

We assist many employers with after-the-fact E-Mod reductions. The best way to reduce your E-Mod or to keep it under 1.0 is to keep your safety program in place.

I have seen many employers reduce or even eliminate their safety and risk management departments due to this rather rough economy. This is a sure way to have your Mod increase to an unacceptable level.

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Split Point Reserve Changes by NCCI – Five Ways To Prepare

September 6, 2012 By JL Risk Management Consultants

Five Ways To Prepare – Upcoming Split Point Reserve Changes by NCCI

NCCI has already enacted the Split Point Reserve changes. In my opinion, the first year will have the most impact as the Primary Portion of the loss will double from 5,000 to 10,000. This will have a big impact on employers that have numerous claims.

Vector Graphic of Hands split point reserve changes

NCCI has warned employers for many years that having multiple medium-sized accidents is going to be the most damaging to your E-Mod resulting in sharp increases in premium. I calculated how this would affect a random employer in the near future using live figures.

The following are five ways to avoid such a whack to your Workers Compensation program:

Understand when the rule is effective for your state or states – not every company will automatically take the hit. I covered the new NCCI rule dates in a previous post.
Loss Run Review – it may be too late this year due to your Unit Stat date. If you still have time before your Total Incurred is recorded, then this will save your company $$$. If you have online access to your claims and reserve change data, you already are one step ahead.
Enact or improve your safety program – repetitive accidents within a policy year are going to cause your company to pay massive premium increases. You can pay the $$ to enhance your safety program, or you can pay your insurance carrier 400% over what you would have invested in safety and risk management.
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Explore alternatives to regular Workers Comp policies – PEO’s, captives, small and large deductibles, and risk retention groups are a few of the alternatives.
Companies that bid on contracts – your E-Mod may possibly jump to over 1.0. That may bar your company from bidding on or keeping certain contracts that require a 1.0 Mod or less. You can have your E-Mod calculated much earlier than the rating bureaus – we offer that service.

The main recommendation is to remember to not just let the changeover happen without understanding exactly how the NCCI change will affect your E-Mod for the next three years. Ask questions often.

NCCI Split Point Debate – Which Employers Will Take the Hit?

August 23, 2012 By JL Risk Management Consultants

NCCI Split Point Debate – Employers End Up Taking The Hit

The Split Point Debate points to employers taking the hit. I had an interesting question earlier this week on the upcoming NCCI Split Point changes. Over the last few weeks, I have received quite a few emails on how the split points will affect an employer’s E-Mod. I am sure that you have heard of the upcoming changes. If not, please follow the link in the first sentence and this link on the 2013 E-Mod calculations.

Emoticons with Red Comments icons Split Point Debate Employers Take The Hit

The main concern now is how an employer will be affected in the upcoming year with the split point doubling from $5,000 to $10,000. The split point is now $5,000 as the primary loss and any amounts after the split point is the Excess Loss. There is a built-in discount factor that kicks in when a claim reaches $5,000. The discount factor is a saving grace for an employer with a few large claims.

Graphic Split Point Debate Man Holding Placard

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NCCI and the rating bureaus have built the Workers Compensation E-Mod system around penalizing employers that have many small claims. Statistics have shown again and again that a certain percentage of small claims will eventually turn out to be large claims. I have seen this in loss runs over the years. I agree with that assumption.

Which employers will see the most increase in their Mods after 1/1/13 – the employers that have a large group of claims between $5,000 and $10,000. There will be no discount factor on these claims. It is true now that six claims with a $5,000 incurred loss will affect the E-Mod as much as one $100,000 claim.

The new changes will change that statement to six claims with a $10,000 loss will affect the E-Mod as much as two $100,000 claims. I am making a blanket statement as each state has its own discounting factors, so this may not fit in all states. However, the concept is true and correct.

If you are not one of my weekly newsletter readers or read the blogs as they are published, I encourage you to go down the right side of the screen and use the search box and search for NCCI changes. I have written numerous posts on this subject.

The NCCI has said that only 18% of the employers will be affected negatively. I am not sure if I agree or disagree with that figure. I think we may have to wait a few years to see the full effect.

Split Points – There Is No Such Thing As Small Claim – Part III

October 2, 2008 By JL Risk Management Consultants

Split Points – A Small Claim – Part III

Split points represent the line between as the Primary and Excess Loss parts of a claim.

Picture of Small Claim Split Points Document And Gavel

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Well, we have covered how a small claim is not really such a tiny claim after all. The one thing that we often see in workers comp audits – both premium and reserves – is that the smaller claims are ignored and the large claims are targeted. That can be a dangerous way to examine claims.

Take the case of the $10,000 Workers Comp claim that is four years old. That may seem like an insignificant claim, but please look at the previous two posts on Small Claims and you will see that the basic way that the claim is charged to premiums is:

The first $5,000 figures in the E-Mod at the full value – the primary part of the loss.
The next $5,000 figures in the E-Mod at a discounted value – the excess part of the loss. Using the previous post, it would figure into the premium at $2,000.
From #1 and #2 above, a $10,000 reserve set by the adjuster would contribute $7,000 to the E-Mod/premiums.

That is the norm for a $10,000 claim, but what if the claim closes out at $1,000 after four years? That means the employer has overpaid on the claim for three years, and that the file was over-reserved by $9,000.

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It is not $9,000, but even more as it is $4,000 in Primary Losses and $5,000 in Excess Losses. The parts that figure into the E-Mod are:

$1,000 in Primary Losses were paid
$4,000 in Primary Losses were over-reserved
$5,000 in Excess Losses were over-reserved

I think we can leave it there for this post. We will pick up in the same place in the next post. It may be good to print out the posts on this subject and look at them. You will be astounded. I guarantee it.