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.

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A Small Claim Can Be Very Expensive Per Unit

Please see my post from September 27th on small claim. This is part two of that post.

In the 9/27/08 post, I had pointed out that the first $5,000 of the Total Incurred of a Workers Comp claim can cost up to 500% more than the reserves beyond $5,000.

Graphic of Math book and eye glass Small Claim Can Be Very Expensive Per Unit

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The math goes something like this – it may be good to have your company’s Experience Modification Worksheet from the NCCI or your state’s Rating Bureau sheet with you to look at for comparison. I will refer to the NCCI sheet. In the next post, I will cover where to find this info on a few of the State Rating Bureau sheets.

I am reviewing one of our clients’ E-Mod sheets from an NCCI state. The page I am looking at is the one at the very end of the last page with some variables (A) through (I) on it along with the E-Mod. There is a variable on the left side under (A). That number represents a sort of discount factor. In the one I am examining, the factor is .79.

In the calculations to set your E-Mod, the (A) variable is subtracted from 1.0. In this example 1- (A) = 1 -.79 = .21. This is the factor for any Total Incurred above $5,000. Let’s look at how that affects your E-Mod:

The first $5,000 or the Primary Loss is not discounted or it is equal to 1.o
Any part of the loss after $5,000 would be charged to the E-Mod at .21 or 21% of the first $5,000

Picture Woman Counting Small Claim Money

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Looking at this a little further, this means that the first $5,000 of any loss will cost as much as the next $23,800.

What does this mean to you? There is no such thing as a small claim(c). See my next post on how to even the playing field in light of this revelation.