The National Council on Compensation Insurance (NCCI), based in Boca Raton, Florida, has changed the methodology that determines an individual employer’s experience modification factor (ex-mod).  The ex-mod changes begin with January 1, 2013, policy purchases or renewals.  NCCI helps states set their workers’ compensation rates and their filing has been approved in 39 states including all NCCI states plus some of the independent bureau states.

The impacts of the methodology change could be material for most employers in two distinct ways, depending on their loss history and internal practices:

1. Employers with proven risk management practices and safety programs that reduce workplace injuries will benefit from NCCI change in the methodology determining an individual employer’s experience modification factor.
2. Employers with poor loss histories will pay even more for their worker’s compensation coverage starting next year as most states change the way premiums are calculated. 

According to NCCI, the “split-point” change was needed because the average claim cost has increased threefold since the last update, which was two decades ago.  NCCI’s ex-mod change calls for increasing the experience rating split point from its current $5,000 to $10,000 in 2013. It will increase to $13,500 in 2014 and to $15,000 in 2015.  In future years, it will be indexed for claim-expense inflation.

The methodology change by NCCI (see FAQ on NCCI’s Experience Rate Plan Changes) will more accurately reflect individual employer loss frequency and severity.  Underwriters rely on an employer’s ex-mod factor to adjust premiums with credits or debits.  Companies that have worked hard to improve and maintain their loss profile will be rewarded with more credits.  The biggest impact will be on pricing for employers experiencing high-frequency, low-severity workers comp claims. The new methodology is heavily leveraged on frequency of loss vs. severity of loss since frequency of loss is a truer indicator of an employer’s commitment to risk management practices and safety programs that reduce workplace injuries.

The key is minimizing exposure on workers’ compensation rate increases.  Now, more than ever, employers need to invest in loss control, safety, and their people and have a very strong modified-duty and/or return-to-work program.    If it has not been executed recently, a thorough risk mapping review facilitated by a licensed insurance expert is sound first step.

DISCLAIMER: Because of the generality of this update, and based on particular situations, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice, financial advice and/or the advice of a licensed insurance or certified human resource professional.

© Connelly, Carlisle, Fields & Nichols 2012