Tips on Protecting You and Your Business

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NCCI has recently announced some news that will have an impact on how your NCCI experience modification factors are calculated.

For the first time since 1993 NCCI will be adjusted the Spilt Point. Remember, the experience rating modification is affected by small losses more than by large ones because small losses are more frequent and predictable than large losses. The portions of all losses that are $5000 (split point) or less, which are termed “primary losses”, have the greatest influence in determining the experience modification. Losses in excess of $5,000 go into the “excess losses”.

Every loss is divided into a primary and excess portion. Since small losses – those less than the split point – have NO excess value, primary losses work as an indicator of loss frequency. For example, three $3,000 losses yields $9,000 in primary and $0 in excess.
Since large losses – those over the split point – always generate some excess value, they work as an indicator of loss severity. For example, one $11,000 loss yields $5,000 in primary and $6,000 in excess.

Primary losses are used at their full value in the mod calculation, while excess losses are reduced by the weighting factor.  This follows the simple concept in insurance that “severity follows frequency.” So in the sample above, a company with several small losses will have a higher mod than a company with only one large loss. And, in the sample above, after the split point has moved to $15,000, both examples would have all primary and no excess losses!

This primary and excess split point will be increased to $15,000 over the next three years.  After that, it will indexed for claim inflation annually, so you will potentially see a change in the split point each year.

What does this mean for you?

It is too early to give concrete information because NCCI hasn’t released final data on how the change will officially be implemented. They will likely adjust rates as well as other factors in the experience mod formula. The main reason of the change is they split point hasn’t been changesd since 1993 and medical costs are much higher now compared to 1993.

The split point change is slated to start being filed in the 3rd quarter of 2011 at the earliest. The first effective date will likely be on January 1st of 2013 with data released in the fall of 2012.

The plan is to increase the primary loss split point to 10K in 2013, to 13.5K in 2014 and 15K in 2015.

This 15K could be adjusted up or down depending on how claims costs trend during that time.

Based on 2009 information 78.4% of all intrastate mods will move five points or less either way.

The main point of this will be the continued goal to try and keep claims medical only with no indemnity (lost wages, permanency rating, vocational rehab). Nebraska is one of many ERA(Experience Rating Adjustment) states that allow medical only claims to be discounted by 70% when they go into the experience rating formula. If you don’t understand how this works don’t hesitate to contact us. When we speak at seminars on this subject we are amazed at how many people don’t know this. This simple rule is the backbone to your work comp program and why it is so important to make communication a key factor with your injury management programs as well as striving to have an effective return-to-work program.

We will continue to monitor this and update you when more information becomes available.

Carl Zeutzius has 18 years of experience helping businesses address their risk management needs.  He’s a Certified Work Comp Advisor and UNICO is the only agency in the State with that Designation.

If you have any questions don’t hesitate to contact UNICO Group at 402-434-7200 or visit us online at www.unicogroup.com.