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How Will New Changes Effect Your Worker’s Compensation Insurance Rate?

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Here is what you need to understand about worker’s compensation insurance changes that will impact your Experience Modification Rate. The National Council on Compensation Insurance (NCCI) is modifying how the experience rating is calculated, you need to understand these changes, and take steps to minimize your costs.

In my business working with contractors from all over the country and customizing their insurance programs, the most common statement I hear is, “I just don’t understand why my Experience Mod went up!” Many different factors are used to calculate this are out of a business owner’s control. The changes that start in 2013 will affect thousands of employers from all over the country.

Let’s begin exploring the major change by defining the term “split point.” In examining your Experience Rating Worksheet you may have noticed that all single claims appear to be capped at $5,000 in the far right column of the report. NCCI considers the first $5,000 of the loss the Primary and the portion of the loss higher than $5,000 the Excess. The primary loss (first $5,000) fully factors into the experience rating formula with the excess being “discounted.”

The split point ($5,000 limitation)is being increased in 2013. The scheduled changes are as follows:

  • 2013: The split point will initially increase to $10,000, to become effective with each state’s approval on or after January 1st, 2013
  • 2014: The split point will be increased to $13,500
  • 2015: The split point will be increased to $15,000 plus two years of inflation adjustment

Basically, the split point changes increase the negative effect of claims over $5,000 on your Experience Rating. Conversely, employers with few or no claims under $5,000 will generally see a reduction in their experience rating, rewarding companies that more effectively manage their claims.

Why change now?

NCCI is making this change because it’s been 20 years since the last split point update. Data has shown that the average cost of a claim has tripled in that time frame. This has lead to experience ratings reflecting less of an individual firm’s actual experience and more towards the all-risk average over time.

What can you do to reduce your Experience Rating?

You can’t change your past claims and their effect on your experience rating; however there are a couple of items you can focus on to reduce the negative impact of this change moving forward:

Medical Only claims are discounted by 70% compared to claims that include Lost Time paid by the insurance company.  With the increase in split points, that 70% reduction is that much more important. Fully committing to a light duty return to work program can help prevent claims from turning into claims with lost wages. If light duty is not available for an employee, some insurance companies will allow an employer to pay the employee’s salary while he is out of work and the insurance company pays the medical bills. This allows the claim to stay medical only with the 70% credit.

Address open claims. The Experience Rating Modification is calculated 6 months before an employer’s insurance renewal date. It includes claims from the past 4 years, excluding the current year. Call your insurance company for a claims history report to see if there is an open claim that might be closed before the data is reported to NCCI. Often, small open claims can be reserved for $5,000 with nothing paid. If the claim is still open when the data is reported to NCCI it counts against your Experience Rating even if nothing has been paid.

Times are changing. 

Industry standards are requiring contractors to have an Experience Rating less than 1.0 just to bid or even enter a job site. Don’t get caught off guard! Now, more than ever, it is time to focus on risk management, claims prevention, and claims management so your business can remain competitive and thrive.

Posted In: Legal

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