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The National Council on Compensation Insurance (NCCI) is the largest provider of workers’ compensation and employee injury data and statistics in the nation.  Most states subscribe to the NCCI for rules and regulations pertaining to workers’ compensation.  NCCI has just published a summary of changes that will be occurring to the experience modification calculation.

In essence, the major change will be that the threshold of the dollar amount of loss that is split between the frequency and severity point is increasing.  The threshold has been at $5,000.  NCCI will be moving the threshold to $15,000 over a three-year transition period.  These changes will be filed in the third quarter of 2011.  The changes will be adopted by NCCI states and will roll out to the marketplace late 2012 and early 2013.  At this point, the implications of how it will impact specific companies are not completely known.

The split point of losses at the $5,000 threshold has been in place as long as I can remember.  Losses under $5,000 are considered primary losses.  Primary losses are an indication of frequency.  Losses over $5,000 are excess losses.  Excess losses are an indication of severity.  With the threshold changing to $15,000, more losses will be considered primary losses and will indicate a frequency issue.  One implication of this change could be that mods will be increasing as a result of the frequency issue.  NCCI will be making other changes to help offset the threshold change.

Here are three recommendations in light of this change:

  1. Employers need to reduce their number of workers’ compensation losses.  Executing safety policies and implementing good hiring practices can help reduce the number of losses

  2. It will remain very important to control losses so they remain medical only claims.  Implementation of a return-to-work program is the key.

  3. Companies that bid projects with an experience mod currently of slightly under 1.00 to slightly over 1.00 will need to pay greater attention to claims in the next 12-24 months.  More and more entities are requiring experience mods under 1.00 before they can bid on a particular project.  Controls need to be put in place so that your losses don’t take you out of the bid process.

Blog Authored by: Garry Watts, CPCU
Posted 9:13 AM

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