Experience Modification Rate – Split Point Changes and Contractors

Using the workers compensation EMR or E-Mod as a safety qualifier has been a common practice in the contracting world for some time. It’s not unusual to find that a general contractor will require a mod of 1.0 or less of a subcontractor working on their job. Many times this will be a condition of the contract or, at a minimum, part of the qualifications required of the subcontractor in order to be able to bid on a job or contract.

The primary/excess split point, an experience modification rating factor item, has changed for those states using NCCI. This change will take place over a three year period starting in 2013 and will be adjusted by these values:

  • First year – 2013 – $10,000
  • Second year – 2014 – $13,500
  • Third year – 2015 – $15,000

The last time the split point was adjusted was in 1993 when it was set at $5,000. Here’s a quick description of how the split point effects the experience mod calculation; the experience mod calculation is a complicated calculation that takes into consideration a clients payroll size, expected losses and actual losses incurred. Excess actual loss is the dollar amount of a claim over the split point. Excess losses effect the experience mod calculation at a much lower level that the primary losses.

Under the $5,000 split point a single claim with a dollar value of $20,000 would be divided showing $5,000 as primary losses and $15,000 as excess. Under the $10,000 split point the same claim would show $10,000 as primary losses and $10,000 as excess. Primary losses carry the weight and have the most impact on the E-Mod calculation while excess losses are significantly discounted within the formula. In very simple terms, the increase of the split point will result in a higher E-Mod.

The effect of the split point change will be different for each experience rated client. Individual client factors will determine the ultimate effect. It’s projected that about half of the experience rated clients will see a decrease in their mod of 2 or more points; one third will see a modest change between a decrease of 2 points to an increase of 2 points; and the rest experiencing a larger swing. Based on the average, approximately one in every seven will see an increase of 5 or more points. As you can see, this change can be a significant turning point and has great potential to effect the bottom line of many employers.

Let’s get back to the contractor who relies on his E-Mod remaining below 1.0 in order to secure work for his company. It’s those clients who may lose work contracts that they may have been able to secure that will feel an extra punch from this change. Sure the change needed to happen. There’s a great deal of evidence that the old split point was not responsive and created a skewed reflection of the true claims experience of an account. And with this change comes a more responsive experience rating formula, according to NCCI.

But lets not forget the contractor who prior to this change would have earned a 1.0 or lower and who after the change may no longer qualify to bid on projects because their E-Mod increased to over 1.0. What if their E-Mod change was strictly due to the formula change and not a change in risk. Maybe those using the E-Mod as a safety qualifier should revisit their stand on this and take into consideration the true impact this formula change may have, at least from a contractors point of view!

Hope this helps you out! Thanks!