Experience Modification Rate Changes – Split Point Effect and How to Control Your E-Mod

With new NCCI experience modification factor split point calculations now in effect we are being contacted everyday by employers asking what they can do to minimize the effect this change will have on their E-Mod. So in this post I’ll give you some pointers on how to control your experience mod and the split point effect.

The basics still apply! The result of experience rating, and ultimately the assignment of an experience modification rate or factor, is it’s reflection of the safety performance of any individual risk or business. The ultimate goal of any experience rating mechanism is to reward those businesses with good safety records and penalize those without.

The effect of experience rating is shown on a workers compensation policy as the development and application of a credit or debit factor to the rating process of the policy. It’s result either reducing or increasing the workers compensation premium a business will pay. 

Experience rating has a long reaching effect. An employer whose business has a debit modification, one over 1.0, may find they’re not only paying a higher premium but also are restricted in securing certain types of bid work that they may have been eligible for if they only had a credit mod, one less than 1.0. Certain business operations, like contractors, may be effected to a greater extent than others. So the effect of a poor experience mod may not only be the additional cost of workers compensation but the ability to secure additional work!

What is the split point? It is the point where actual primary losses are separated from actual excess losses as used in the experience modification rate calculation. For those states following NCCI rules the split point has been, since 1993,  set at $5,000. This will change, in steps, over the next three years to $15,000. (Go to my previous post to read more about these changes.) 

How does the new split point limit effect the mod calculation? The rating formula significantly discounts excess losses so it’s the primary losses that have the greatest impact on developing the experience modification rate. For most states the 2013 limit will be increased to $10,000 from the original limit of $5,000. Any changes in the split will point have a direct effect on the experience modification factor. 

What can I do to control my Experience Modification Rate, EMR or E-Mod? With theses changes being made to the split point and E-Mod calculation formula it becomes evident that the only way to control it’s effect is to better control claims. Workers compensation claims are the driving force behind any experience rating mechanism!

It’s back to the basics! Here’s some tips on how to control your mod by getting a handle on your claims and other factors that impact the calculation:

  • Beef up your safety program. What..you don’t have a safety program? Then get one! They don’t have to be fancy or complicated in any way but it is important for all businesses to have a written safety program in place and in use. If you already have one, dust it off and use it! If you’re a larger company, refocus on your risk control department. The savings start in the trenches!
  • Improve your claim reporting procedures. It’s been proven that the more efficient claim reporting, the quicker a claims adjuster can get to work on a claim, the better the outcome for all involved. When procedures are in place everyone benefits. The injured employee knows what to expect and knows they’ll be taken care of. The employer knows the claim will be adjusted with the injured employee in mind and will not spiral out of control.
  • Implement a Claim Review. Workers comp claims must be reviewed. When an insurance company sets up a claim they apply what’s known as a loss reserve. This is what the insurance company expects will be the ultimate cost of the claim. Keep in mind a workers compensation claim may span several years from start to finish. Reserves are reported, just like paid claims, to the rating bureau, NCCI, and are used in the experience rating calculation. So it’s important to get a handle on your claims by having existing claims and their reserves reviewed along with prior claims and reserves. Improper reserve practices and claims handling will have a negative impact on an experience rated policy!
  • Implement an Audit Review. Have your workers compensation audit reviewed!Workers compensation audits, classifications and payroll assignments will impact the experience mod calculation. Specifically classifications and payroll play an important part in the statistical information gathered, reported and used by the rating authority in the development of an experience mod. An audit review will help discover errors or mistakes made in processing this information.

There you go! Controling the Experience Modification Rate starts with the basics! Get a handle on your safety control processes, claim reporting processes. Institute claim and audit reviews to make sure the information being used in processing the Experience Mod is correct. Check out the services of a workers comp consultant and make sure you ask for help from an independent workers compensation consultant if you think you need assistance!

Hope this helps you out!