I’d venture to say that just about every workers compensation experience rated employer is aware of the effect claims have on their EMR, XMOD, EMOD, experience modification rate or whatever you want to call it! I’d also be pretty sure that most insurance agents have told their experience rated clients, in some fashion, that the more claims they have the higher their EMR will be which means they will pay more premium. When it comes to the basics, it really works that way. But let’s take a look a little deeper into the relationship between workers compensation claims and experience modification rating.
Claims or losses effect the experience mod at many different levels and in many different ways. Here’s a few things you may not have known:
- Claims are limited when used in the calculation of an EMR or Experience Mod Rate. That’s right. For the most part each state has some sort of cap or limitation on the claim amount used in the EMR calculation. That cap is different for every state and they change every year. Here’s a few examples; for the year 2013, Illinois caps single claim accidents out at $439,500; Kentucky at $188,500; Maryland at $253,000 and for Arizona, $149,000. Don’t get me wrong, workers compensation claims are paid by the insurance carrier to their full amount but only the limited part goes into the EMR calculation. Quite a spread between states right?
- For calculation purposes claims are split into Primary and Excess amounts. This is called duel rating. The primary portion of any workers comp claim will carry more weight in the development of the EMR than the excess portion. At least that’s how it’s worked for years. However we are seeing more and more adjustments in ballasting, weighting and split points that have the effect of erroding into the excess level with a resulting effect of more emphasis being placed on those excess losses.
- Split Point adjustments. This is a dollar amount where claims are split into Primary and Excess levels. For NCCI states this level is going through an adjustment period ultimately increasing the Split Point from a historic level of $5,000 to $15,000. For years, agents would tell their clients that it was the first $5,000 of a claim that had the greatest effect on their Experience Mod Factor and this was true. But that has changed. As an example for 2012 the Split Point for Illinois was $5,000, 2013 is $10,000 and 2014 will be $13,500; for Maryland 2012 was $5,000, 2013 is $10,000 and 2014 will be $13,500. Missouri is a little different where 2012 was $5,000, 2013 is $7,500, 2014 will be $10,000 and 2015 is planned to be $13,500 and 2016 is planned to be $15,000.
- Claim Reserves are treated the same as paid claims in the Experience Rating Calculation. You see, when a new workers comp claim is submitted to an insurance carrier the claim department will establish what’s known as a reserve for that claim. They actually “Reserve” future dollars to pay for the claim. In other words they will ear mark a certain amount of dollars, based on their experience in handling similar claims, to draw down from in the future as actual dollars are spent. It goes something like this; A claim for a broken arm occurs, it’s reported to the insurance company and the claim department assigns an adjuster. The adjuster reviews the details of the claim and based on past experience sets a claim reserve of $15,000. Medical bills start comming in and are paid along with lost time wages for the injured employee being off from work in the amount of $3,000. The reserve is drawn down and is now at $12,000 with paid dollars at $3,000. Future reserve adjustments, up and down, are reported and included in the calculation. So during the claim process it’s not what the insurance company has actually spent but what they ultimately expect to spend, along with adjustments along the way, that gets reported for inclusion in the EMR calculation.
- The EMR Experience Period. So we’ve had a claim reported, reserves established and dollars paid and you might ask “What else could happen?” The experience period that’s what! You see, EMR’s or Experience Modification Rates are effected by claims during what’s known as the Experience Period. This is typically a four year period excluding the most recent year past. So it looks back a total of four years and drops the most recent. A single claim will show up on an employers EMR calculation for that entire period of time! Bottom line, a claim happens once and it effects the premium an employer pays for three years!
So workers compensation claims not only have a direct effect on an employers experience mod but a lingering, long-tail effect. Claims, while they would seem simple on the surface, go much deeper and their effect will be shown on the EMR and ultimately the premium an employer pays!
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Hope this helps you out! Thanks!