How Seemingly Insignificant Changes Effect Workers Compensation EMods, XMods, EMR’s or Experience Rating

Have you ever noticed when your local or state government petitions for a small increase in a tax rate how that small increase somehow translates into a much larger tax bill than you were led to believe? Sure, haven’t we all? It works the same way when we turn our focus to supposedly small, seemingly insignificant changes being made to workers compensation experience rating factors and formulas!

Rating factors and formulas rule the world of workers compensation experience rating and it’s those small changes that over time seem to add up to higher costs for insured employers.

Here’s a few to consider:

  • Expected Loss Rates – Otherwise known as the ELR. This experience rating factor is developed by a rating bureau or advisory organization from claim or loss data collected from various workers compensation insurance companies within a single state. The data is broken down by each workers comp classification code. When applied properly in the rating formula it generates a statistical representation of the expected losses by code. This factor changes every year based on the collected data.
  • Split Point – another rating factor that for NCCI states has gone through significant changes over the past few years. Raising the split point, the magical number that separates primary and excess losses in the rating formula, was to provide more accurate EMR calculations. Supposedly increasing the calculated EMR for those employers with poor loss experience and rewarding those with good loss experience. In fact the results seem to have been more of a general increase.
  • Softening Factors – We’ve seen modifications to those factors put in place to lessen or soften the load or effect rating factor changes have on some employers. California, for example, had in place under their experience rating plan a small employer credit which has since been removed generating a negative effect on some small California employers. Other changes like trending adjustments to ballast factors and individual state changes to claim limitations have in some states led to a negative effect on individual employers EMR calculations.  

The point of today’s post is to pay attention to those small changes! Learn how they will effect your workers compensation program and make appropriate plans to manage them to your best ability.

A business owner, employer, policyholder, insured should never be surprised by the effect these changes have on the cost of their workers compensation policy. If you are an agent, be sure you keep you clients up to date and if you or your client needs help with a workers compensation problem be sure to contact an independent workers compensation consultant!

Hope this helps you out! Thanks!