How Small Changes Effect Workers Compensation EMR – Experience Modification Rating

Every little thing counts and when it comes to developing a workers compensation EMR, XMOD, EMOD or just plain old experience rating factor, you can bet that seemingly small changes in calculations made by rating bureaus or advisory organizations will make a big impact! Translated…employers will pay more for workers compensation insurance!

Experience rating came about as a method to adjust the workers compensation premium an employer pays by applying a factor to the calculation that represents any specific employers loss or claim experience. Hence the reference to “experience rating.” In it’s simple form, an employer with no claims will have a credit factor applied to their premium so they will ultimately pay less. An employer with claims will have a debit factor applied to their premium so they will pay more. Experience rating has been around for a very long time! It’s an important part of overall premium stability by allowing individual employer results to play a part in developing the ultimate premium an employer pays while protecting the overall base line rates.

As with most things, experience rating formulas, while stable by their nature, are adjusted from time to time. More accurately, rating factors used within these formulas are adjusted to better reflect current situations.

NCCI, the National Council on Compensation Insurance (the advisory organization for approximately 35 states) recently made adjustments to the split point factor found within their experience rating formula. The split point is where, in the formula, they separate primary losses from excess losses. Historically excess losses have a lesser effect on the EMR than primary. You can find more detail about this NCCI change in posts here on our site.  This seemingly small change by NCCI has made an impact on all experience rated policies. Those employers with low or no losses have noticed a lower EMR while those with more losses have noticed a higher EMR.

Recently the WCIRB, the Workers Compensation Insurance Rating Bureau for California, has removed the use of the primary loss discount from their XMOD rating formula. This will have an effect of increasing the XMOD for those employers with frequency of claim issues. The more claims an employer has the more the effect will be. We’ll keep an eye on the real effect this change makes for employers in the future.

While changes like these are usually well known to those working in the workers compensation industry, they often come as a surprise to the end user, the employer! So heads up agents and brokers! Be sure to let your clients know what to expect in the future from the small changes made to EMR and other rating formulas! And make sure you have an Independent EMR Review conducted! 

Hope this helps you out and thanks for reading!