Transcript Upcoming Changes - Workers Compensation classification

Upcoming Changes
To NCCI Experience
Modifiers
Edward J. Priz, CPCU, APA
Effective 1/1/2013
A New formula will be used
in states that use NCCI to
calculate experience
modification factors
Non-NCCI States not
affected
California, Michigan, New York, New
Jersey, Pennsylvania, Delaware, and
Monopoly Fund states will continue using
own formulas.
But only CA, MI, PA, and DE will be
standalone for interstate risks.
This will affect all
employers who are
experience rated
Some will get lower
modifiers, some will get
higher modifiers
What’s Changing?
Primary and Excess Losses
Experience Mod Directly
Impacts Premium Charges
Multiplier applied to Manual Premium
1.25 Mod means a 25% Surcharge
.75 Mod means a 25% Credit
Debit Mod Illustration
Class Payroll
Rate
Premium
8810 $100,000 $0.35
$350.00
8742 $ 50,000 $0.65
$325.00
3632 $500,000 $7.50 $37,500.00
Total Manual Prem:
$38,175.00
Modifier:
1.25
Modified Premium:
$47,419.00
Credit Mod Illustation
Class Payroll
Rate
Premium
8810 $100,000 $0.35
$350.00
8742 $ 50,000 $0.65
$325.00
3632 $500,000 $7.50 $37,500.00
Total Manual Prem:
$38,175.00
Modifier:
.75
Modified Premium:
$28,631.00
Primary Losses
Old Formula: First $5,000.00
New Formula: First 10,000.00
Ultimately, First $15,000.00
The New Formula
Will count more of certain claims, in both
actual losses and expected losses.
Impact will vary
Generally, employers with low losses will
see lower modifiers than under old
formula
Employers with higher losses will see
higher modifiers than under old formula
One hypothetical employer
No actual losses
$50,000 in expected losses
Old Mod: .83
New Mod: .77
Same Employer, more
claims
With 3 claims of $25,000 each:
Old Mod: 1.09
New Mod: 1.20
Low Severity v. High
Severity
New formula will widen gap between
mods of these kinds of employers
Same employer, low
severity class, No claims
Old Mod: .80
New Mod: .74
High Severity, No Claims
Old Mod: .87
New Mod .83
Size of Employer
New formula will widen gap between
mods of small employers and large
employers, other factors being equal
Medium Employer, no
claims
Old Mod: .83
New Mod: .77
Large Employer, No Claims
Old Mod: .60
New Mod: .54
In Summary
New Formula kicks in January 1, 2013
Will Increase threshold for Primary Losses
in annual steps, up to $15,000
After that, increases for inflation
Also alters formula for maximum mod
Impact of New Formula will vary based on
loss history of particular employer
Only in NCCI states