We are committed to keeping you informed about crucial changes in the insurance industry and how workers compensation changes impact your business. Recently, NCCI’s Experience Rating Plan Methodology underwent a significant update commonly referred to as Item E-1409. These changes are starting November 1, 2023. These changes aim to enhance the precision and fairness of workers’ compensation experience mod and premium calculations.
So, what is changing?
State-Specific Split Points:
This is also referred to as the Primary Threshold and splits the claim into primary and excess losses in the calculation. It’s weighted so that the loss under the primary threshold impacts the mod score greater than claim amounts greater than the threshold. It’s a way to reflect the understanding that very large claims are usually outliers and not predictive of future claims.
- Past Method: A common split point used for all states, regardless of individual state claim costs.
- New Update: Split points will now be specific to each state, reflecting the state’s average claim costs. This means the experience rating will be more precise and fair, especially in states where claim costs deviate significantly from the national average.
Revision of Accident Limitations:
In the calculation, work comp claims are limited by what is called the accident limitation. It is meant to provide a ceiling for catastrophic claims and the potential impact on the experience mod. This value in the past has been unique to each state.
- Past Method: The state per claim accident limitation (SAL) and USL&HW per claim accident limitation were calculated using a different percentile method.
- New Update: Both SAL and USL&HW per claim accident limitations will now reflect the 95th percentile of lost-time claims, reducing the influence of large outlier claims on your experience rating.
Changes to the G Value Calculation:
The G value is used to ensure that businesses’ premiums reflect their own safety records rather than general state trends.
- Past Method: The G value was calculated based on unlimited average severity in a state.
- New Update: The G value will now account for accident limitations and the reduction of medical-only losses. This ensures a more consistent calculation of expected claim counts and more accurate experience rating modifications.
Update of Credibility Parameters:
The credibility parameters in the calculation are commonly referred to as the weight and ballast values, and these values vary based on the size of the business being rated.
- New Update: Credibility parameters used in the calculation of weight and ballast values are being recalibrated. Larger risks might see increased credibility, while smaller risks might see a decrease. This change aims for greater equity across employers of different sizes.
Simplification of the D-Ratio Calculation:
Currently, the D ratio values are unique to each classification code and in the formula are used to represent expected excess losses.
- Past Method: D-ratios were adjusted by classification code.
- New Update: The classification-level adjustment is being removed to simplify the D-ratio calculation. D-ratios will now only vary by hazard group.
Why are these changes being made?
- These updates are designed to improve the accuracy and fairness of experience rating modifications without causing significant disruptions. Most employers will see changes of less than +/- 5% in their modifications.
- NCCI expects there will be no impact on the overall average experience rating or statewide premium levels.
For more detailed information, visit https://www.ncci.com/Articles/Pages/II_ER-Methodology-Filing-Summary.aspx or https://www.ncci.com/Articles/Pages/II_ER-Methodology-FAQs.aspx.
These updates to NCCI’s Experience Rating Plan Methodology mark a significant step toward a more nuanced and equitable approach to calculating workers’ compensation premiums. We remain your committed partner in workers compensation advice and expertise.