Alterations to the experience modification factor, or e-mod, rules by the National Council on Compensation Insurance (NCCI) will impact 36 states where the NCCI governs the workers compensation system, according to recent insight on the matter by USI Insurance Services, a consulting and brokerage firm.
E-mod is a major factor in determining pricing strategy for workers compensation coverage. It is an “indicator of an employer’s workers compensation loss history compared to its industry peers’ and used as a multiplier to increase or decrease premium.”
The e-mod significantly impacts the bidding process for companies in sectors like construction or oil and gas, USI wrote.
NCCI reports the changes will have an overall “premium neutral” effect on the system, but the impact won’t be neutral for every business.
Effective on each state’s regular rate filing date on or after Nov. 1, 2023, the adjustments rollout will start with Washington, D.C. and West Virginia, and conclude with Rhode Island on Aug. 1, 2024.
North Carolina, Michigan, Massachusetts, Minnesota and Wisconsin are considered independent bureau states. Those states will review and evaluate the proposed changes to determine whether the changes will be adopted.
USI points out that New York, Pennsylvania, Delaware, New Jersey and California, states that operate with distinct experience rating plans, won’t be affected by the modification.
The mod formula and method will remain unchanged. The alterations, according to USI, aim to enhance the mod’s primary purpose: leveraging past employer experience to predict future losses and appropriately price workers compensation policies.
State-specific split points:
A uniform split point across all NCCI states will no longer be used. A new methodology will establish a unique split point for each state based on that state’s loss experience, USI reported.
“The split point is a crucial component of NCCI’s experience rating calculation. Currently set at $18,500, this number impacts how primary and discounted losses are factored into the mod calculation,” USI wrote. “Proposed split points will vary significantly by state, ranging from $9,500 in Oregon to $38,000 in Louisiana. Tailoring these values for individual states enhances the accuracy of the experience mod calculation and better reflects each state’s injury costs.”
Revised methodology for state accident limitations:
The methodology for determining state accident limitations is changing, the brokerage firm reported.
The new approach will consider the 95th percentile of lost-time claims for each state. Lowering loss limitations in most states, this is expected to significantly reduce the influence of high-cost “shock losses” on the mod, USI stated.
“While final loss limitation values are yet to be published, it’s anticipated that the reductions will exceed 50 percent in most cases.”
The impact of these changes combined with the modification to split points, according to USI, will affect businesses differently across states.
More than two-thirds of all risks (80 percent) will experience a shift of five points or less in either direction, NCCI estimated.