The Experience Rating Plan for computing workers’ compensation rates was developed by NCCI in the 1940’s. In its long history, the experience mod calculation formula has not changed very often and hasn’t had a formula change since 1998. There will be a major change to experience mods on January 1st, 2013.
The experience rating plan has achieved it desired result, to produce experience modification that reflects the true relative experience of insureds in the plan, so therefore it has not needed many changes to it. However, the cost of workers comp claims has increased, and the current experience rating split point of $5,000 has not changed in over 20 years. During that time, the average cost of claims has tripled. This meant that less weight was given to larger claims and therefore to the employer’s actual claim experience. Over time, modification factors have drifted closer to a unity (1.00) modification.
NCCI determined that an increase in the experience rating split point was needed to restore the equity of the plan. After extensive research and analysis, NCCI submitted changes that will be enacted beginning in January of 2013.
January 2013 Changes to Experience Mods
An increase to the primary/excess split point to an inflation-adjusted $15,000 over a three-year transition period and an increase to this amount thereafter on an annual basis using a countrywide inflation index as follows:
2013 – In the first year, the primary/excess split point will be increased to $10,000 to become effective concurrently with each state’s approved rate/loss cost filing on or after January 1, 2013.
2014 – The primary/excess split point will be further increased to $13,500 concurrently with each state’s approved rate/loss cost filing.
2015 – In the third year, the primary/excess split point will be increased to $15,000 and the index would estimate the countrywide severity changes between the average loss date for experience rating in he initial year of implementation and the effective year.
There will also be a revision to the maximum debit modification formula. The new formula will emphasize a hard minimum of 1.10 instead of 1.00 for experience mods. It will also more fully account for differences across states in claim severities.