In 36 states, the National Council on Compensation Insurance (NCCI) is the rating bureau that determines the rules for workers’ compensation and calculates the experience mods. Beginning in 2013, a substantial change to the experience mod calculation occurred. In 1991, the split point between primary and excess losses was set at $5,000. In 2013, it ballooned to $10,000.
According to the report in Property Casualty 360, in 2014 it’s going up to $13,500. Further, to disprove the theory that what goes up must come down, in 2015 it is predicted to exceed $15,000. The reason this amount keeps rising is simple: The cost of employee injuries has dramatically increased. Back in 1991, the average employee injury cost the insurance company around $3,000. In 2011, that amount approached almost $9,000. Because of this dramatic change, the experience mod needed adjusting.
The experience mod calculation splits injuries into two areas: primary loss and excess loss. The primary loss, which has been at $5,000, is counted 100 percent in the mod calculation. Everything above that is excess loss and it’s discounted depending on the size of the business. This means that the first dollars in the claim are the most important. So, if and employer suffered ten injuries at $5,000, the experience mod will be impacted more than if the employer recorded one $50,000 injury.
As the cost of employee injuries has increased, the impact that those injuries has had on the experience mod has decreased. It’s important to remember that the purpose of the experience mod is to adjust what an employer pays for workers’ compensation based on whether or not the employer is better or worse than the average similar business. NCCI has changed the split point in accordance with how the cost of employee injuries has changed, thus making the experience mod more responsive.
This will cause a change in the employer’s experience mod, and not necessarily a good one. It’s impossible to know without looking at a specific experience mod whether or not the change will positively or negatively impact the mod. But it can be said that businesses that are substantially worse than average will see a higher experience mod, while businesses that are better than average are likely to see a decrease in their experience mod.