One unique feature of work comp insurance is that there is a direct link between the rates that you pay and the losses you’ve had in the past. The conduit for this process is the experience modification factor, a rate modifier on your work comp policy that increases or reduces the rates you pay based on your past loss experience. You can learn more about experience modification factors and how they are calculated, by clicking here.
The NCCI (National Council on Compensation Insurance) is the entity that maintins the experience modification factor process. The current mod formula has been unchanged for many years. This formula estimates what the expected losses will be for each company, based on their class codes and their payroll levels. Next it compares your expected losses with your actual losses to see where you stand in the spectrum of all businesses. There are two parts to this formula; one that measures loss frequency and another that measures loss severity. The loss frequency side of the equation is what is changing the most with the new rules. This portion of the formula caps the maximum amount of all losses at $5000. So, for instance, if your company has a $5000 loss and another loss that is $100,000, they will both carry the same weight on this side of the modification formula. This means that a company with several small losses may have a higher mod factor than one with one large loss, even though the company with the one large loss may have had a greater total loss payout that year.
The new modification calculation formula will change the $5,000 cap on the frequency side of the equation. The cap changes will be phased in over time between 2013 and 2015, and by the time the phase in is complete; the cap will have been increased to $17,000. After 2015 this cap will be indexed annually for inflation.
So what should you do to get ready for these new rules? The information that I am seeing seems to indicate that if your mod is less than 1.0, then you will probably see an even lower mod under the new formula. This impact is greatest for the lowest mods. For example, it is expected that a mod of .83 today would translate to roughly a mod of .77 in 2013, but one of .99 will only reduce to .98. This same dynamic works in the opposite direction as well. Mods above 1.0 are expected to go higher under the new formula. A 1.14 mod should turn into a 1.18 while a 1.69 mod will become a 2.01 mod. In the final analysis, with this new formula in place, those with losses are going to pay more for their work comp and those that control and reduce their losses will see lower mods.
So what does this mean for you? Well now you have even more reason to control you loss costs. You have both more to gain and more to lose. When shopping for workers compensation, it is even more important now that you select an insurance company with significant loss control and return to work programs. Workers compensation insurance in NC is a specialty line and there are companies here that do nothing except workers compensation insurance. The advantages that these companies will have in loss control and back to work support will now mean even more to you over the long run.
At Clinard Insurance Group, in Winston Salem NC, we are an independent insurance agency handling hundreds of workers compensation policies for our clients all across North Carolina. Our knowledge and experience with workers compensation insurance can save you big money on your workers compensation policy, both today and 5 years from now. Give us a call today, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com and let us get to work for you right away, helping you carve away some of your workers compensation expenses.
The Insurance Answer Guy 