by Lindy Z. Kerr, Esq.

Changes to the way NCCI calculates an employer’s experience modification factor (often referred to as “ex-mod” factor) mean those employers with poor loss histories will pay even more for their workers’ compensation coverage. However, employers with strong programs in place that reduce frequency of claims should actually see a reduction in their premiums. Underwriters use the ex-mod factor to adjust premiums in guaranteed cost programs. NCCI announced plans to change the calculation as far back as 2011, but the changes will officially take place on January 1, 2013.

The ex-mod factor is derived from the frequency and severity of losses. NCCI is changing the “split point” used in the ex-mod ratings. Losses up to the split point reflect the frequency of claims. Losses above the split point reflect the severity of the claims. Beginning January 1, 2013 the split point will be $10,000 instead of $5,000. It will increase to $13,500 in 2014 and to $15,000 in 2015. After that, it will be indexed for claim-expense inflation.

According to an article in Business Insurance, the calculation change will hit employers with high-frequency, low severity claims the hardest. However, employers can reduce claim frequency and premium costs by creating effective pre-loss safety programs and implementing modified duty return to work programs. The changes are not likely to impact insurers because while some employers will pay higher premiums, others will see their premiums drop.