How Will Experience Modification Changes Affect Insurance Costs?

The National Council on Compensation Insurance (NCCI) has changed the experience rating formula. The first stage of the change to the formula became effective Jan. 1, 2013. The change to the experience modification rating is called “split point.” Many roofing contractors have experienced an increase in their workers’ experience modification factor as a result of the change. It is imperative for contractors to know how the new experience modification calculation affects their insurance cost.

Understanding your company’s workers’ compensation experience modification factor (mod) is important because it provides you with the information needed to determine how to control your mod, thus reducing your workers’ compensation budget. An experience modifier is an adjustment factor assigned to an employer by a rating bureau (NCCI or state). Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that take into account company size, unexpected large losses, and the difference between loss frequency and loss severity to achieve a balance between fairness and accountability. The mod factor represents either a credit or debit that is applied to your workers’ compensation premium. A mod factor greater than 1.0, a debit mod, means that losses are worse than expected and a surcharge will be added to your premium. A mod factor less than 1.0, a credit mod, means the losses are better than expected, resulting in a discounted premium. By understanding how losses affect your mod, and thus your bottom line, you can create a competitive advantage for your company in its market segment. It is vital that the information being reported to NCCI or a state governing institute is reviewed annually by a workers’ compensation specialist.