The National Council on Compensation Insurance (NCCI) implemented significant updates to its experience modification factor (e-mod) algorithm in November 2023. These changes are set to impact workers’ compensation insurance pricing nationwide, affecting insureds in 2024. This post covers alterations to the model the alterations to the model, and how they will affect businesses.
Understanding the E-Mod:
The e-mod, or experience modification rate, serves as a numerical representation of a business’s historical workers’ compensation claims and losses compared to industry averages. Insurers leverage e-mod ratings to predict a company’s future claims and adjust premium amounts accordingly.
How the E-Mod Works:
The e-mod calculation factors in actual primary losses, expected primary losses, and expected excess losses. This formula generates a multiplier, with 1.0 representing an average loss experience, values above 1.0 indicating higher-than-average losses, and values below 1.0 indicating lower-than-average losses.
E-Mod Model Changes for 2024:
The NCCI introduced several updates to the e-mod model, including adjustments to split points, state accident limitation (SAL) calculations, G values, credibility parameters, and premium eligibility thresholds. Two crucial changes demand attention:
- Unique Split Points for States: Previously, all states adhered to the same split point amount. Now, each state will have its own split point based on its loss experience. This change aims to enhance precision and accurately reflect each state’s injury cost.
- Adjustments to SAL Calculations: The updated SAL calculations will consider the top 5% most substantial claims for each state, leading to lower loss limitations. This adjustment aims to minimize the impact of outlier claims on e-mod ratings.
Impact and Implications:
The NCCI’s e-mod changes will automatically apply to the 36 states it regulates, while independent bureau states will review and decide on adoption. Though intended to be premium-neutral, individual businesses may be differently affected. Retail agents must proactively educate clients on these changes to prepare them for potential impacts on workers’ compensation policy premiums.
The NCCI’s updated e-mod algorithm brings significant changes to workers’ compensation insurance pricing methodology. Businesses must understand these alterations to navigate potential impacts on premiums effectively. Retail agents play a crucial role in guiding clients through these changes and ensuring preparedness for the evolving landscape of workers’ compensation insurance.
