Calculating change

Benjamin Little

CalculateChangeSafe businesses stand to save more money More than two-thirds of Arizona employers could see their workers’ compensation premiums reduced because of a change in the formula the National Council on Compensation Insurance uses to calculate experience modifiers.

The change, scheduled to be implemented during a three-year period beginning Jan. 1, marks the first alteration to the calculation in more than 20 years. The experience modifier, or e-mod, is the adjustment of annual premium based on previous loss experience. An e-mod of greater than 1 increases a company’s premium; the premium decreases if the e-mod is less than 1.

For example, if the premium is $1,000 and the e-mod is 1.25, the company’s rate would become $1,250. However, if the e-mod is .8, the premium would become $800.

According to the NCCI, the plan is to double the $5,000 “split point” it applies to injured workers’ claims during the first year. It will be increased to $13,500 in 2014 and, finally, to $15,000 (plus two years of inflation adjustment) by 2015. NCCI is the largest resource of workers’ compensation and employee injury data in the nation and the advisory board that recommends workers’ compensation rates in many states, including Arizona.

NCCI values claims costs at or below $5,000 as primary losses and applies the full value when calculating experience modifiers. It defines losses above $5,000 (the split point) as excess losses and discounts their value.

However, while the split point has remained static for 22 years, medical costs have nearly tripled making the $5,000 split level arbitrarily low. The change means the calculation for full value will be three times what it is today once fully implemented in 2015.

Therefore, employers with no claims exceeding $5,000 will see a smaller e-mod in 2013. Conversely, NCCI said companies with an above average number of claims exceeding $5,000 could see an increase in the modifier.

NCCI State Relations Executive Lori Lovgren explained to, a work comp Web news site, the change was needed, because, “Over time, the (rating) plan would continue to become less and less responsive. There would be employers who deserve bigger credits and employers who deserve bigger debits. … And there would be less incentive for employers to control losses.”

NCCI said that, across 39 states, about 22 percent of employers will see experience modifiers increase by more than 2 percent beginning in January. Another 68.7 percent of employers will see the e-mod decrease by more than 2 percent. The remaining 9.3 percent will see changes smaller than 2 percent in either direction.

“If you’re a safe business without many claims, this is a good thing,” said Rick Jones, SCF Arizona executive vice president, chief sales and business development officer.  It could mean a few hundred dollars savings for some companies and perhaps thousands for others.

“This change really rewards those companies that have fewer losses and could help motivate those businesses with higher losses take action to become safer,” Jones added.

Need workers’ compensation insurance? Visit SCF Arizona’s website,, for a Quick Quote today.

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