Phil Galbraith

The National Council on Compensation Insurance (NCCI) has announced changes in the formula that is used to calculate experience modifiers for employers in most states. Specifically, the primary/excess split point will be incrementally increased from the current $5,000 to $10,000 in 2013 and $13,500 in 2014. Thereafter, the split point will be tied to an inflationary index that will start at $15,000. NCCI cites medical inflation as the reason for the changes, and a need to make premiums more reflective of an employer’s loss experience. For example, in the first year of these changes, contractors with no losses greater than $5,000 should see a drop in their experience modification rating (EMR) factor, while those with a relatively large number of losses approaching or exceeding $10,000 will see an increase in EMR. There is no cap on how much an employer’s EMR can increase in a given policy year.

These changes will impact all industries but perhaps the construction industry more than most due to minimum EMR requirements imposed on contractors by many project owners just to qualify to bid on a project. Furthermore, it could affect eligibility for the contractors credit premium adjustment program (CCPAP), which provides discounts to contractors who pay higher than the state average hourly wage for employees in certain construction classifications. In some states, contractors must have an EMR of 1.0 or lower to be eligible for the CCPAP discount.

Unfortunately, because the experience rating period covers prior years’ losses, contractors will not have the opportunity to implement strategies that could reduce the impact of the changes before they become effective. However, contractors do need to prepare for the changes by calculating an estimate of their new EMR and account for the difference in premium in their 2013 budget. Contractors can ask their insurance agent or broker to calculate a rough estimate of their new mod by using current loss data and using $10,000 instead of $5,000 as a split point, but these estimates will not reflect expected changes in other rating factors. (The actual rating factors that will be needed to calculate the new mod with certainty will not be available until late summer or early fall.) Contractors should also discuss these changes with key clients to make them aware of coming changes in the EMR and make it clear that these changes are the result of a formula change rather than an increase in losses or a relaxation in safety protocols.

These changes will become effective in 2013 for all states that follow the NCCI rating system. A few independent bureau states have made comparable changes. Changes to the primary/excess split point have not been proposed in the monopolistic states (North Dakota, Ohio, Washington, and Wyoming) or in most independent bureau states, including California, Delaware, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, and Texas.

Reprint from International Risk Management Institute, Inc. (IRMI)


For more information contact:

Phil Galbraith, CPCU


Capitol Risk Solutions, Inc.



Copyright 2012,, LLC