There is a tremendous amount of information floating around about the upcoming changes to the NCCI experience rating formula. Back in February, I wrote about the change . Many discussions include misconceptions about the nature of the change. There are three main misconceptions:
Myth #1 - As a result of the change, every experience mod will increase.
Reality: NCCI reports that 18 percent of mods will increase more than 2 points in the first year of the change. The spit point isn't the only thing that will change in the new formula. The D-Ratio, which determines the portion of expected losses for a class code that is expected to be primary loss, will also be increasing. Other rating values may also change, but we don't know about those things yet. This increase in the D-Ratio is going to also have an impact on:
Myth #2 – The split point change is bad for employers
Reality: Let's be clear, for the 7 percent whose mods are going to increase 11+ points, the change will be a bad thing. However, 46 percent of employers will see a drop of between 2 and 10 points. More importantly, because of the increase in the D-Ratio, the minimum experience mod that each employer can reach will be dropping. This means that EVERY employer, no matter what the first year impact of the change is on their mod, will have greater control over the workers' compensation costs than they do now.
For employers who take action to take advantage of this opportunity, not only is the split point change not a bad thing, it is an incredible positive that will allow them to free up more of the capital that is locked up in their experience mod.
Myth #3 - The split point change is a “shadow rate increase.”
Reality: There is a consistent fear that insurance companies are always trying to find creative ways to collect more money without having to do the unpleasant raising of rates. The reality of the split point change is that insurance companies will be in a position to more accurately charge employers for the actual exposures that they present.
It is important to remember that the mod is a “predictive indicator of future losses.” That is, it helps the insurance company determine how much money they should expect to pay for employee injuries for any given employers during that policy period. The split point change allows insurance companies to have a clearer picture of what their actual exposure is, and to charge for that exposure appropriately.
For agents who are in the business of helping their clients get better results, the split point change presents a unique opportunity to drive their client's costs down even further. As the economy improves and employers hire more and more people, their ability to drive down costs will only increase.
Don't buy into the myths about the split point change. Get the facts and help your clients take control and drive their costs down.
Kevin Ring is the Director of Community Growth for the Institute of WorkComp Professionals, which trains insurance agents to help employers reduce Workers' Compensation expenses. A licensed property and casualty insurance agent, he is the co-developer of a new Workers' Comp software suite that will help insurance professionals in working with employers. He may be contacted at 828-274-0959 or [email protected].
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