Upcoming Changes To NCCI Experience Modifiers Edward J. Priz, CPCU, APA

Effective 1/1/2013 A New formula will be used in states that use NCCI to calculate experience modification factors

Non-NCCI States not affected zCalifornia, Michigan, New York, New Jersey, Pennsylvania, Delaware, and Monopoly Fund states will continue using own formulas. zBut only CA, MI, PA, and DE will be standalone for interstate risks.

This will affect all employers who are experience rated Some will get lower modifiers, some will get higher modifiers

What’s Changing? Primary and Excess Losses

Experience Mod Directly Impacts Premium Charges zMultiplier applied to Manual Premium z1.25 Mod means a 25% Surcharge z.75 Mod means a 25% Credit

Debit Mod Illustration zClass Payroll Rate Premium z8810 $100,000 $0.35 $ z8742 $ 50,000 $0.65 $ z3632 $500,000 $7.50 $37, zTotal Manual Prem: $38, zModifier: 1.25 zModified Premium: $47,419.00

Credit Mod Illustation zClass Payroll Rate Premium z8810 $100,000 $0.35 $ z8742 $ 50,000 $0.65 $ z3632 $500,000 $7.50 $37, zTotal Manual Prem: $38, zModifier:.75 zModified Premium: $28,631.00

Primary Losses zOld Formula: First $5, zNew Formula: First 10, zUltimately, First $15,000.00

The New Formula zWill count more of certain claims, in both actual losses and expected losses.

Impact will vary zGenerally, employers with low losses will see lower modifiers than under old formula zEmployers with higher losses will see higher modifiers than under old formula

One hypothetical employer zNo actual losses z$50,000 in expected losses zOld Mod:.83 zNew Mod:.77

Same Employer, more claims zWith 3 claims of $25,000 each: zOld Mod: 1.09 zNew Mod: 1.20

Low Severity v. High Severity zNew formula will widen gap between mods of these kinds of employers

Same employer, low severity class, No claims zOld Mod:.80 zNew Mod:.74

High Severity, No Claims zOld Mod:.87 zNew Mod.83

Size of Employer zNew formula will widen gap between mods of small employers and large employers, other factors being equal

Medium Employer, no claims zOld Mod:.83 zNew Mod:.77

Large Employer, No Claims zOld Mod:.60 zNew Mod:.54

In Summary zNew Formula kicks in January 1, 2013 zWill Increase threshold for Primary Losses in annual steps, up to $15,000 zAfter that, increases for inflation zAlso alters formula for maximum mod zImpact of New Formula will vary based on loss history of particular employer zOnly in NCCI states