Brief Overview of the Workers Compensation Modifier Changes, Projections of Firms to Be Affected and States to be Affected in 2013

1. How the 2013 NCCI Work Com Rating Formula’s Primary-Excess Split Point
Revision Will Affect You
The National Council on Compensation Insurance (NCCI) has announced a change to its work comp
modifier formula. There will be an increase over the next three years in the primary-excess split point.
The first impact will take effect with each state’s approved rate and loss cost filing on or after January
1, 2013.
What is the Primary-Excess Split Point?
With the NCCI experience rating formula, each claim is divided into a “primary” and “excess”
category. Currently, only the initial $5,000 of a claim is categorized as “primary”, with the amount
over $5000, categorized as “excess”.
For example, a claim of $2,000 is entirely “primary”. A claim of $23,000 would have $5,000
considered as “primary” as well as $18,000 categorized as “excess”. Primary losses are used as an
indicator of claim frequency and are fully counted when the modifier is calculated. “Excess” claims
only receive partial weighting when the modifier is calculated. This means that claims categorized as
“primary” affect the modifier more than “excess” claims do.
The reason to examine “primary” versus “excess” claim amounts is that a firm with a pattern of
frequent claims, though small, has an increased chance of a large future claim. So, a firm that
experiences many “primary” only claims will have a higher modified than a firm with the same total
claims but evenly split between the “primary” and “excess” categories.
Why the Change?
NCCI is seeking to have their formula better track with historical claim inflation, which has almost
tripled since the last split point change about 20 years ago. Since the change was last done so long ago,
the number of claims whose total paid amounts are categorized as “primary” is much smaller than 20
years ago, causing less weight to have applied to each employer’s own actual claims experience. Thus,
the NCCI formula has become less indicative of each firm’s true claims situation and instead pushed
high claimant firms towards the average modifier.
Down the Road
Starting in 2016 and thereafter, the split-point will be indexed for claim inflation. Though NCCI’s
changes will only directly affect 34 states and the District of Columbia we may see the rating bureaus
of Indiana, Massachusetts, Michigan, Minnesota, New York, Texas and Wisconsin re-evaluate their
split points. North Carolina, which has an independent rating bureau, has said it will also make the
NCCI revisions to its formula. California, Delaware, New Jersey and Pennsylvania are not expected to
make revisions since each uses a methodology very different than NCCI’s rating methodology.

2. The Changes to the Rating Formula
• Year 1: The split point will initially be increased to $10,000 to become effective with each
state’s approved rate/loss cost filing on or after January 1, 2013
• Year 2: A state’s next effective year filing will further increase the split point to $13,500
• Year 3: A state’s third effective filing year will further increase the split point to $15,000 plus
two years of inflation adjustment (rounded to the nearest $500)
Affect on Organizations
According to Exhibit 5 in the NCCI Circular CIF-2011-14, this filing should cause the following to
experience modifiers:
17.8% of risks to increase by 0.02 points or more,
13.5% of risks to increase by 0.05 points or more,
7.0% of risks to increase by 0.10 points or more.
NCCI says that the impact of this change is “revenue neutral,” meaning that mods will increase and
decrease in a manner that results in no overall additional premium impact for all insured entities. It is
not clear whether this actuarial premise considers the potential premium impact of the migration of
risks into assigned risk plans or nonstandard markets.
Employers can access their experience rating worksheets at least two months prior to their rating
effective date at www.ncci.com/worksheets by entering their Risk ID and a PIN number supplied by
NCCI. Prior to publication of mods based on the new $10,000 split point, NCCI says that employers
can estimate their new mod by recalculating the mod using $10,000 instead of $5,000 as a split point
and increasing the D-ratios on the worksheet by 50%. In a Casualty Actuarial Society presentation,
NCCI said that “If an employer has no losses, or no losses greater than $5K, [this filing] will reduce
their mod…If an employer has a relatively large [number of] losses approaching or exceeding $10K,
[this filing] will increase their mod.”
Don’t be caught unprepared, the change in the primary-excess split point could raise your
primary losses and negatively influence your modifier.
Call me to discuss innovative claims reducing tools and processes we can provide with statistical
data to prove their effectiveness in reducing workers compensation claims.
JEFF PETRO
Corporate Insurance Advisor
Vice President
Industrial Insurance Associates
847-485-2202
www.linkedin.com for additional tools
jpetro@iiaemail.com

3. Non- “Split Point” Filing
State NCCI Monopolistic Notes
NCCI Effective Date Approved
AL X March 1, 2013 X
AK X January 1, 2013 X
AZ X January 1, 2013 X
AR X July 1, 2013 X
CA X
CO X January 1, 2013 X
CT X January 1, 2013 X
DC X November 1, 2013 X
DE X
FL X January 1, 2013 X
GA X March 1, 2013 X
HI X January 1, 2013 X
ID X January 1, 2013 X
IL X January 1, 2013 X
IN X January 1, 2013 X Uses NCCI for ratemaking and most rules
IA X January 1, 2013 X
KS X January 1, 2013 X
KY X October 1, 2013 X
LA X May 1, 2013 X
ME X January 1, 2013 X
MD X January 1, 2013 X
MA X TBD Independent rating bureau that follows NCCI
MI X
MN X
MS X March 1, 2013 X
MO X January 1, 2013 X
MT X July 1, 2013 X
NE X February 1, 2013 X
NV X March 1, 2013 X
NH X January 1, 2013 X
NJ X
NM X January 1, 2013 X
NY X October 1, 2013 Effective date is tentative subject to regulatory approval.
NC X April 1, 2013 X Independent rating bureau that follows NCCI
ND X
OH X
OK X January 1, 2013 X
OR X January 1, 2013 X
PA X
RI X June 1, 2013 X
SC X July 1, 2013 X
SD X July 1, 2013 X
TN X March 1, 2013 X
TX X
UT X December 1, 2013 X
VT X April 1, 2013 X
VA X April 1, 2013 X
WA X
WV X November 1, 2013 X
WI X October 1, 2013 Follows NCCI
WY X