Key Changes to NCCI’s Experience Modification Factor for 2024
OCTOBER 3, 2023
The experience modification factor, or e-mod, plays a pivotal role in determining the pricing strategy for workers’ compensation coverage. Since e-mod is an indicator of an employer’s workers’ compensation loss history compared to its industry peers’, it’s used as a multiplier to increase or decrease premium. For companies in sectors like construction or oil and gas, the e-mod also significantly impacts the bidding process. As a result, it’s vital to be aware of the forthcoming alterations to the mod rules by the National Council on Compensation Insurance (NCCI) for 2024 and beyond, impacting every experience-rated risk.
In the 36 states where NCCI governs the workers’ compensation system, substantial changes are on the horizon. While NCCI assures that these changes will have an overall “premium neutral” effect on the system, it’s important to note that the impact won’t be neutral for every business.
These adjustments will go into effect on each state’s regular rate filing date on or after November 1, 2023. The rollout will start with Washington, D.C. and West Virginia, and conclude with Rhode Island on August 1, 2024. Independent bureau states — such as North Carolina, Michigan, Massachusetts, Minnesota and Wisconsin — are evaluating the proposed changes and will communicate their adoption decisions in due course. It’s important to highlight that New York, Pennsylvania, Delaware, New Jersey and California, which operate with distinct experience rating plans, won’t be affected by this modification.
At first glance, the changes may seem subtle. The mod formula and method will remain unchanged. These alterations aim to enhance the mod’s primary purpose: leveraging past employer experience to predict future losses and appropriately price workers’ compensation policies.
So, what’s changing? Here are the key adjustments:
- State-specific split points — Unlike the previous uniform split point across all NCCI states, the new methodology will establish a unique split point for each state based on that state’s loss experience. The split point is a crucial component of NCCI’s experience rating calculation. Currently set at $18,500, this number impacts how primary and discounted losses are factored into the mod calculation. Proposed split points will vary significantly by state, ranging from $9,500 in Oregon to $38,000 in Louisiana. Tailoring these values for individual states enhances the accuracy of the experience mod calculation and better reflects each state’s injury costs.
- Revised methodology for state accident limitations — The methodology for determining state accident limitations is changing. The new approach will consider the 95th percentile of lost time claims for each state. This leads to lower loss limitations in most states, significantly reducing the influence of high-cost “shock losses” on the mod. While final loss limitation values are yet to be published, it’s anticipated that the reductions will exceed 50% in most cases.
Impact Will Vary by Organization
These changes, combined with the modification to split points, will affect businesses differently across states. NCCI estimates that over 80% of all risks will experience a shift of five points or less in either direction. Keep in mind that the impact on individual businesses might vary, regardless of the overall figures.
As the values underlying these changes will become clearer in the coming months, it’s advisable to engage your insurance agent to assess the implications for your business in 2024. While precise projections might be premature, seeking expert guidance will enable you to anticipate potential impacts. Remaining informed about these crucial changes will position you ahead of your peers, minimizing unwelcome surprises and maximizing your strategic advantage.