August 3, 2023

Understanding Upcoming E-Mod Changes

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The National Council on Compensation Insurance (NCCI) regularly monitors the performance of the experience rating plan and periodically makes changes to improve it. The last of significance occurred 10 years ago when NCCI updated the split point from $5,000 to over $15,000, followed by annual inflationary adjustments. Among other changes to the calculation including a decrease to the per-claim accident limitation, the split point is again being increased. It will also vary by state with Louisiana making the biggest jump from $18,500 to $38,000 beginning with E-Mods effective 5/1/2024.  

How Will this Impact E-Mods?  

The split point refers to the dollar level at which each claim is divided into two parts: the primary, which is the cost of each claim incurred below the split point, and the excess, which is the cost of each claim incurred above the split point.  

“The split point is essentially used as a proxy for claim frequency. If the split point isn’t adjusted as costs increase, e-mods will cluster around the average, creating less differentiation” explains Angela McGhee, LWCC SVP of Underwriting and Chief Actuary. “Since the average cost of claims is higher in Louisiana than other states, it makes sense that the split point is also higher.”

Similar to the update 10 years ago, the upcoming change in split point is premium-neutral and most experience rated insureds won’t see a drastic impact to their E-Mods. This is because NCCI recalibrates the values used to calculate the E-Mods to reflect the underlying experience rating parameters. So when the split point changes, NCCI will correspondingly update the expected loss rates (ELRs) and discount ratios (d-ratios).    

Even though Louisiana’s split point is higher than other states, the distribution of E-Mods will be similar. According to NCCI's circular on item filing E-1409, which describes these changes, only about 8% of experience rated insureds will see more than a 15-point change to their E-Mod. The general expectation is that all else equal, credit E-Mods will see a little larger credit and debit E-Mods will see a little larger debit. Overall, 75% of Louisiana intrastate insureds are expected to see no change or a decrease in their E-Mod.

Other States

The update to the experience rating calculation will become effective for E-Mods with rating effective dates on and after  each state’s loss cost or rate filing beginning with filings effective on and after November 1, 2023.  

“I encourage policyholders to reach out to our dedicated team whenever they have questions or need assistance. We understand that navigating the complexities of workers’ comp can be challenging and we’re here to help,” says Angela.

Wanting to learn more about E-Mod?

Click here to access the NCCI document designed to further your understanding of experience rating and how it affect your workers’ comp costs.

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