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What is an Experience Modifier?

What is an Experience Modifier? . The Experience Rating Plan (E-Mod) is a multiplier for each employer based on risk classification, payroll, and loss experience. . The E-Mod multiplier increases or decreases the amount of premium to be paid during each policy period.

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What is an Experience Modifier?

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  1. What is an Experience Modifier? The Experience Rating Plan (E-Mod) is a multiplier for each employer based on risk classification, payroll, and loss experience. The E-Mod multiplier increases or decreases the amount of premium to be paid during each policy period.

  2. The Experience Modifier(E-Mod) refers to your claims “experience” and builds your claims history into the calculation of premiums. The more claims you have, the higher your experience modifier rate will be. • The fewer claims you have, the lower your experience modifier will be.

  3. The Experience Modification Factor The E-Mod Multiplier is calculated every policy year and is used in the premium calculation for that year

  4. How does it work? PremiumModModified Premium $100,000 x 0.75 = $75,000 $100,000 x 1.00 = $100,000 $100,000 x 1.25 = $125,000

  5. Who Qualifies for E-Mods? Policies with an annual subject premium of at least $4,500 is subject to E-mod rating for South Carolina • The claims data used to calculate your E-Mod rate consists of three completed years of claims experience. • For example, a policy period of • 1-1-13 to 1-1-14 • Use the claims data from policy years effective 2009, 2010, 2011 • They are the last three completed years before the current policy period.

  6. Experience Modification Formula = Actual Primary Losses Expected Primary Losses

  7. Terms • Actual Primary Losses: • Actual Losses up to $5,000 per claim. • Reflects claim frequency. • For each loss equal to or less than $5,000, the entire amount is used • For each loss over $5,000, the primary value is $5,000. • For medical only losses, the primary value will be reduced by 70%. • Actual Excess Losses: • The amount of each loss in excess of $5,000 per claim • Example: • Claimant Claim ValueActual PrimaryActual Excess • Brad Paisley $15,000 $5,000 $10,000

  8. Terms Expected Losses : Based on Payroll Payroll put in Class Codes Class Codes Assigned Expected Loss Rate Expected Losses are obtained by multiplying the *Expected Loss Rate by the payroll Amount (Divided by $100) in each Class Code. Expected Primary Losses: These are obtained by multiplying the Expected Losses by the Discount Ratio for each Class Code Expected Excess Losses: Are obtained by subtracting the Expected Primary Losses from the Expected Losses.

  9. Actual Primary Losses-Example • Based on Claims Losses • Agency: ABC Law Enforcement • Loss History:

  10. Actual Primary /Excess LossesABC Law Enforcement

  11. Expected Losses-(Based on Payroll) ABC law Enforcement (1)Class Code 7720 Law Enforcement. Payroll Amount: $100,000 Expected Loss Ratio: 7720=1.85 * Discount Ratio 7720= 0.11* Expected Losses-Class Code 7720 Police = ($100,000/100) x 1.85 (ELR)=$1,850 Expected Primary Losses for Class Code 7720Police $1,850 x 0.11 (D Ratio) =$203.50 *Table of Expected Losses

  12. Expected losses -Abc Law Enforcement (2) Class Code 8810 Clerical. Payroll Amount: $30,000 Expected LR 8810=0.17 Discount Ratio 8810=0.14 Expected Losses for Class Code 8810 Clerical= ($30,000/100)x 0.17 =$51.00 Expected Primary Losses=$51.00 x 0.14= $7.14

  13. Expected lossesAbc Law Enforcement (3) Total Expected Losses= Class Code 7720Police = $1,850 + Class Code 8810 Clerical =$51.00 =$1,901.00 x 3 years=$5,703 (4) Total Expected Primary Losses Code 7720 Police $203.50 + Code 8810 Clerical $7.14 =$210.64 x 3 years= $631.92

  14. E-Mod Calculation:ABC Law Enforcement • Actual Primary Losses=$13,300 • Expected Primary Losses=$631.92 • $13,300/$631.92 • = 21.04? • WHY IS THIS E-MOD SO HIGH? E-Mod Formula = Actual Primary Losses Expected Primary Losses

  15. Terms Weighting Value: A ratio that determines the percentage of excess losses in the E-Mod Formula. The Weighting Value is between .04 and .80 which increases as Expected Losses increase. *Obtained from the Tables of Weighting and Ballast Values. • Ballast Value: • A stabilizing element designed to limit the effect of any single loss on the • E-Mod. The Ballast Value increases as Expected Losses increase. • *Obtained from the Tables of Weighting and Ballast Values.

  16. Experience Modification Formula Actual Weighting Value (1 Minus Weighting Value) Primary Ballast Times Times Losses + Value + Actual Excess Losses + Expected Excess Losses = Total A Expected + Ballast + Weighting Value + (1 Minus Weighting Value) = Total B Primary Value Times Times Losses Expected Excess Losses Expected Excess Losses For experience modification, divide Total A by Total B; Round to two decimal places.

  17. E-Mod Calculation -ABC Law Enforcement Ballast Value: $30,000 Weighting Value: 0.05 Actual Primary Losses: $13,300 Actual Excess Losses: $ 15,000 (1 Minus Weighting Value): (1 - 0.05) Expected Primary Losses: $631.92 Expected Excess Losses: $5,070

  18. E-Mod Calculation ABC Law Enforcement • With Stabilizing Factors (Weight Values & Ballast Values) $13,300+ 30,000+ (0.05 x $15,000)+ (1 – 0.05) x $5,070 _________________________________________________ $631.92 + 30,000+ (0.05 x $5,071) + (1 – 0.05) x $5,071 =1.37 E-Mod Factor ! Premium= 10,000 x 1.37=$13,700

  19. Limitations used in the E-Mod formula. • The Formula only counts 30% of Medical-Only Claims • It Also Caps Claims payments at the following limits: • $299,500 Single Claims* • $599,000 Multiple Claims* • * Effective 9-1-12

  20. NCCI Changes to the E-Mod Split Point • The Split Point separates claims into primary and excess portions. • Currently, this amount is $5,000. • The Split Point will be changed from $5,000 to $15,000 over • a 3 -year period. • The First Year will be $10,000 • The Second Year will be $13,500 • The Third Year will be $15,000 • Subsequent year filings will adjust the split point based on inflation

  21. Impact of Experience Rating Changes • Overall, rating changes will be premium neutral statewide • (Will not increase the premium statewide) • Generally, employers with favorable loss experience should receive larger credits • Employers with less than favorable loss experience should received larger debits • For More Information, see NCCI Item E-1402, Circular CW-2011-05, and CIF-2011-14

  22. Impact of Experience Rating Changes • In 26 of the 38 states where the plan has been approved… • – 62 percent would see their rates fall less than 5 percent. • -Another 11 percent realized decreases between 5 percent and 10 percent. • -Rates were unchanged for 4.5 percent of risks. Less than one in four would see a rate increase. • Source: • Tony DiDonato,  director and senior actuary at the National Council on Compensation Insurance

  23. When are Changes Effective? • State Date Implemented • Georgia 3-1-2013 • North Carolina 4-1-2013 • South Carolina Approved-Date undecided For Questions or additional information, please contact NCCI’s Customer Service Center at: 1-800-NCCI-123 Customer_service@ncci.com

  24. Questions?

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