November 15, 2011

Hurry Up and Wait: NCCI's Slow Road to Big Changes in Experience Rating

Back in September we blogged NCCI's pending changes in experience rating plans. While initially proposed for this fall, the new implementation schedule (contained in NCCI Circular Letter E-1402) does not even begin until January 2013, at which time 18 states will kick off the program. The other 21 states will follow throughout the year, with Utah being the last, in December. We have more than a year to figure out the implications of raising primary losses from $5,000 first to $10,000 and eventually to $15,000 and even higher. The rules are going to change and, as is so often the case, there will be some winners and some losers.

Rating's Black Box
In the course of retooling the black box that is experience modification, NCCI's actuaries will set the numbers that determine exactly how the new plans will operate. To date, there has been no word on the D ratio - the percentage of total losses that are expected to fall below the primary split. This will be the key factor in analyzing the implications of the new rating plans.

No matter where this number is set, one thing is certain: employers with higher than expected losses will see their experience mods go up higher than under the current system; at the same time, employers with lower than expected losses may see their mods drop even lower than under the current rules. NCCI pledges that the new plans will be revenue neutral: overall premiums will remain the same. [Legislative approval in each state would be required if the new rating plans resulted in increased premiums.]

One important feature of the new system is its dynamic nature: unlike the current rating plan, where the primary loss split point remained at $5,000 for over 20 years, the split point going forward will rise as losses rise.

Educated Consumers
What does all this mean for experience-rated employers? It's important to understand exactly how the new system will work. Sticker shock awaits those who ignore the implications of escalating primary losses. The Insider will do its best to alert employers to the details of the new calculations, along with a user-friendly walk-through of the entire experience rating process. No, it's not our idea of fun, but with billions in insurance premium on the table, it will certainly be worth the effort. Stay tuned.


Subscribe

Submit your email to be notified when this site is updated

Need help with your workers' comp program?

Monthly Archives

About this Entry

This page contains a single entry by Jon Coppelman published on November 15, 2011 1:16 PM.

Horn tooting and confetti throwing was the previous entry in this blog.

Risk roundup and other news of note is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

OpenID accepted here Learn more about OpenID