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.
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.
THE EXPERIENCE MODIFICATION FACTOR
The E-Mod Multiplier is
calculated every policy
year and is used in the
premium calculation
for that year
HOW
DOES IT WORK?
Premium
$100,000
x
Mod
0.75
Modified Premium
=
$75,000
$100,000
x
1.00
=
$100,000
$100,000
x
1.25
=
$125,000
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.
Experience Modification Formula
=
Actual Primary Losses
Expected Primary Losses
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
Brad Paisley
Claim Value
$15,000
Actual Primary
$5,000
Actual Excess
$10,000
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.
ACTUAL PRIMARY LOSSES-EXAMPLE
Based on Claims Losses
Agency: ABC Law Enforcement
Loss History:
Policy
Year
Claimant
DOA
Claim
Amount
Claim Type
2009
Christine Cagney
7/1/2009
$3,000
Medical Only
2009
Angus MacGyver
10/1/2009
$7,000
Medical Only
2010
Danny Williams
2/1/2010
$5,000
Indemnity
2010
Steve McGarrett
5/1/2010
$1,000
Medical Only
2011
Joe Friday
6/15/2011
Total
$20,000 Med + Indem
$36,000
ACTUAL PRIMARY /EXCESS LOSSES
ABC LAW ENFORCEMENT
Policy
Year
Claimant
Claim Paid
Claim Type
DiscountMed Only
(-70%)
Actual
Primary
Loss
Actual
Excess
Loss
2009
Christine
Cagney
$3,000
Med Only
$900
$900
$0
2009
Angus
MacGyver
$7,000
Med Only
$210
$2,100
$0
2009
Danny Williams
$5,000
Indemnity
$5,000
$5,000
$0
2010
Steve McGarrett
$1,000
Med Only
$300
$300
$0
2011
Joe Friday
$20,000
Med
+Indem
$20,000
$5,000
$15,000
$26,410
$13,300
$15,000
Totals
$36,000
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
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
EXPECTED LOSSES
ABC 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
Code 8810 Clerical
$203.50 +
$7.14
=$210.64 x 3 years= $631.92
E-MOD CALCULATION: ABC LAW
ENFORCEMENT
E-Mod Formula =
Actual Primary Losses
Expected Primary Losses
Actual Primary Losses=$13,300
Expected Primary Losses=$631.92
$13,300/$631.92
= 21.04?
WHY IS THIS E-MOD SO HIGH?
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.
Experience Modification Formula
Actual
Primary
Losses
+
Expected +
Primary
Losses
Weighting Value
(1 Minus Weighting Value)
Ballast
Times
Times
Value + Actual Excess Losses + Expected Excess Losses
Ballast
Value
+ Weighting Value
Times
Expected Excess Losses
= Total A
+ (1 Minus Weighting Value) = Total B
Times
Expected Excess Losses
For experience modification, divide Total A by Total B;
Round to two decimal places.
E-MOD CALCULATION -ABC LAW ENFORCEMENT
Ballast Value:
Weighting Value:
$30,000
Actual Primary Losses:
Actual Excess Losses:
(1 Minus Weighting Value):
$13,300
$ 15,000
(1 - 0.05)
Expected Primary Losses:
Expected Excess Losses:
0.05
$5,070
$631.92
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
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
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
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
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
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
Questions?