The experience modification factor (exmod) plays a critical role in determining your workers’ compensation premiums. One of the biggest factors affecting the exmod is the split point between primary and excess losses.
Understanding the Split Point
The split point was originally set at $5,000 years ago, but the National Council on Compensation Insurance (NCCI) periodically adjusts it based on inflation and industry loss data. Factors such as medical costs, living expenses, and legal fees influence these adjustments.
Since split points directly impact the exmod calculation, it’s important for businesses to understand how and why they change each year.
How Split Points Affect Your Business
In 2017, the 34 states using the NCCI rating system (along with Washington, D.C.) increased the split point to $16,500 from $7,000 the previous year. This change significantly altered how losses were categorized:
- A $11,000 loss would be classified entirely as a primary loss, since it falls below the $16,500 threshold.
- A $27,000 loss would be split into $16,500 primary losses and $10,500 excess losses.
Why Primary Losses Matter More
The primary loss portion carries greater weight in the exmod calculation than excess losses. This design incentivizes businesses to prevent frequent small claims rather than just avoiding large claims.
If a company has multiple claims above the threshold, the exmod calculation becomes more complex. However, the principle remains the same: Frequent losses increase the exmod more than a single large claim.
The Impact of Exmod on Premiums
The current exmod calculation penalizes businesses with a higher frequency of losses, leading to increased workers’ compensation premiums. As split points rise, businesses face higher premiums because a larger portion of each claim is counted as a primary loss.
For companies that rely on government contracts or large private projects, maintaining a low exmod is crucial. Many contractors and service providers are required to keep their exmod below a certain level to qualify for bids.
How to Lower Your Exmod
To keep workers’ compensation costs under control, businesses should:
- Implement strong workplace safety programs to prevent injuries.
- Improve claims management and ensure injuries are reported and resolved quickly.
- Regularly review claims history and address any recurring safety issues.
- Work with an experienced insurance broker to understand and mitigate risks.
Final Thoughts
Understanding how split points affect your exmod can help you control costs and stay competitive. By prioritizing workplace safety and claims management, businesses can maintain lower workers’ compensation premiums and qualify for more job opportunities.
For further questions on this or any other risk management topic, please contact us. We’ll see you again soon!
