As you likely know, your experience mod plays an important role in determining your workers’ compensation premiums and is largely determined by the split point between primary and excess losses. For many years, this split point was set at $5,000. However, the National Council on Compensation Insurance (NCCI) now increases the primary-excess split point every year based on inflation and collected loss data.
Because the split point directly effects your business’s experience mod, it’s important to know how and why the split point changes every year, and what it means for your bottom line.
Understanding the Split Between Primary and Excess
In 2017, the District of Columbia and the 34 states that use the NCCI’s rating system will use a split point of $16,500. This means that the first $16,500 of every loss is considered a primary loss, and any amount over this point is considered an excess loss. For example, a $9,000 loss would have no excess losses, as it falls below the current split point of $16,500. However, a loss of $25,000 would have $16,500 in primary losses and $8,500 in excess losses.
Your total primary losses are used as an indicator of loss frequency at your business, and their full value is used in the experience mod calculation as a motivator to lower the overall number of workplace injuries. Conversely, excess losses receive only partial weight in the calculation, as one catastrophically large loss would otherwise lead to a substantial increase in your experience mod. As a result, the experience mod calculation punishes businesses with a higher number of losses, as they will have higher experience mods and workers’ compensation premiums.
Changes to the Split Point
In 2011, the NCCI announced a proposal to raise the split point in order to account for high claim inflation. This change raised the split point from $5,000 to $15,000 over a three-year period, beginning in 2013. Since 2015, the final split point included an adjustment for inflation, which continues to be used as the basis for annual adjustments to the split point.
How Does This Affect You?
Although the NCCI’s stated goal is for all businesses and industries to have an average experience mod of 1.00, regular adjustments to the split point directly impact your operations and workers’ compensation premiums. As the split point continues to rise every year, you can expect to pay higher premiums if you don’t take steps to limit the number of workplace injuries at your business. Additionally, you may be required to maintain a certain experience mod in order to bid on jobs or contracts.
Contact Conservation United at (844) 559-8336 today. Our staff can provide you with a number of resources to create an effective workers’ compensation program and lower your experience mod. These resources include safety policies, return to work programs, compliance guides and employee-facing safety articles designed to keep your business healthy and productive.