by | Laws & Regulations, Workers Compensation |

Even If There Is No Change in Your Losses

The National Council on Compensation Insurance (NCCI) ( calculates the Experience Rating Modifications (ERMs) for all but six states (CA, DE, MA, NJ, NY, PA) and calculates all interstate ERMs.  In 2013, there is a change in the way ERMs are calculated that may affect you. 

In simple terms, this is the way your ERM is calculated:

  • Your payrolls by classification for the last three full policy periods are multiplied by the expected loss elements in the rates in effect on your ERM’s effective date to develop expected losses
  • The expected losses are compared to your actual losses, limited to minimize the effect of large losses
  • A credibility factor is selected from a table, based on your total expected losses
  • Development factors are applied to your actual losses
  • Generally, if your limited developed losses are lower than your expected losses, you earn a credit.  If they are higher than the expected losses, you earn a debit.  This is modified somewhat by the credibility factor.

What is the “split point” and how does it affect your ERM?

  • The “split point” is the level at which large losses are limited in the calculation
  • For nearly 20 years losses were split with the first $5,000 of each loss used in the primary portion of the calculation and the remaining loss dollars used in the excess portion of the calculation
  • All the primary losses are used in the calculation
  • Excess losses are weighted based on the size of your account, and have less of an effect on small accounts than they do on large ones

Experience rating has always penalized accounts for loss frequency, while giving them a break on large losses.

What’s changing?

  • NCCI has filed increases in the “split point” to take effect over the next three years in all states they control except ND, OH, TX, WA and WY.  The new “split points” are:

Effective Year

Revised “Split Point”







  • They also filed changes to the primary and excess expected losses used in the ERM calculation
  • Those filings have been approved to be effective with the 2013, 2014 and 2015 rate changes in each state
  • They also recommended that the “split point” changes be adopted in the states for which they do not calculate ERMs

Why the change?

The $5,000 “split point” no longer reflects a “large loss” given the current cost of WC claims.

How Will the Changes Affect You?

The impact to your ERM will depend on how many losses exceed $5,000.

  • If none of your losses exceed $5,000, your ERM will likely improve because no additional loss dollars will flow into your ERM under the higher “split point” and there will be less expected excess losses in your calculation.
  •       If your losses over $5,000 are in line with the new primary and excess expected losses, you will likely see little or no change in your ERM.
  •       If you have an above-average amount of loss dollars over $5,000, there will likely be an increase in your ERM.  That increase will depend on how your losses compare to the new primary and excess expected losses.
  •       Both credits and debits will tend to get larger (with some exceptions) but the average ERM across all employers will not change.

For more information about this change including some examples of actual ERMs, NCCI has posted free webinars on their website.   The first two webinars on the list deal with this change.  If you choose to look at both webinars, I suggest you look at the second listed item first, then move to the newer one which is listed first and is more detailed.

Acadia is pleased to share this material for the benefit of its customers.  Please note, however, that nothing herein should be construed as either legal advice or the provision of professional consulting services.  This material is for informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness.  Recipients of this material must utilize their own individual professional judgment in implementing sound risk management practices and procedures.

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