Gulfshore Insurance > Gulfshore Blog > Claims Management > Workers’ Compensation – Understanding the NCCI Mod Calculation

APL + B + (W x AEL) + (1-W) x EEL =EMR
EPL + B + (W x EEL) + (1-W) x EEL

This equation isn’t too scary, is it? Certainly not scary if you know what all the abbreviations mean. Here, let’s see if this helps…

What we have above is the equation for the NCCI Experience Mod calculation, but there are certainly a few more pieces of information you’ll need if you want to have a better understanding of how this equation is calculated, if it’s correct, and how you can influence it to reduce Workers’ Compensation premium.

Let’s start at the beginning, with the NCCI mod worksheet that is sent to qualifying companies in NCCI approved states. When a company receives the mod worksheet either from their carrier, agent/broker, or directly from the NCCI, they will find everything they need to calculate the mod right on the cover page. It looks a little like this…

Obviously, name, effective dates, and the Risk ID have been removed, but this is an illustration of all the data on the cover sheet. Everything you need to calculate the NCCI mod is right here, so let’s examine the top row of our column headings.

(A) Wt – this is the “weighting value,” and it’s a statistic provided by the NCCI which increases as the expected losses increase. What this means is that the larger a company is in terms of employees and payroll, the more its own claims experience influences the result.
(C) Expected Excess Losses – EEL is the difference between the Expected losses and the Expected Primary Losses (EPL)
(D) Expected Losses –is derived by using expected loss rates, and is a function of classification codes and payroll within those codes
(E) Expected Primary Losses – EPL is derived by taking a discounted portion of all the expected losses. Primary Losses are considered any claims valued under $5,000 (changing to $10,000 on 1/1/13).
(F) Actual Excesses Losses – AEL is the difference between Total Actual Losses and Actual Primary Losses (APL)
(G) Ballast – this is another NCCI statistic that varies based on expected losses, it’s designed to keep the mod close to 1.00.
(H) Actual Incurred Losses – is the total amount of claims (medical and indemnity only, no expenses).  This total has per claim limits that vary by state.  A $150,000 or $200,000 per claim limit is common.  The Actual Incurred total can also have another significant limitation called the Experience Rating Adjustment (ERA), which provides a 70% discount for medical only claims.
(I) Actual Primary Losses – APL is the total of the first $5,000 of all claims (changing to $10,000 effective 1/1/13).

Expected and Actual Losses

Examining any one of the other pages of the mod worksheet will provide state specific, annual results.  Below is a snapshot for one year of one state’s results…

The columns here help us understand where EEL and EPL come from.

Code – is simply the classification code that describes the type of work that is being done, for example “8810” is for clerical work.

ELR – is the expected loss rate, meaning for every $100 of payroll (in this class code) other companies, on average, have experienced this amount of workers compensation claims (medical and indemnity).  Multiplying the (payroll/$100) times the ELR will give you the Expected Losses.

D-Ratio – is the Discount Ratio, which is the portion of expected claims that will be considered “primary,” or under $5,000 (changing to $10,000 effective 1/1/13).  Multiplying the Expected Losses times the D-Ratio will give you the Expected Primary Losses (EPL).  Subtracting the EPL from the Expected Losses provides the Expected Excess Losses.

Claim Data – this is the claim number from the insurance carrier and it identifies a specific case file.  Specific claims will be listed individually if they are open, include any indemnity, or >$2,000.  The worksheet will add together any closed, medical only claims under $2,000 and put them all on one row.  In this example there were six closed, medical only claims under $2,000, added together.

IJ – this is the “injury” code that describes the severity of the claim; here are the definitions of the nine different injury codes:

1 – Death
2 – Permanent Total Disability
3 – Major Permanent Partial Disability
4 – Minor Permanent Partial Disability
5 – Temporary Total or Temporary Partial Disability
6 – Medical Only
7 – Contract Medical or Hospital Allowance
8 – Compromised Death – CA only
9 – Permanent Partial Disability

OF – is an identifier whether the claim is “open” or “final” (meaning closed)

Actual Incurred Losses – is the value of the claim provided by the insurance carrier, and includes medical and indemnity payments and reserves

Actual Primary Losses – represents the first $5,000 of each claim (changing to $10,000 effective 1/1/13)

Experience Rating Adjustment (ERA) – The ERA is a discount of 70% applied to claim values for claims that are medical only (no indemnity payments and no permanent disability). This discount, which is approved in most NCCI states, was first applied in 1998 as an incentive for employers to provide return to work programs, light duty, and get injured employees back on the job. The ERA is approved in the following states:

AL, AR, AK, CO, CT, DC, FL, HI, ID, IL, IN, KS, KY, ME, MD, MI, MN, MS, MO, NE, NV, NH, NC, OK, RI, SC, SD, TN, TX, UT, VT, VA, WV, and WI.

There was a lot of technical detail in this article, and I hope it was helpful. Understanding how to read the NCCI Experience Mod Worksheet isn’t clear without a roadmap like this, and it becomes much easier to check for errors on individual claims if you know where to look. After you have an understanding what the details of the worksheet pages show you, it becomes much easier to influence the mod by making procedural changes within the company.

John Keller, CRM ARM CIC AAI is the Director of Risk Management and Claims at Gulfshore Insurance. John works with a wide range of business clients to deliver strategic risk analysis and guidance. Comments and questions are welcome at jkeller@gulfshoreinsurance.com

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