Upcoming Changes

1. Upcoming Changes To NCCI Experience Modifiers Edward J. Priz, CPCU, APA

2. Effective 1/1/2013 A New formula will be used in states that use NCCI to calculate experience modification factors

3. Non-NCCI States not affected • California, Michigan, New York, New Jersey, Pennsylvania, Delaware, and Monopoly Fund states will continue using own formulas. • But only CA, MI, PA, and DE will be standalone for interstate risks.

4. This will affect all employers who are experience rated Some will get lower modifiers, some will get higher modifiers

5. What’s Changing? Primary and Excess Losses

6. Experience Mod Directly Impacts Premium Charges • Multiplier applied to Manual Premium • 1.25 Mod means a 25% Surcharge • .75 Mod means a 25% Credit

7. Debit Mod Illustration • Class Payroll Rate Premium • 8810 $100,000 $0.35 $350.00 • 8742 $ 50,000 $0.65 $325.00 • 3632 $500,000 $7.50 $37,500.00 • Total Manual Prem: $38,175.00 • Modifier: 1.25 • Modified Premium: $47,419.00

8. Credit Mod Illustation • Class Payroll Rate Premium • 8810 $100,000 $0.35 $350.00 • 8742 $ 50,000 $0.65 $325.00 • 3632 $500,000 $7.50 $37,500.00 • Total Manual Prem: $38,175.00 • Modifier: .75 • Modified Premium: $28,631.00

9. Primary Losses • Old Formula: First $5,000.00 • New Formula: First 10,000.00 • Ultimately, First $15,000.00

10. The New Formula • Will count more of certain claims, in both actual losses and expected losses.

11. Impact will vary • Generally, employers with low losses will see lower modifiers than under old formula • Employers with higher losses will see higher modifiers than under old formula

12. One hypothetical employer • No actual losses • $50,000 in expected losses • Old Mod: .83 • New Mod: .77

13. Same Employer, more claims • With 3 claims of $25,000 each: • Old Mod: 1.09 • New Mod: 1.20

14. Low Severity v. High Severity • New formula will widen gap between mods of these kinds of employers

15. Same employer, low severity class, No claims • Old Mod: .80 • New Mod: .74

16. High Severity, No Claims • Old Mod: .87 • New Mod .83

17. Size of Employer • New formula will widen gap between mods of small employers and large employers, other factors being equal

18. Medium Employer, no claims • Old Mod: .83 • New Mod: .77

19. Large Employer, No Claims • Old Mod: .60 • New Mod: .54

20. In Summary • New Formula kicks in January 1, 2013 • Will Increase threshold for Primary Losses in annual steps, up to $15,000 • After that, increases for inflation • Also alters formula for maximum mod • Impact of New Formula will vary based on loss history of particular employer • Only in NCCI states