1) Who is eligible for a workers' compensation experience modification rating?
To be eligible for a Minnesota experience modification rating by the Minnesota Workers’ Compensation Insurers Association (MWCIA), which is the ratings bureau for Minnesota, an employer must have an average annual workers’ compensation premium of $5,000 in Minnesota during the three-year rating period that includes the three years prior to, and not including, the current policy year. For example, for a policy expiring on Jan. 1, 2014, the rating period would be Jan. 1, 2010, to Dec. 31, 2012. You may also qualify for an experience modification rating if you had at least $10,000 in premium for either the last year or the last two years of the rating period. There have been no changes in this eligibility requirement due to the recent split point change.
To qualify for an experience modification rating from the National Council on Compensation Insurance (NCCI), which is a national ratings bureau, an employer must meet the eligibility requirements established and approved by the state(s) that participate in the NCCI Experience Rating Plan.
The NCCI gathers data, analyzes industry trends and prepares objective insurance rate and lost cost recommendations for insurers. NCCI experience modification ratings may either be intrastate, i.e., having exposure in only one state that participates in the Plan, or interstate, i.e., exposure in multiple states that participate in the Plan. For more information, please see “Understanding the Experience Modification Rating.”
2) How and when is my workers' compensation experience modification rating created?
The experience modification rating is created six months prior to the renewal of your workers’ compensation insurance coverage. The workers’ compensation insurance carrier must submit to the bureau (i.e. NCCI or MWCIA) a Unit Stat Card, which lists all losses within a 45-month rating period.
Generally, a rating only considers three years of loss data based on the policy effective date, not including the year immediately prior to the effective date of the rating. However, the rating period can be any length of time not to exceed 45 months if a policy’s effective date is being changed. The losses include paid and reserved dollar amounts of the claims. The bureau then puts the claim information, payroll data by class code, expected primary and actual losses, and weighting factors into its experience modification factor equation to determine ratings. For more information, please see Understanding the Experience Modification Rating.
3)Is the experience modification rating really a measurement of the effectiveness of my safety program?
The experience modification rating (EMR) offers a reflection of a company’s safety program in relation to other similar employers. A rating of 1.00 is considered average and correlates to achieving a “C” on a safety report card. A modification rating less than 1.00 is considered better than average, and EMRs above 1.00 are worse than average. For more information, please see “Understanding the Experience Modification Rating.”
4) How will the split point changing affect my modification rating?
In general, if your experience modification rating was less than 1.00, you are likely to see a decrease in your modification rating. However, if your experience modification rating was greater than 1.00, you will likely see an increase experience modification rating. Experience modification ratings close to 1.00 will typically not see much of a change caused by the split point change.
5) Why did my modification rating increase when my losses stayed flat?
There are three likely reasons:
- The split point change that occurred in 2013 changed the cap of primary losses from $5,000 to $10,000; then, in 2014, it was changed to $13,500. therefore, the first $13,500 in losses now has a greater effect on the modification rating and is weighed more significantly. More primary losses in the equation can negatively affect your rating.
- If your payroll decreased—which decreases your expected losses—but your actual losses remained the same, you’ve actually performed worse. This can result in a higher modification rating.
- Lastly, experience modification ratings are based on industry averages, so if your competitors had fewer losses while you stayed flat, your relative standing has worsened.
6) How do ownership changes affect my experience modification rating?
A company’s experience modification rating follows the business not the ownership. In other words, when a company is bought, whether it has been sold in its entirety or just the assets were sold makes no difference, the EMR is also bought.
However, companies that share more than 50% common ownership are subject to an experience modification rating based on the combined data.
7) Should I not report small medical-only claims to avoid negatively affecting my experience modification rating?
In Minnesota, all work-related claims must be submitted to your workers’ compensation carrier. It is illegal for an employer to pay medical bills related to a work injury. Medical-only claims are reduced by 70% on the experience modification worksheet and have little impact if they are minor.
8) How does a claim get re-filed if it closes for less than was reported on the experience modification worksheet?
Few carriers will automatically re-file a claim if it closes for less than reported. Therefore, it is vital to review the experience modification worksheet upon receipt to check for errors. You should also check your workers’ compensation loss runs for updates. If there is a mistake in payroll or claim closure that qualifies for a re-file, the carrier must be notified to submit the revision to the ratings bureau (i.e. NCCI or MWCIA).
9) Are the mistakes on my expereince modification worksheet?
It is uncommon to find a mistake on the experience modification worksheet. Yet, when they do occur, they are most commonly found in small indemnity or open claims.
Small indemnity claims are ones in which the incurred dollar amount was slight but 100% of the claim was used in the experience modification calculation because the employee was not returned to work within the defined waiting period. Open claims on the experience modification rating worksheet should always be reviewed prior to the calculation being made to determine if a reserve decrease or file closure is appropriate.
These errors provide you with areas to improve upon in your claims management process. For example, if there is a small indemnity claim listed on the experience modification worksheet identified as anything other than “6” (the claim classification code for medical-only), it is quite possible the employee was not brought back to work within the three-day waiting period to obtain the 70% reduction on the worksheet.
10) Is there a turnkey solution to lower my experience modification factor?
No, but there are processes that can be implemented to identify problem areas and develop corrective actions and proactive procedures to gain better control of your experience modification factor. Although Marsh & McLennan Agency’s Minneapolis office has averaged over $112,000 in premium discounts from re-files per year over the past five years, the best and surest way to control your experience modification rating is to implement and maintain stringent safety and claims management programs.