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Experience Rating: Split Point

Explanation of change to primary/excess split point

Under the Experience Rating Plan, both actual and expected losses are divided into two groups, primary and excess.  For the prior two decades, primary loss has been the first $5,000 of any loss. The entire actual primary loss amount enters into the calculation.  Actual excess loss, the amount above $5,000, is discounted from 20% to 96% depending on the size of the employer (specifically, their expected losses).

Beginning on all 2013 ratings, the primary/excess spilt point will transition to $15,500* as follows:

 

Year

Split Point

Through 2012

$5,000

2013

$10,000

2014

$13,500

2015

$15,500*

2016 $16,000
2017 ​$16,500

Subsequent

Based on Inflation

 

*Initial educational information showed an anticipated 2015 Split Point of $15,000, but with a qualifier it would be indexed for inflation.  The 2015 value now has been established at $15,500 (as in most, but not all other states.)

Here are some examples of how the transition will work:

 

Split Point

 

Prior

 $5,000

Year 1 $10,000

Year 2 $13,500

$4,000

Primary

$4,000

$4,000

$4,000

Claim

Excess

$0

$0

$0

$12,000

Primary

$5,000

$10,000

$12,000

Claim

Excess

$7,000

$2,000

$0

$50,000

Primary

$5,000

$10,000

$13,500

Claim

Excess

$45,000

$40,000

$36,500

 

 

•   Statewide average mod across all employers will not change

  Because D ratio also adjusted (The D ratio determines the amount of expected losses considered to be primary.)

•   In general, both credits and debits will become larger

   74% within range of -0.05 to +0.02,
7% > + or - 0.10

   1% will go from credit to debit, and vice versa

    Under first year of transition (2013 at $10,000 split point), 93% of mods will change less than 10 points

Let’s consider how the change might impact a hypothetical plumber with annual payroll of $300,000, all else being equal*:

 

 

Actual Incurred Loss

Mod. @ $5,000 Split Point

Mod. @ $15,000 Split Point

$0

.90

.87

$5,000

1.10

1.06

$10,000

1.11

1.26

$50,000

1.22

1.56

 

Now we’ll assume annual payroll of $1,000,000:

 

Actual Incurred Loss

Mod. @ $5,000 Split Point

Mod. @ $15,000 Split Point

$0

.82

.77

$5,000

.93

.87

$10,000

.94

.98

$50,000

1.03

 


Mod Examples by Loss Amount & Split Point 



* Each year, a new year of experience replaces one that is dropping out of the calculation, and expected loss rates change.  So, the examples are for illustrative purposes only.

There also will be a concurrent change to the maximum modification formula.    Experience Rating modifications have a maximum allowable debit, based on a formula.  The larger the risk, the greater the allowable debit.  Previously, the formula moved towards a unity mod (1.00) for the smallest qualifying employer.  The new formula moves towards a 1.10 mod.

Additional Information

NCCI website

Other Sources:


Related Files

The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.