More On the NCCI Code Changes

I have posted often over the last few weeks about the possibility that the NCCI will change the way they calculate the Experience Modification Factor (E-Mod). The possibility of the change is now a reality. I just read over a 150 page actuarial report that the NCCI is going to use as a basis for the changes.

The main changes will include:

1. Loss development factors (LDF) will be derived using claim characteristics such as injured body part, the open and closed claim status at 1st report, and the injury type category.
2. The loss development triangles are being expanded from five reports out to 10 reports
3. Large claims will be capped at $500,000 and expected excess factors (derived from the new seven hazard group mapping by class code) will be used to calculate ultimate losses.
4. Serious and non-serious pure premium components will no longer exist. There will only be indemnity and medical components.
5. The computation of the industry group differentials was slightly modified.
6. The full credibility standards for indicated and national pure premiums were slightly modified

What does this mean for employers?

1. As always, I am impressed the NCCI is going to try to improve their processes. I hear too often in the insurance industry "We do it that way because we have always done it that way."
2. After looking over the report, your claims history will be more accurately affected in your E-Mod, which is a good development for employers. I do not see it as a way to find more money for insurance companies.
3. The introduction of quite a few new variables into the equation means the insurance carriers will be relied on more than ever to report accurate data. One mistake may be magnified under the new calculations and there are more areas for mistakes to be made in reporting the data and calculating your E-Mod.
4. An employer is going to have to understand and examine their loss runs very closely now more than ever in the past.

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