EXPERIENCE MODIFIERS

What is an Experience Modifier?

An experience modifier is a reflection of your company's individual loss experience compared to the experience of all other companies in your state with similar operations. The National Council on Compensation Insurance (NCCI) compiles payroll and loss information on all policyholders and establishes criteria for the "average risk" for each classification code. Your individual modifier reflects a comparison of your company to the "average risk" in your state.

An experience modifier uses past experience for a class of business to predict future losses. Based on your company's payroll by classification and factors developed by NCCI, we are able to determine what is known as "expected losses". If your company's losses exceed the "expected losses", your modifier will be greater than the 1.00 median. If your company's losses are less than the "expected losses", your modifier will be less than the 1.00 median, resulting in a credit to your premium.

Who qualifies for an Experience Rating?

Your company must have been in business and carried workers' compensation insurance for at least 2 full years before consideration is given. Once you meet the time requirement, you must meet certain premium eligibility requirements as determined by NCCI. In determining the eligible premium, it is important to note that the premium used is the "manual premium", or premium based on your base rates per class code, exclusive of any credits, discounts or prior debit modifiers. In Louisiana the eligibility requirements are as follows:

• $10,000 premium for the last year or 2 years in the experience rating period OR
• An average premium of $5,000 annually if the experience rating period is more than 2 years

What data is included in an Experience Rating?

The experience modifier is computed using payroll and loss data for 3 consecutive years, excluding the most recent year. Once all of the applicable data is obtained, it is entered into a complex formula to obtain the experience modifier.

Losses used are "incurred" losses. This means that both paid and reserve amounts are shown. Losses used are evaluated on a time scale established by NCCI, with the first evaluation being 18 months after the inception of the policy and subsequent evaluations in 12-month increments thereafter. Data is sent to NCCI annually to update individual records.

How do losses affect your modifier and your premium?

The frequency of small claims adversely affects your modifier more than a single large claim because "primary losses" are more heavily weighted than "excess losses" in the rating formula. The single large claim will have a "primary loss" of only $5,000 while the combined "primary loss" of several small claims may far exceed $5,000. Remember that each year of experience will be reflected in 3 consecutive years of experience rating, which means that a single year with numerous small claims will have an adverse affect on your modifier for 3 years. A modifier in excess of 1.00 means you will be paying more than the "manual premium" for your insurance. A modifier less than 1.00 means you will receive a discount on your manual premium in addition to any other offered by your insurer.

What can you do to control your modifier?

• The single most effective way to control your modifier is to implement an active Safety Program designed to eliminate careless losses. Stonetrust loss control services can assist you with this program.
• While all claims must be reported to our claims office, you may choose to pay small medical only claims yourself. If this is the case, you should file the claim as "for information only" with our claims office. This is important in the event that the claim turns out to be more serious than originally thought and develops into a claim for lost time in addition to the medical portion. You can reach the Stonetrust claims department at (800) 311-0997.
• Upon policy renewal, you may elect to "buy back" some or all of your claims for the previous year.