Work Comp and the Experience Mod Split Point

In my affected mind, the belief is that my Blog Posts have tremendous widespread appeal!  No?   However, in this post, I will relent that the benefit will be to two types of individuals: technically analytical employers and situational insomniacs. For everybody else, have a Great Labor Day weekend!

Work Comp Experience Mod. Rating

This post will go into a bit more detail regarding how the Experience Modification Rating (let’s call it the EMR) affects an Employers Workers’ Compensation Premium. For a general explanation of the EMR see this prior post.

Primary Work Comp Loss Vs. Excess Loss

The basis of this discussion is the Split Point of the EMR.  When an Employer has a claim, a specified amount of the claim payment is considered the Primary Loss and the additional is considered the Excess Loss (that’s the Split Point).  You can see your total Primary Losses in the final column of your EMR report.  

The Primary Loss amount of any claim is capped at a specified amount. For about 20 years, in the state of MO, that amount was $5,000. So lets take an extreme example where an employee is injured on the job and accumulates total medical and indemnity claim costs of $100,000. Only $5,000 of the incurred cost will be considered the  Primary Loss. The remaining $95,000 will be considered Excess Loss.  This is important because the Primary Losses have a much greater impact on your EMR than Excess Losses.

Work Comp Claim Example

Let’s take a common industry example: We will say Sally own’s a Bakery as does John. Despite her outstanding focus on loss control, Sally has an employee that suffers a work related injury. The total cost of the claim is $10,000. John has 2 employees injured during the year and the claim cost for each injury is $5,000 ($10,000 total for both).

While the amount paid in claims for Sally and John are equal the affect on the John’s EMR will be greater because his total Primary Losses for the year will equal $10,000. Sally’s Primary Losses will only be $5,000 (the additional $5,000 will be “Split” into her excess losses). Therefore the affect on Sally’s EMR will not be as significant as John’s. You see? a large number in the Primary Loss column is an indicator of greater claims frequency.

Discussion of the Split point is particularly relevant now because changes are occurring and will continue to occur through 2016. The changes may have a significant impact on Employers Workers’ Compensation Premium. An additional post will follow shortly.  

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Posted by Dan Hebbeln: [email protected]