Everyone that is significantly involved with the workers compensation industry is familiar with the NCCI and their role nationally. What is forgotten, however, is the fact that most employers don’t know about the NCCI and why that organization is important.
First things first, NCCI stands for National Council on Compensation Insurance and as advertised in the name, they serve as a general council. The NCCI frequently gathers data on claims and industry information, analyzes trends, and offers rate and loss cost recommendations.
What does the NCCI do that impacts me as an insured?
Most importantly, the NCCI administers and calculates the experience modification rating and the X-Mod worksheets for insured’s in roughly 34 states. The experience modifier (or emod) directly impacts what an insured pays for their workers compensation coverage.
The standard, or base modifier is a 1.00. This means that whatever the calculated premium is for a client, it is then multiplied by the experience modifier to create that client’s true premium. Think of an emod as a credit score for work comp. It is a reflection on how many claims a company has had, in comparison to the amount of claims other company’s have had doing the same type of work.
If the mod is above a 1.0, this means a company has had more claims than would be expected and thus, they pay an extra premium because of their poor loss history. If the mod is below a 1.0, this means a company has had fewer claims than expected and gets a discounted premium as a result.
NCCI Class codes are another important reflection from the NCCI. Every insured has one or multiple class codes assigned to their policy, based on the type of work that company performs. A class code is a 4-digit code that best represents the type of work an employee does for a company. For example, a painter would go in class code 5474 for most states.
Pricing is built around the class codes and the historical loss history surrounding that code. If a class code has a high frequency or high severity of claims historically, it will be more expensive … which makes sense. Someone is more likely to get injured painting the outside of a house on a two-story ladder than someone who sits in an office all day (class code 8810). Thus, the rate a carrier charges will differ based on the class codes.
The NCCI is also in charge of collecting and analyzing data surrounding workers compensation, so they are the ones who are helping carriers know for sure that there are more claims in the painting class code than in clerical. Based on these facts and figures collected, the NCCI also offers suggestions to the Department of Insurance in most states on whether they should adopt price increases or price decreases. The NCCI has no authority on whether a state can adopt an increase on their assigned risk pool policies, but their opinion is heavily weighed as it comes with the best data analysis in the industry.
Finally, the NCCI manages the assigned risk pool (or state fund) for most of the 34 states previously mentioned. Insurance agencies like The Insurance Shop can place workers compensation policies for clients through the assigned risk pool in these states when an insured has no options on the voluntary market.
As the industry continues to be more cautious with it’s underwriting strategies, we have seen a significant increase in the need to write assigned risk pool policies. In the first quarter of 2013, our agency has helped hundreds of insured’s get coverage that they weren’t able to get on the open market.
