Usually every year there are some perfunctory state-specific changes in workers’ compensation. But look out, beginning in 2013, there is one change that will affect almost everybody: a change in the calculation of the experience modification rate (EMR) – which is likely to increase your premiums.

A New Split

The National Council of Compensation Insurers (NCCI), which is an insurance rating and data collection bureau for the majority of states, has a formula that calculates EMR, which is basically a figure that represents your workers’ compensation claims history against an expected claims history for a business in your industry. Your workers’ compensation insurance premium is then based, in part, on this figure.

When an employee files a workers’ compensation claim against your policy, “it is essentially split into two categories,” says remodeling industry attorney Kevin Tierney, with Berenson LLP, in Jupiter, Fla., “the primary loss portion and the excess loss portion. The point at which you move from the primary loss portion to the excess loss portion is known as the ‘split point’.” It works this way: Say your workers’ compensation insuranc e carrier covers a $12,000 employee claim. The first $5,000 is the primary loss portion and is included in full when calculating your EMR. Then, only a small percentage of the remaining $7,000, which is the excess loss portion, is applied against your EMR.

The major development is that the $5,000 split point used in almost all states is going to change in 2013 and beyond. In 2013, the split point will be $10,000; in 2014, it will be $13,500; and in 2015, it will be $15,000. The end result of this change is that claims in excess of $5,000 will have a much bigger impact on your EMR, Tierney says. This will ultimately result in higher premiums. 

—Stacey Freed, senior editor, REMODELING.