There is a tremendous amount of information floating aroundabout the upcoming changes to the NCCI experience rating formula.Back in February, I wrote about the change . Many discussions includemisconceptions about the nature of the change. There are three mainmisconceptions:

Myth #1 - As a result of the change, everyexperience mod will increase.

Reality: NCCI reports that 18 percent ofmods will increase more than 2 points in the first year of thechange. The spit point isn't the only thing that will change in thenew formula. The D-Ratio, which determines the portion of expectedlosses for a class code that is expected to be primary loss, willalso be increasing. Other rating values may also change, but wedon't know about those things yet. This increase in the D-Ratio isgoing to also have an impact on:

Myth #2 – The split point change is bad foremployers

Reality: Let's be clear, for the7 percent whose mods are going to increase 11+ points,the change will be a bad thing. However, 46percent of employers will see a drop of between 2 and 10points. More importantly, because of the increase in the D-Ratio,the minimum experience mod that each employer can reach will bedropping. This means that EVERY employer, no matter what the firstyear impact of the change is on their mod, will have greatercontrol over the workers' compensation costs than they do now.

For employers who take action to take advantage of thisopportunity, not only is the split point change nota bad thing, it is an incredible positive that willallow them to free up more of the capital that is locked up intheir experience mod.

Myth #3 - The split point change is a “shadow rateincrease.”

Reality: There is a consistent fear thatinsurance companies are always trying to find creative ways tocollect more money without having to do the unpleasant raising ofrates. The reality of the split point change is that insurancecompanies will be in a position to more accurately charge employersfor the actual exposures that they present.

It is important to remember that the mod is a “predictiveindicator of future losses.” That is, it helps the insurancecompany determine how much money they should expect to pay foremployee injuries for any given employers during that policyperiod. The split point change allows insurance companies to have aclearer picture of what their actual exposure is, and to charge forthat exposure appropriately.

For agents who are in the business of helping their clients getbetter results, the split point change presents a uniqueopportunity to drive their client's costs down even further. As theeconomy improves and employers hire more and more people, theirability to drive down costs will only increase.

Don't buy into the myths about the split point change. Get the facts and help your clients take control and drivetheir costs down.

Kevin Ring is the Director of Community Growth for theInstitute of WorkComp Professionals, which trains insurance agentsto help employers reduce Workers' Compensation expenses. A licensedproperty and casualty insurance agent, he is theco-developer of a new Workers' Comp software suite that will helpinsurance professionals in working with employers. He may becontacted at 828-274-0959 [email protected].