The NCCI experience rating worksheet shows every number behind an employer’s experience mod. Most agents glance at the mod in the corner and file the page. The agents who win accounts read the whole thing.
This guide walks through the worksheet with a worked example. The numbers are made up and rounded so you can follow the math. Real values for the split point, the weighting value and the ballast come from the rating bureau and change by state, by year and by the size of the employer.
What is on the worksheet
The worksheet has two halves. One side is payroll, which produces expected losses. The other side is claims, which produces actual losses. A summary line at the bottom brings them together.
For each policy year in the experience period you will see:
- Class code and payroll. The payroll reported in each classification.
- ELR. The expected loss rate for that class, per $100 of payroll.
- Expected losses. Payroll divided by 100, times the ELR.
- D-ratio. The share of expected losses that is expected to be primary.
- Expected primary losses. Expected losses times the D-ratio.
- Claim data. Claim number, injury code, open or final status, actual incurred losses and actual primary losses.
Step 1: Expected losses
Our example employer has one classification and $1,000,000 of payroll in each of the three years. The ELR is 2.00 and the D-ratio is 0.30.
| Item | Math | Result |
|---|---|---|
| Expected losses (E) | $3,000,000 / 100 x 2.00 | $60,000 |
| Expected primary (Ep) | $60,000 x 0.30 | $18,000 |
| Expected excess (Ee) | $60,000 – $18,000 | $42,000 |
Step 2: Actual losses
The employer had three claims. For this example the split point is $20,000. Medical-only claims are reduced by 70% under the Experience Rating Adjustment, so only 30% of the claim counts.
| Claim | Type | Incurred | Counted in the mod | Primary | Excess |
|---|---|---|---|---|---|
| 1 | Indemnity | $40,000 | $40,000 | $20,000 | $20,000 |
| 2 | Medical only | $2,000 | $600 | $600 | $0 |
| 3 | Indemnity | $8,000 | $8,000 | $8,000 | $0 |
| Totals | $28,600 (Ap) | $20,000 (Ae) | |||
Look at what happened to claim 1. Half of it landed in excess, where it gets discounted. Claim 3 is one-fifth the size and every dollar of it is primary.
Step 3: The weighting value and the ballast
Two more numbers come from the bureau’s tables, based on the employer’s expected losses.
The weighting value (W) decides how much of the excess losses count. Small employers get a low W. Large employers get a higher one. In our example W is 0.20, so only 20% of actual excess counts.
The ballast (B) is a stabilizing value added to both the top and bottom of the formula. It keeps the mod from swinging wildly. In our example B is $30,000.
Step 4: Calculate the mod
The formula:
Mod = (Ap + B + (W x Ae) + ((1 – W) x Ee)) / (E + B)
| Actual primary (Ap) | $28,600 |
| Ballast (B) | $30,000 |
| Weighted actual excess (0.20 x $20,000) | $4,000 |
| Expected excess not weighted (0.80 x $42,000) | $33,600 |
| Top of the formula | $96,200 |
| Bottom of the formula ($60,000 + $30,000) | $90,000 |
| Experience mod | 1.07 |
Step 5: The lowest possible mod
Now run the same formula with zero claims. Actual primary and actual excess are both $0.
($0 + $30,000 + $0 + $33,600) / $90,000 = 0.71
That is the lowest mod this employer could have. The current mod is 1.07. The gap of 0.36 is the controllable mod. On $100,000 of manual premium, that gap is $36,000 a year. This is the number that gets an employer’s attention.
Where to look for errors
Once you can follow the math, check the inputs.
- Payroll. Does it match the audits for each policy year? Is it in the right class codes?
- Claim values. Compare each claim to a current loss run report. Did any claim close for less than the worksheet shows?
- Injury codes. Is every medical-only claim coded so it gets the 70% reduction?
- Open or final. Are closed claims still marked open?
- Missing or extra policies. Is every policy and every state there? Is anything on the worksheet that belongs to a different business?
If you find a mistake, ask the insurance company to file a corrected report with the bureau. The bureau recalculates the mod.
Do you need a mod calculator?
For one worksheet you can do this by hand. For a book of business you want software that pulls the bureau values for you and tests what-if scenarios, such as what the mod would be if an open claim closed for less. The math is the same. Read how the experience mod works for the concepts behind it.
Agents learn to read, verify and present the mod in the Certified WorkComp Advisor (CWCA) Institute.