Like many states, New York has used the National Council on Compensation Insurance (NCCI) to determine the experience modifier (Mod) for calculating Workers’ Compensation (WC) premiums. After careful evaluation, the New York Compensation Insurance Rating Board (NYCIRB) decided to create its own rating plan and to withdraw from the NCCI interstate rating plan effective October 1. Overall, the NYCIRB rating plan gives employers more incentive (a.k.a., lower WC premiums) to focus on safety and reduce workplace injuries.
The NYCIRB and your insurance company will determine your Mod based on several factors and formulas.
Your business will continue to be assigned a four-digit classification code, which is used to group similar employers. However, under the NYCIRB rating plan, six classifications are being eliminated and integrated into other codes.
To start, the expected loss amount or total anticipated loss during an experience period (the timeframe that the policies being used to determine the Mod were in effect) will be determined. It is calculated for each classification using this formula:
Expected Loss Rate (ELR) X payroll)/100
Then, the results for all classifications are added together to calculate expected losses.
Next, a split point is determined. The split point divides losses for each claim into primary and excess components using a dollar value. Split points vary based on expected losses during an experience period for each classification. They range from $1,000 for the smallest risks to $170,000 for the largest.
The split point is used to determine an employer’s corresponding D-ratio, which is assigned based on the ratio of primary losses to expected losses for each class and risk size.
- Expected Primary Losses = expected losses for the classification X D-Ratio
- Expected Excess Losses = expected loses – expected primary losses
- Actual Primary Losses = reported losses limited by the split point value
Finally, the new modifier (based on experience rather than merit) is calculated:
Mod = (Actual Primary Losses + Expected Excess Losses)/Expected Losses
There’s one more thing that will happen: a new capping methodology which protects against overly harsh Mods will be applied. For one claim, the maximum Mod is 1.12; for 2 claims, the max is 1.4; for 3 claims, the max is 1.75; and for four or more claims, the max is 2 + .000003 X expected losses. For the first year (October 1, 2022 through September 30, 2023), if a Mod under the new plan is more than what it would have been under the prior formula using updated experience by more than .30, the Mod will be capped at the Mod resulting from the prior formula plus .30.
You can find more details in the NYCIRB Experience Rating Plan Manual. For change highlights, including an example and updated rating worksheet, refer to the NYCIRB’s Changes to the Experience Rating Program Explained pamphlet. You may also want to check out the Mod Estimator tool on the NYCIRB’s website and this video explaining the new formula.
It’s definitely a lot to take in but the good news is insurance companies will be doing the calculations. We just want to make sure you’re aware of them because they may result in a decrease (or increase) to your WC premiums come October 1 and give you another reason to focus on your workplace safety efforts.
If you have any questions about this or any accounting, tax, or auditing topic, please don’t hesitate to reach out to RBT CPAs.