The commissioner of insurance issued Commissioner’s Order No. 3708, dated December 5, 2014, adopting the National Council on Compensation Insurance Experience Rating Plan Manual for Workers Compensation and Employers Liability Insurance (NCCI ER Plan) with Texas exceptions, as proposed by the September 16, 2014, TDI staff petition (Reference No. W-0914-07-I), with no amendments. Carriers do not have to make a filing with TDI to use the NCCI ER Plan with Texas exceptions.
The commissioner determined that adopting the NCCI ER Plan with Texas exceptions is the last major step in Texas becoming an NCCI state for workers’ compensation purposes.
The rules in the NCCI ER Plan and the Texas ER Plan cover the same areas:
- eligibility for experience rating modification
- calculation of the experience rating modification
- application of the experience rating modification.
The substantive differences between the NCCI ER Plan and the Texas ER Plan are:
- amending the NCCI experience rating modification formula to include an experience rating adjustment that reduces the amount of the medical-only claims used in the experience rating modification calculation by 70 percent
- increasing the split point, which separates losses into primary and excess components, from $5,000 to $15,500
- updating the weighting values, which determine the portion of excess loss that is included in the calculation of the experience rating modifications, based on NCCI’s loss costs rather than TDI’s relativities
- updating the ballast values, which help reduce fluctuations in the experience rating modification, based on NCCI’s loss costs rather than TDI’s relativities
- updating the claim limitations, which help ensure that large claims do not have an undue impact on the experience rating modification
- updating the expected loss rates and discount ratios based on NCCI’s loss costs rather than TDI’s relativities
- amending the NCCI experience rating modification formula to include a maximum debit modification to ensure that all debit modifications remain within a reasonable range, and
- establishing a three-year transition period for Rule 4-C-4—Negotiated Modifications in the Texas exceptions to the NCCI ER Plan. Rule 4-C-4 will expire on July 1, 2018.
NCCI will update the weighting and ballast values, the claim limitations, the expected loss rates, and the discount ratios each year in its loss cost filing. The loss cost filing will reflect an analysis of the overall average Texas modification as well as the most recent experience at an individual class level. Through annual updates of the values in the calculation of the experience rating modification, NCCI will ensure that the NCCI ER Plan will continue to perform effectively in Texas.
Many of the changes in the NCCI ER Plan work together to minimize the overall disruption to the industry. For example, the use of the experience rating adjustment decreases the amount of the losses included in the calculation of the experience modification, while the higher split point generally increases the amount of the losses included in the calculation of the experience rating modification. To reduce the impact to individual insureds, NCCI and staff recommend implementing the proposed changes in their entirety, as opposed to transitioning the implementation over time.
There are several new rules in the NCCI ER Plan with Texas exceptions that are not part of the current Texas ER Plan. None of the changes are expected to affect premiums. The new provisions include:
- application of a unity (1.00) factor for a risk that does not have a calculated experience rating modification or when the experience rating modification calculation results in a 1.00 modification
- application of an intrastate modifier for a risk to the premium developed in another state until there is sufficient experience to calculate an intrastate experience modification for a risk
- use of a rating effective date
- use of experience of certified self-insurers, authorized self-insured groups, and political subdivisions that have been self-insured in pools or funds
- requirements for an employer to notify its carrier of a change in ownership or combinability status
- combination of multiple entities for experience rating purposes
- impact of change of ownership and material change in operations on experience rating modification
- application of revised experience rating modification after a change in ownership
- employer actions that may be considered attempts to evade an experience rating modification
- actions NCCI may take to ensure the proper calculation and application of all experience rating modifications that are impacted by employer actions to evade an experience rating modification
- extension of an experience rating modification for a period other than 12 months
- specification of a time frame for revising the experience rating modification for a carrier receiving a recovery from a special fund or a subrogation action against a third party, and
- application of an experience rating modification issued late because the policyholder failed to cooperate with audits.
The NCCI ER Plan changes several rules that currently exist in the Texas ER Plan, but which are not expected to affect premiums. These changes include:
- deletion of the “gross injustice” rule that has not been applied in at least 10 years, as there are other rules in the NCCI ER Plan to address withdrawing an experience rating modification under certain situations
- deletion of the rule outlining the appeal process for an experience rating modification as there is a new appeal process already in place in the NCCI Basic Manual
- deletion of the anniversary rating date rule
- amendment of the definition of joint venture to include all types of projects
- deletion of the irrelevant reference to the National Defense Plan, and
- deletion of the obsolete reference to contract stevedoring risks.
The order specifies that the NCCI ER Plan with Texas exceptions is effective for calculating experience rating modifications with effective dates on or after July 1, 2015. The Texas ER Plan will remain in effect for calculating and revising experience rating modifications with effective dates before July 1, 2015.
Finally, the order states that any future revisions to NCCI’s manuals, including the NCCI ER Plan, will be under either the procedure in Insurance Code Article 5.96, or the alternate procedure in Commissioners Order No. 3142, dated March 21, 2014.
Commissioner’s Order No. 3708 is effective on December 15, 2014, which is 15 days after notice of the adoption of the NCCI ER Plan with Texas exceptions is published in the Texas Register. Click on the link below to review the order in its entirety.
Please contact me by phone at 512-676-6681 or by email at nancy.moore@tdi.texas.gov if you have any questions.
Nancy Moore
WC Classification and Premium Calculation Team
Attachment: Commissioner’s Order No. 3708