Split Point Experience Rating Formula Explained
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In the experience rating process, each loss is divided into a primary and excess portion. The first $16,500 of every loss is determined as a primary loss, with everything above that point considered an excess loss.
In July 2011, the NCCI announced a proposal to raise the split point from $5,000 to $15,000 over a three-year period to better correlate with claim inflation. The process of transitioning to the new split point began in 2013, with an increase in the split point from $5,000 to $10,000. In 2015, the split point included an additional increase as a result of claim inflation, and the NCCI now makes annual adjustments to the split point based on inflation.
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The split point is used in the experience rating formula for worker's compensation. It is the dollar level at which each claim is divided into two parts, primary (the cost of each claim incurred below the split point) and excess (the cost of each claim incurred above the split point).
- The primary costs are fully weighted in the experience algorithm.
- The excess costs are only partially weighted in the experience algorithm.