An endorsement attached to a workers compensation policy when a contingent experience modification factor is used instead of a rating bureau approved experience modification factor.
An entry on the policy declaration information page may be used instead of this specific endorsement. When an experience modification factor has been issued but is issued on not yet complete statistical data this endorsement may be used. It allows the application of the contingent rating factor and allows the insurance company to make appropriate changes to the experience modification factor when the available data has become available thus applying the correct modification factor at a future date. The contingent factor applies to and modifies the policy until a revised factor is issued and applied.
Reasons are varied and many as to why a contingent rating factor endorsement may be applied to a workers comp policy. This endorsement deals with the impact that data availability has on the experience rating process. To better understand this endorsement requires an understanding of experience rating. NCCI, a rate making organization, produces experience modification factors used to modify a policyholders rating process in accordance with the rules outlined in the Experience Rating Plan Manual, a manual produced by NCCI. For example in the year 2008 NCCI reported that about 1.3 million initial experience rating factors were produced with about 700,000 of those revised due to more complete data being received. It's real simple...the more data on hand that NCCI can use...the more accurate the produced experience mod factor will be. When most but not all data is received NCCI will produce a contingent modification factor. This process is outlined in the Experience Rating Plan Manual. When all the data is received NCCI will then issue a revised experience mod factor and the policyholders insurance company will make a correction to their policy applying the now correct factor.
This is only allowed when the policy in question has the contingent rating factor endorsement applied. Here's where you have to be careful...not all states use NCCI and not all NCCI states allow this endorsement to be used.