Workers’ Comp Lowers Premiums for Most Employers
Are you covered? Workers Comp changes are here!
A reworking of a key piece of the workers’ compensation rating formula isn’t changing rates overall but it is changing premiums for most insured employers.
The change, which took effect January 1, results in a slight decrease for most insured employers. However, balancing out the many decreases will create some significant increases, often among the largest policy holders.
The change involves the experience mod, which is the credit or debit that insureds receive for their own claims experience. The mod compares an insured’s claim experience to that of comparable employers. If experience is good, the insured gets a credit – a discount. If not, the insured receives a debit.
What’s changing is the delineation between the primary and excess portions of a claim, known as the split point. For the past two decades, the split point has been $5,000. This value is important because the primary portion of each claim has a much larger impact on an employer’s mod than does the excess portion. Actuaries believe that the primary loss amount is more predictive than the excess amount.
But inflation has both eroded the primary/excess split point and hurt its predictive power. These days, the mod doesn’t give enough credit to good experience and doesn’t penalize poor experience enough, according to actuaries at the CAS event.
The change raises the split point – to $10,000 in 2013, to $13,500 in 2014, and to an estimated $17,000 in 2015. These adjustments, incorporated into the entire rating formula, improve the experience mod’s predictive power.
In 26 of the 38 states where the plan has been approved, NCCI actuaries sampled 75,007 risks, calculating the experience mod under each system. The NCCI’s sample showed that the vast majority – 62 percent – would see their rates fall less than 5 percent. Another 11 percent realized decreases between 5 percent and 10 percent. Rates were unchanged for 4.5 percent of risks. Less than one in four would see a rate increase.
Overall, the average mod was 0.98 – a 2 percent discount – under the old system and 0.97 – a 3 percent discount – under the new system. DiDonato attributed the slight change to vagaries in the states where the new system had been approved.
All NCCI states, including Maryland, have approved the changes to the plan.
