Increases in modification are significant. Any experience rated risk with losses over $10,000 should watch out. I question where the 1 out of 5 risks with slight decrease came from. Be sure to get the experience modifications early. Be prepared to explain it to the client.
Increases are significant. Any experience rated risk with one or more occurrences over $10,000 should watch out. This formula is causing signifcant increases in factors. Best to work on projections to avoid unpleasant surprises.
The result seems to be a greater spread of rates around the manual rate. Practically, that may increase rate deficiencies at companies that chase business by ignoring or tempering rate mod debits.
This change looks like it follows one of the intended effects of experience rating; i.e. increase incentive for loss control through the primary claim portion that will be increased with inflation. Control your premiums by mitigating claim costs, to the extent you can. Previously, employers might not care much about a particular claim cost once the claim breached $5,000.
The wider distribution of experience rates might cause some market shifts. Perhaps the NCCI Actuary and Underwriter have projected the possible changes?
This is very misleading at best. Claims at under $5K are penalized more heavily in the experience modification formula than those over $5K. By increasing to $10K, etc. would, in effect, create an increase and not a decrease for most. I would estimate that over 90% of all WC claims will fall under $10K. That would only increase the mod. The initial idea was to punish frequency of small claims and by increasing what they consider small to $10K would only further penalize the middle market clients further…
The Experience Modification has been a very important part of both Workers’ Compensation pricing and underwriting. The problem is that it is a function of payroll which makes the data stale due to the length of time that is required to accumulate the data, refine the data and finally publish the data.
In these technological times in which we live, the idea of having an insured suffer a Workers’ Compensation loss, then wait for a year before it makes it’s way into the mod calculation and then to punish the insured for the next three years is absurd.
Technology is available today to use working hours (as done in the state of Washington) as the exposure basis and gather this information real-time. This would provide real-time data to regulators which would eliminate the inevgitable wild swings in Workers’ Compensation rates. This needs to be seriously considered.
Experience rating is a joke. An employer does not have actuarially sound risk pool so he is being robbed because of variation over which his small size can to prevent. It is nothing but a rip off to use this punitive methodology.
This change is just one that needed to be done but doesn’t go far enough for the small company. Also the way companies use the term “Governing Classification” to place employees in higher rated classification rather than the true class they need to be in. The companies don’t bother to add a class except if there is a claim then they will be sure to add a class which I don’t have a problem with that but it should go both ways. The public looks at insurance as a ripe off anyway this type of action by companies makes me feel the same as my insureds.
Thanks to all of you for coming forward with your comments. Well said and accurate in many areas; increased safety, projecting mod factors in advance, etc. We are absolutely seeing increases in mod factors – particularly with smaller and mid-sized employers, who are typically the group impacted by such formula changes.
NCCI did recognize the impact of doubling/tripling primary losses, so look at your D factors on the modsheet. This is where NCCI made the largest adjustments to offset the impact of these changes. Doubling primary loss $ would have been cripling, had this offset not been taken.
I would think that eliminating the Experience Rating Adjustment Plan (ERA) would have been a better way to correct inefficiencies of the mod factor. It was introduced 20+ years ago in 20+ states and it REMOVES 70% of all $ from med-only claims. That formula change essentially removed millions of $ in claims from the mod calcs. for 20+ years. That could explain why mod factors are no longer “responsive” to loss. Instead of eliminating that formula change, there is an additional one implemented, instead.
Don’t forget to look towards small deductible plans – in 14 states these deductibles can be “net reported” out of the mod factor. Colorado has also passed legislation to raise these small deductible options to match the split point, as NCCI raises it, in an attempt to at least give employers some limited financial influence over this formula change. Thanks and keep talking!
What took them so long to make the change? CAS must be pretty entrenched in their ways.
What on earth does this have to do with the CAS? The NCCI is in charge of monitoring the performance of the plan and making updates.
Increases in modification are significant. Any experience rated risk with losses over $10,000 should watch out. I question where the 1 out of 5 risks with slight decrease came from. Be sure to get the experience modifications early. Be prepared to explain it to the client.
Increases are significant. Any experience rated risk with one or more occurrences over $10,000 should watch out. This formula is causing signifcant increases in factors. Best to work on projections to avoid unpleasant surprises.
The result seems to be a greater spread of rates around the manual rate. Practically, that may increase rate deficiencies at companies that chase business by ignoring or tempering rate mod debits.
This change looks like it follows one of the intended effects of experience rating; i.e. increase incentive for loss control through the primary claim portion that will be increased with inflation. Control your premiums by mitigating claim costs, to the extent you can. Previously, employers might not care much about a particular claim cost once the claim breached $5,000.
The wider distribution of experience rates might cause some market shifts. Perhaps the NCCI Actuary and Underwriter have projected the possible changes?
This is very misleading at best. Claims at under $5K are penalized more heavily in the experience modification formula than those over $5K. By increasing to $10K, etc. would, in effect, create an increase and not a decrease for most. I would estimate that over 90% of all WC claims will fall under $10K. That would only increase the mod. The initial idea was to punish frequency of small claims and by increasing what they consider small to $10K would only further penalize the middle market clients further…
Insurance companies like Chubb will find other ways to surcharge and rip off their insureds.
Do you know any other Workers Compensation Insurance Company in California accepting one worker with minimal payroll besides State Fund?
Sincerely,
Jose Delgado
The Experience Modification has been a very important part of both Workers’ Compensation pricing and underwriting. The problem is that it is a function of payroll which makes the data stale due to the length of time that is required to accumulate the data, refine the data and finally publish the data.
In these technological times in which we live, the idea of having an insured suffer a Workers’ Compensation loss, then wait for a year before it makes it’s way into the mod calculation and then to punish the insured for the next three years is absurd.
Technology is available today to use working hours (as done in the state of Washington) as the exposure basis and gather this information real-time. This would provide real-time data to regulators which would eliminate the inevgitable wild swings in Workers’ Compensation rates. This needs to be seriously considered.
Thanks,
Tom Quirk
Experience rating is a joke. An employer does not have actuarially sound risk pool so he is being robbed because of variation over which his small size can to prevent. It is nothing but a rip off to use this punitive methodology.
This change is just one that needed to be done but doesn’t go far enough for the small company. Also the way companies use the term “Governing Classification” to place employees in higher rated classification rather than the true class they need to be in. The companies don’t bother to add a class except if there is a claim then they will be sure to add a class which I don’t have a problem with that but it should go both ways. The public looks at insurance as a ripe off anyway this type of action by companies makes me feel the same as my insureds.
Thanks to all of you for coming forward with your comments. Well said and accurate in many areas; increased safety, projecting mod factors in advance, etc. We are absolutely seeing increases in mod factors – particularly with smaller and mid-sized employers, who are typically the group impacted by such formula changes.
NCCI did recognize the impact of doubling/tripling primary losses, so look at your D factors on the modsheet. This is where NCCI made the largest adjustments to offset the impact of these changes. Doubling primary loss $ would have been cripling, had this offset not been taken.
I would think that eliminating the Experience Rating Adjustment Plan (ERA) would have been a better way to correct inefficiencies of the mod factor. It was introduced 20+ years ago in 20+ states and it REMOVES 70% of all $ from med-only claims. That formula change essentially removed millions of $ in claims from the mod calcs. for 20+ years. That could explain why mod factors are no longer “responsive” to loss. Instead of eliminating that formula change, there is an additional one implemented, instead.
Don’t forget to look towards small deductible plans – in 14 states these deductibles can be “net reported” out of the mod factor. Colorado has also passed legislation to raise these small deductible options to match the split point, as NCCI raises it, in an attempt to at least give employers some limited financial influence over this formula change. Thanks and keep talking!