Nevada Insurance Commissioner Alice A. Molasky-Arman has announced she has approved the National Council on Compensation Insurance filing for an average decrease of 0.3 percent for workers’ compensation voluntary insurance loss costs and an average decrease of 1.8 percent for workers’ compensation insurance assigned risk rates. The changes are effective for policies with anniversary rating dates on or after March 1, 2006.
These proposed decreases follow last year’s approved decreases of 6.5 percent in the voluntary loss costs and 6.9 percent in the assigned risk rates. The overall small changes are a sign that the
Nevada workers’ compensation rate environment is stable, the Commissioner’s office said.
The loss cost changes vary by classification. The loss cost changes for the contracting industry classifications range from a 27 percent decrease to a 13 percent increase, with an average of a decrease of 6.6 percent. The loss cost changes for the goods and services industry classifications range from a decrease of 16 percent to an increase of 24 percent with an average increase of 3.6 percent. The loss cost changes for the manufacturing industry classifications range from a decrease of 17 percent to a 23 percent increase with an increase average of 2.7 percent. The loss cost changes for the office and clerical industry classifications range from a decrease of 15 percent to an increase of 25 percent with an average increase of 5.3 percent. The loss cost changes for the miscellaneous industry classifications range from a decrease of 18 percent to an increase of 22 percent with an average increase of 2 percent.
Molasky-Arman clarified that NCCI loss costs are only one component of the rates charged by insurers, and each insurer must file a loss cost multiplier to include expenses and profit. As a result, not every insurer charges the same rate. Molasky-Arman urges employers to comparison shop for the best rate. In a competitive environment, such behavior is essential to maintain an efficient market, she said.
Workers’ compensation rates are per $100 payroll. The payroll used to compute the workers’ compensation premium is capped at $36,000 per employee per policy year. According to wage statistics in the 2005 Nevada Occupational Employment and Wages Survey published by the Nevada Department of Employment, Training and Rehabilitation, more than 25 percent of Nevada workers earn more than $36,000 per year (assuming 40 hours per work week and 50 paid work weeks per year). In some industries, construction and extraction, for instance, more than half of all workers earn over $36,000 per year. Workers’ compensation lost wage benefits increase as wages increase.
Due to the effect of the payroll cap, workers’ compensation premiums do not keep pace with wages. In the future, as more of the payrolls are capped at $36,000, workers’ compensation rates may increase to provide sufficient premiums to cover the increased benefits. Fortunately, to date, indemnity costs have been stable, despite the increasing wages. This can be explained by loss prevention and effective back-to-work programs.
The NCCI filing also includes an experience rating formula adjustment to bring the average experience modification closer to 1.00. This change will impact employers large enough to be experience rated, that is, those accounts that developed a premium of at least $6,000 over the past two years or an average premium of at least $3,000 over a period longer than two years.
The overall impact of this change is an increase of 1.1 percent. The combined impact of the loss cost decrease and the experience rating formula adjustment is an increase of 0.8 percent.
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