Calif. Workers’ Comp Premiums Not Affected By Rating Formula Changes

April 29, 2010

A recent report by the Workers Compensation Insurance Rating Bureau of California indicates that total statewide pur premium generated after application of 2010 workers’ compensation experience modifications has not been affected by changes in the experience rating formula that was implemented in late 2009. However, the analysis says “approximately 64 percent of experience-rated policyholders are receiving a lower experience modification than would otherwise be the case as a result.”

On Nov.9, 2009, California Insurance Commissioner Steve Poizner issued a decision approving several changes to the experience rating formula including updated credibility values (“B” and “W” values) and a revised mechanism for segregating claims into their primary and excess components. These changes were proposed by the WCIRB at the recommendation of the Experience Rating Task Force and were intended to simplify the experience rating system and improve its predictive accuracy.

On Dec. 1, 2009, the WCIRB conducted an analysis of the approximately 25,000 experience modifications that had been issued for the first quarter of 2010. The analysis showed that the impact of the January 1, 2010 experience rating formula changes was in line with the projections contained in the WCIRB’s Jan. 1, 2010 pure premium rate filing. The WCIRB recently updated its analysis based on approximately 57,000 2010 experience modifications issued through March.

The WCIRB said approximately 64 percent of experience rated policyholders are receiving a lower experience modification than would otherwise be the case as a result of these formula changes. Approximately 29 percent of policyholders are receiving a higher experience modification, and 7 percent of the policyholders are unaffected by the 2010 formula changes. However, as noted in the filing, roughly 5 percent of experience rated policyholders are seeing increases of between 11 and 20 points in their experience modifications, and approximately 2 percent are seeing increases of more than 20 points. The small percentage of policyholders experiencing large increases are employers with worse than average underlying loss experience, the analysis states.

In total, the average statewide experience modification for 2010 of 95 percent is consistent with expectations and has not been affected by the 2010 changes to the formula, the analysis states.

The WCIRB has received a number of inquiries regarding claims shown as grouped on a policyholder’s experience rating worksheet. Historically, claims with a reported loss value in excess of $2,000 were individually shown on the worksheet and these claims were subject to the primary/excess split formula in effect prior to January 1, 2010. Claims with a reported loss value of $2,000 or less were not shown individually and were not subject to the primary/excess split formula. Instead, these claims were shown as grouped, and the total reported loss value was considered primary.

Beginning in 2010, the experience rating primary/excess split formula was changed such that only claims with a reported loss value in excess of $7,000 are subject to the primary/excess split formula; while claims with a reported loss value of $7,000 or less are used in their entirety as primary and not subject to the primary/excess split formula. However despite this new primary/excess split formula, the WCIRB has no plans to change the manner in which claim values are shown on the worksheet. Claims with a reported loss value of $2,000 or less will continue to be shown as grouped, while all other claims will be individually shown on the worksheet.

For more information, visit https://wcirbonline.org/wcirb/spotlight/spotlight_2009_11.html.

Source: WCIRB

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