California Employers See Lower Ex-Mods With New Rating Formula

December 8, 2010

California employers, by and large, saw lower experience modifications in 2010, thanks to changes to the experience rating formula.

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 are intended to simplify the experience rating system and improve its predictive accuracy.

The WCIRB conducted an analysis of the approximately 115,000 2010 experience modifications that were issued through the end of September to determine the impact of these changes. The results of this analysis are consistent with the WCIRB’s projections contained in the Jan. 1, 2010 Pure Premium Rate Filing as well as the analysis performed in April 2010 on a population of approximately 57,000 2010 experience modifications.

The analysis shows that approximately 65 percent of experience rated policyholders received a lower experience modification than would otherwise have been the case as a result of these formula changes. Approximately 29 percent of policyholders received a higher experience modification and approximately 6 percent of the policyholders were unaffected by the 2010 formula changes. Roughly 5 percent of experience rated policyholders saw increases of between 11 and 20 points in their experience modifications, and approximately 2 percent saw increases of more than 20 points. The small percentage of policyholders who experienced large increases were employers with worse than average underlying loss experience.

The average statewide experience modification for 2010 of 94 percent has not been affected by the 2010 changes to the formula. In other words, the total statewide pure premium generated after application of 2010 experience modifications has not been affected by the 2010 formula changes, WCIRB said.

Source: WCIRB

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