On November 9, 2009 Commissioner Poizner approved several changes to the experience rating formula used by the WCIRB (Workers’ Compensation Insurance Rating Bureau of California) to calculate experience modifiers. These changes went into effect on January 1, 2010.
Experience Modifier Calculations
In order to understand the changes that occurred we will review the basics of the experience modification process. An Ex Mod is a way of comparing your losses to other employers in similar lines of work. Payroll and losses are gathered from all employers using the same class code, these figures are used to generate an expected loss rate, cost of injuries versus payroll. A three year period of your actual loss rates is compared to the expected loss rates to determine your experience modifier. All insurance companies must use your experience modifier when calculating your rate. The Ex mod is a multiplier of the total premium with a 1.0 mod being average.
Changes in Primary and Excess Losses
The primary and excess portions of a claim are used to separate frequency from severity. The thinking behind this is that an employer can control the number of claims but not the severity.
The old calculation broke down a claim using three tiers. Tier one $1 – $2000 of a claim were entered at full value. $2001 – $8500 were still primary losses but at a degraded value based on employer size and industry. $8501 + were entered as excess losses and a degraded value based on employer size and industry.
The WCIRB will now be using a two tear split. Tier one $1 – $7000 will be primary and entered at full value. Tier two $7001 + will be excess and enter as a degraded value based on company size and industry.
What is the Effect to Your Business
This change in calculation puts and increased focus on frequency and first dollars of a claim. For employers with a large number of claims between $1 – $7000 this will equate to potentially a large jump in modifier. The WCIRB expects the change to have a moderate to no affect on the modifier for 60% of companies. The other 40% will see larger increases in their modifier with a projected 2% experiencing jumps of 40 points.
What Can You Do?
Two things that you should look at in addition to continuing a focus on safety are a complete return to work program and improving your clinic relationship. With a focus of eliminating every dollar spent under $7000, it is more important now that you have no lost time injuries. Make sure that you can accommodate every injury restriction, the clinic relationship plays into this. Your clinic should know not to determine whether light duty is available, only to clarify what the work restrictions are. In order to do this the clinic needs to understand your commitment to light duty and that you will accommodate the restrictions. A strong clinic relationship also lends itself to having more claims be considered first aid, which should always be paid by you.
If you have any questions in regards to this article or would like to know if you modifier will be affected please feel free to contact me. Also, please feel free to forward this to anyone you feel may benefit.
Thank you,
Kevin Frost, CWCP
Assistant Vice President
kfrost@vanbeurden.com
Kingsburg • (559) 634-7138
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