If you are an experience rated employer and your policy renewed on Jan. 1, you may have noticed a changes to your X-Mod that may or may not have been welcome news.
Changes made to the California Workers’ Compensation Experience Rating Plan that took effect had the effect Jan. 1, 2013 and were aimed at making X-Mods more accurately reflect employer’s claims histories. But the changes resulted in some employers seeing major swings in their X-Mods, increasing them up to 15% or more.
The result for some employers was a double-whammy price hike from not only increasing rates filed by insurers, but also premium increases based on higher X-Mods.
While the majority of employers (64%) saw swings in their X-Mods of plus or minus 3 points, 17% saw decreases of 4-10 points, 4.7% saw decreases of 11 to 15 points and less than 1% saw decreases of more than 15 points. Another 9% saw increases of 4-10 points, 2% saw increases of 11-15 points and 3.4% saw increases of more than 15 points.
The Rating Bureau calculates experience rating modifications by comparing an employer’s actual claim costs to the average claims costs expected of all employers of similar size and industry classification. The experience rating formula takes into account how much credibility to assign to the experience of an individual employer.
For large employers, actual claims experience is considered a good indicator of future claims experience. In other words, larger employers have higher credibility values.
But small employers’ claims experience can be volatile and can be more a function of chance. As a result, small employers are assigned lower credibility values in the experience rating formula.
That’s changed under the new Experience Rating Plan. On Jan. 1, the Bureau started assigning more credibility to most employers’ actual claim history. Because of the Bureau’s prior practice, that’s why smaller employers are likely to see the biggest swings in their X-Mods as a result of the change.
“In other words, for most employers, all else being equal, somewhat greater weight is being given to their own claim experience,” the Rating Bureau said. “Employers that have better than average experience will generally receive a lower credit experience modification in 2013 than they would have received in 2012. Conversely, employers that have poor experience will generally receive a higher experience modification.”
The Rating Bureau has regularly been updating the Experience Rating Plan ever since the insurance commissioner 2008 Experience Rating Task Force recommended that it do so.
“As the payroll and claims experience of California experience rated employers evolves, so too must the credibility values in order to maintain the Experience Rating Plan’s actuarial balance,” the Rating Bureau writes.
The last change to credibility values was in 2010.