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Apr 12, 2010

How Did The California Ex Rating Formula Change Your Mod?

December 1, 2009
On November 9, 2009, the Insurance Commissioner 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. (See related story Experience Rating Task Force Report Released, July 11, 2008.)

In its August 18, 2009 filing, the WCIRB advised that the updated credibility values and the change to the primary/excess split mechanism would impact experience modifications for some policyholders. The WCIRB has analyzed the approximately 25,000 experience modifications that have recently been issued for the first quarter of 2010 and the impact on experience modifications is in line with the projections contained in the filing.

An employer’s experience modification will change from year-to-year due to many factors including improving or deteriorating loss experience, changes in payroll levels or changes in the average losses expected for employers in the same industry. In 2010, the changes to the experience rating formula credibility values and primary/excess split mechanism may also impact an employer's experience modification.

The WCIRB’s analysis of 2010 experience modifications recently issued has shown that the majority of experience rated policyholders are seeing lower experience modifications than would otherwise be the case as a result of these formula changes. Fewer than 40% are seeing an increase, however, as noted in the filing, roughly 6% of experience rated policyholders are seeing increases in their experience modifications of between 11 and 20 points, and 2% are seeing increases of more than 20 points due to these formula changes. The small number of policyholders experiencing large increases are generally employers with worse than average underlying loss experience.