If you have worked in the workers’ compensation industry for any length of time, you have probably asked that question many times as you wait for January experience modifications to be issued by the WCIRB. Did you notice that the January 2016 experience modifications were issued earlier this year?
Effective January 1, 2016, the Insurance Commissioner approved a change that bases experience rating eligibility on approved expected loss rates rather than advisory pure premium rates.
The simple answer is so that experience modifications can be issued sooner giving insurers, agents and brokers more time to work on their policyholders’ renewals, and so that employers have more advance notice if there are changes to their workers’ compensation insurance.
Prior to 2016, advisory pure premium rates were used to calculate eligibility, which meant that January experience modifications were typically issued in November or December, following the Insurance Commissioner’s decision on the WCIRB’s advisory pure premium rate filing. For its January 1, 2016 Regulatory Filing, the WCIRB proposed a change to use approved expected loss rates as the basis of eligibility and included in the Filing all of the necessary Experience Rating Plan values needed to issue experience modifications in 2016. The WCIRB’s regulatory filings are filed with the Department of Insurance (CDI) much earlier in the year than when new advisory pure premium rates are proposed and decisions from the Insurance Commissioner on the regulatory filing are issued earlier. By using expected loss rates, we were able to begin issuing January 2016 experience modifications on September 22, 2015 immediately following the Insurance Commissioner’s decision on the January 1, 2016 Regulatory Filing, months earlier than in prior years.
Expected loss rates form the basis of the expected losses to which an employer’s actual reported claim costs are compared in experience rating. They reflect the average losses per $100 of payroll by classification expected to be reported for the historical three year experience period underlying modifications effective during the applicable calendar year.
Advisory pure premium rates are a projection of the average ultimate paid cost of all losses and loss adjustment expenses that will be incurred against a policy. They reflect the projected ultimate cost of losses and loss adjustment expenses per $100 of payroll by classification for policies incepting in the applicable policy period. As a result, advisory pure premium rates are higher than expected loss rates.
The eligibility threshold was lowered to $10,300 because of the relative difference between expected loss rates and pure premium rates. This change was not intended to change the number of employers eligible for experience rating.
The calculation has not changed (see Determining Eligibility). Payroll developed during the experience period is still totaled by classification. However, the payroll totals are now multiplied by the approved expected loss rate for that classification, instead of the advisory pure premium rate. If the sum of these calculations does not meet or exceed the minimum eligibility threshold, the employer would not qualify for an experience modification for the year.
More Information on determining eligibility can be found in the California Workers' Compensation Experience Rating Plan—1995, Section III, Rule 1; and the expected loss rates can be found on the Manual and Plans page in the Publications and Filings section of http://www.wcirb.com.