With the recent changes to the California Insurance Marketplace, specifically the recent adjustments by the Workers Compensation Insurance Rating Bureau (“WCIRB”) to the way in which Experience Modification Factors (“X-Mod”) are calculated; many organizations were not prepared for the full impact of the changes due to a couple main contributing factors…
- Lack of Mass Publication of the Change from the Governing Body (WCIRB)
- Failure of Agents/Brokers to properly inform and prepare their clients
In response to the large number of new prospective clients we’ve come in contact with that were ill prepared for the change, we are providing the following information as a quick reference guide (“Cheat Sheet”).
What is Experience Rating & Why do we have an X-Mod?
The intent of Experience Rating is to provide a multiplier/factor by which Workers Compensation insurance premiums can be more adequately charged to businesses based more closely to their risk/hazard level. Ideally a business with ZERO claims should pay a lower Rate as compared to a business with multiple Workers Compensation claims/injuries.
The WCIRB created the Experience Modification Rating Factor, also known as the “X-Mod”, “Mod”, “ERM” (Experience Rating Modifier), as a means to REQUIRE carriers to account for the approximate level of risk of each insured/business – which in turn should eliminate the majority of Gamesmanship in rating of individual policies.
How does my X-Mod impact my Workers Compensation Premium?
- X-Mod is Less than 100 (1.00): Considered a “Credit” X-Mod in that the business will receive a credit from the factor on their Workers Compensation Premium. Example: A business with an X-Mod of 0.87 would result in the business receiving a rate that is 13% lower than that of an “average” business.
- X-Mod is 100 (1.00): Considered a “Neutral” X-Mod in that the business will not receive either a credit or a debit from the factor on their Workers Compensation Premium. Example: A business with an X-Mod of 1.00 would result in the business receiving a rate that is the same as an “average” business.
- X-Mod is Greater than 100 (1.00): Considered a “Debit” X-Mod in that the business will receive a debit (or surcharge) from the factor on their Workers Compensation Premium. Example: A business with an X-Mod of 1.13 would result in the business receiving a rate that is 13% higher than that of an “average” business.
The Previous Change
The last change to the California Experience Modification Factor calculation in went effective January 1, 2010 and increased the Primary Loss Threshold to $7,000.00. At the time, it caused an effective rate increase across the marketplace on an almost blanket basis without the consent or contribution of any individual carriers. Many businesses that are experience rated have not seen their Workers Compensation NET RATES (effective rate paid once all credits and debits are applied) decrease even though many carriers have taken compounding rate decreases across recent years.
Experience Modification Factor Calculation Change
Businesses that are experience rated are now subject to California’s New Variable Split Point Experience Rating System. This means that as their payroll and operation grows, as will their Primary Loss Threshold.
The WCIRB recently adjusted its way of calculating an organization’s X-Mod by doing away with the fixed value for the Primary Threshold for Losses and replacing it with a formula that creates a sliding scale, Effective January 1, 2017. This sliding scale is intended to give a larger Primary Threshold to larger employers (i.e. Organizations with larger payrolls).
The impact we’ve seen has been a compounding of the impact/magnitude of losses on an organization’s X-Mod, which in turn equates to a similar impact to their Workers Compensation premium.
We recently witnessed one of our Nonprofit clients have an increase in their X-Mod of nearly 15% due almost entirely to the change in the calculation. We’ve been working diligently with this Nonprofit as they have approx. 50 employees and volunteers and this 15% increase in their X-Mod will result in an increase in Workers Compensation premium of no less than $18,000 for just this year alone.