California Tinkering With Experience Mod Formula

California operates under its own set of rules for Workers Compensation insurance, rules that, while having a lot in common with the rules used elsewhere, can also differ significantly in some important details.

California's Workers Comp rating bureau, the WCIRB, has just filed to make some changes in the formula used to compute the experience modification factor used to compute California Workers Compensation insurance premiums. This follows changes made over the past few years by NCCI in their experience mod formula used in most other states.

The WCIRB changes will change the eligibility threshold for experience rating, effective in 2016, so that it is computed using the expected loss rates for insureds rather than pure premium rates. This change is technical enough that it is a little difficult to predict just what real world impact it will have. We're reviewing it at the AIM offices at the moment, and will share the results of that analysis when it is done.

The other change WCIRB is proposing, to be effective in 2017, is to adjust the "split point" used in the mod formula. The split point is the cut off value for determining how much of a claim gets fully counted in the mod calculation an how much, if any, gets discounted as being "excess". WCIRB says they will make the split point "flexibible" base on the size of the employer. Again, it's going to take a little analysis to figure out how much difference this will make in mods, and which employers might find the changes helpful, an which employers might find the changes producing higher mos.

The recent NCCI changes in split point have seen modifiers increasing for a fair number of employers with moderate loss records, while rewarding employers with very low loss records. It seems likely the WCIRB changes will operate in similar fashion, but we are still working on our detailed analysis, as the WCIRB changes are different from those implemented by NCCI.