All posts tagged Workers’ Compensation Insurance Rating Bureau

Rating Bureau Recommends Benchmark Rate Decrease for California Employers

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IN A SURPISE move, the Workers’ Compensation Insurance Rating Bureau of California has filed a recommendation to reduce average baseline rates on policies by 7.8% at the mid-year mark.

The mid-year reduction to the baseline rate is largely the result of reforms that were introduced in 2013 that have sped up the settlement process for claims (including many long-term claims), in addition to reducing medical costs.

Also, because of these reforms the cost of adjusting workers’ comp claims in California has dropped over the past few years.

Insurance carriers use the benchmark rate – also known as the pure premium rate – as a starting point for pricing their policies.

The benchmark rate is an average across all industries and employers may or may not see decreases in their workers’ comp premium come renewal as many other factors are at play, not the least of which is the employer’s own safety history.

Region is also important and insurers are pricing policies for Southern California employers higher than for the rest of the state due to the continuing problem of cumulative trauma claims being filed by workers post-termination, mostly in the greater Los Angeles area.

“Cumulative injury claims often involve multiple injuries [that have developed over time], are very frequently litigated, are filed disproportionately in the Los Angeles Basin and often are filed on a post-termination basis,” the Rating Bureau stated in a report on the state of the market as of Dec. 31, 2016.

Indeed, while cumulative trauma claims accounted for just 8% of all claims in 2005, in 2015 they comprised 18% of all claims, according to the Bureau.

The state insurance commissioner sets the benchmark rate with guidance from the Rating Bureau. A hearing will be held in June, after which the commissioner can choose to approve the rate filing, reject it or set another rate that’s either higher or lower than that recommended by the Bureau.

The rate filing is 7.8% less than the approved pure premium rate for policies incepting on or after Jan. 1, 2017. It recommends an average advisory pure premium rate of $2.02 per $100 of payroll. That’s compared with $2.19 per $100 of payroll as of Jan. 1.

The pure premium rate is a reflection of an overall decline in the total cost of claims thanks to SB 869, legislation that was signed into law in 2013.

By addressing numerous cost drivers it has helped reduce medical costs, expedite claims settlements, and reduced the frequency of workers’ compensation claims. The legislation also increased benefits for some injured workers.

As a result, the average projected ultimate cost of a claim increased to $82,234 at the end of 2016, compared to $74,699 in 2013.

Rising average payouts for wage losses and medical costs per claim are both contributing to average claim cost increases, according to Rating Bureau data.

Agency Mulls Not Counting Portion of First Aid Claims in X-Mods

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California’s workers’ compensation rating agency is developing new guidelines that would exempt a portion of first aid claims from being included in the calculation of employers’ X-Mods.

Under state regulations, employers are required to report injuries that require first aid and are not severe enough for the employee to seek medical treatment or miss work. But despite the rules, few employers report the claims to their insurance companies.

The Workers’ Compensation Insurance Rating Bureau hopes that creating an exemption in the experience rating plan for first aid claims and injuries would increase reporting.

According to the trade press, the Rating Bureau is working on a plan that would exclude a portion of every claim from the X-Mod formula. The amount for that exemption has not been set and it’s likely that the change, even if approved this year, won’t take effect until at least 2017 or 2018.

But regardless, the move would be a welcome development for California employers, many of which are reluctant to notify their insurers of any injuries that involve only first aid treatment for fear that it will affect their X-Mod or because they are confused by the rules. The reporting of first aid claims is typically not mandatory in most other states.

The industries in which the lack of first aid claim reporting is most prevalent are the construction and restaurant industries, but it occurs in other sectors as well, according to the Rating Bureau.

When employers fail to report first aid claims it causes problems for claims adjusters, hinders workers’ ability to access workers’ comp benefits and has a negative impact on the employers that play by the rules and report all of their claims.

Also, what starts as an injury that only requires first aid treatment can later develop into a full-blown claim if the initial injury worsens.

According to the trade publication Workers’ Comp Executive, the Rating Bureau is looking at imposing a first aid claim exemption of $250, $500 or $1,000. It has been testing the different amounts and the effects on ensuring reliability of employers’ X-Mods.


Depending on the amount, it would have a substantial impact on reportable claims:

  • The $250 threshold would eliminate 15% of the claims in the system.
  • The $500 threshold would eliminate 36%.
  • The $1,000 threshold would eliminate 54%.


The biggest concern is that eliminating so many claims could reduce the rating system’s ability to accurately predict system costs and set accurate rates.

The Rating Bureau expects that at the $250 threshold, the change would mostly affect employers who have no other claims and that it would push up their X-Mod by just one percentage point on average.

The committee studying the issue “thought this was a reasonable trade off to get more claims into the system,” David Bellusci, the Rating Bureau’s chief actuary, said during a classification and rating committee meeting in early April, according to the trade publication.

The perception there is that the honest employers reporting all of their claims, including these smaller first aid only claims, are at a disadvantage to employers that are not currently reporting these claims.

Also, the Rating Bureau plans to work Cal/OSHA in regard to changing the definition of first aid. Cal/OSHA regulations do not require that employers report injuries that require first aid to the agency.


Agency Recommends Further Rate Cuts for California Employers

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The reforms that were ushered in by the state Legislature in 2012 seem to be paying off, with the Workers’ Compensation Insurance Rating Bureau of California recommending that benchmark rates be cut by an average of 5% in July.

The Rating Bureau has forwarded its recommendation for a mid-year rate cut to the California Department of Insurance, and the insurance commissioner will hold a hearing on the filing likely in May. The filing was made in reaction to lower-than-expected medical cost development, as well as the cost of indemnity benefits per claim.

The Rating Bureau is recommending that the average rate that California employers pay for workers’ compensation coverage be adjusted downward to $2.30 per $100 of payroll. That’s 5% lower than the official benchmark rate as of Jan. 1 and 10% lower than the average rates that insurers had on file on Jan. 1.

If the insurance commissioner agrees with the recommendation and he reduces the official benchmark rate, the new rate will apply starting July 1.

Insurers are free to file their own rates and they use the official benchmark rate as a guide-post for pricing their policies.

Rates will vary across industry sectors, and more often carriers have been adding surcharges on policies for employers in certain regions, such as Southern California.

Besides some costs decreasing, the Rating Bureau noted that there are also some upward cost pressures – such as insurers’ overhead costs of adjusting claims, and fees paid to outside attorneys, experts and investigators. There was also a 91% increase in lien filings in 2015.

SB 863, passed by California legislators in September 2012, increased benefits for injured workers as of January 2013 and included a number of changes intended to reduce system costs.

Those included an independent review process for medical treatment and billing disputes, fee schedules for home health care, language interpretation and other comp-related services, and fees for lien filings.


Bureau Recommends 12.2% Rate Cut for 2016

California’s workers’ compensation statistical agency will recommend that benchmark rates be reduced by an average of 12.2% for policies incepting at the start of next year.

The rate filing is actually for a 0.8% reduction, but that comes after benchmark rates were cut 10.2% on July 1, so that’s why the average rate reduction for January policies is higher.

The Workers’ Compensation Insurance Rating Bureau will file the recommendation with the state insurance commissioner, who has the final word on rates in California. He can either choose to approve or reject the rate, and if he does the latter he can set the rate himself on the advice of Insurance Department actuaries.

And this time he may actually go against the filing, because the employer and labor members of the Bureau’s Governing Committee recommended a rate reduction of 6% from July 1 levels, which would have translated into an 18% reduction for policies incepting on or after Jan. 1, 2016.

The filing will propose benchmark rates that average $2.45 per $100 of payroll, but that is an average across all industries and the rate change will vary from sector to sector depending on overall claims costs trends.

Also, whatever the benchmark rate is set at, insurers can still price their policies as they see fit. They use the benchmark rate as a guide for setting their own rates depending on their own experience.

The reason for the rate reduction is that the reforms that were ushered in by legislation in 2013 have proven to be more effective than originally anticipated, according to the Bureau’s chief actuary, Dave Bellusci.

Bellusci identified some of the factors contributing to the reduced indicated pure premium rate:

  • Medical costs for injured workers continue to fall.
  • Costs for claims that involve payment of indemnity (wage replacement) benefits and medical treatment are not increasing as rapidly as expected.
  • A move to a new pricing schedule (called the Resource Based Relative Value Scale) has resulted in higher than anticipated costs savings.
  • Increases in projected wage growth in California due to economic expansion.


These positive developments, however, were somewhat offset by one trend in particular: insurers’ costs of adjusting claims continue to rise due to increased compliance requirements.

The average charged rate for employers in California has slowly been edging upwards since hitting a low of $2.10 per $100 of payroll in 2009. Since then, the final rates employers are charged on their policies have slowly crept up – and they hit $3.07 in January.

With this upcoming rate filing, there is hope that the rates most employers pay in the state will come down.


Average Insurer Filed Rates per $100 of Payroll


Transportation and utilities:            $14.28

Construction:                                     $12.95

Agriculture and mining:                   $10.96

Administrative & other services      $9.71

Wholesale & retail:                            $8.15

Hospitality & entertainment:           $8.03

Manufacturing:                                 $6.95

Education and health:                      $3.83

Finance and real estate:                   $2.53

Information & professional serv.:    $0.99

Clerical and outside sales:                $0.84



Why You Lost Your X-Mod and Your Rates Climbed

The threshold for employers to qualify for experience rating (an X-mod) almost doubled in the last four years, meaning that fewer employers are qualifying and those that may have had one once, don’t qualify any longer.

Additionally, many employers since the recession have been reducing their payroll, which also reduces the workers’ compensation premium level below the X-Mod threshold.

These two trends have resulted in many employers that once had low X-Mods (below 100) having seen their rates go up.

We’ve received calls from some of our customers about this issue, so we want to explain what’s going on.


How an X-Mod works

When an employer receives an X-Mod, it is a numerical value that explains how your claims experience measures up against others in your industry and the premium you pay. An X-Mod of 100 is the average, meaning that your claims come out to be average for your class code.

If you have a better safety record than your peers and your claims costs are lower than average, you would typically have an X-Mod below 100.

The inverse is also true. If your claims are more costly, then your X-Mod will be more than 100.


X-Mod threshold

The X-Mod threshold has been climbing over the last several years at an increasing rate. The new annual premium threshold for being eligible for an experience modifier was raised at the start of this year to $33,300, up 98% from the $16,700 threshold that was set in 2011.

Once an employer no longer qualifies for an X-Mod, their X-Mod is essentially set back to 100, regardless of their claims history. The insurer will still look at the overall cost of your claims, but your X-Mod no longer matters at that point.

In other words, scheduled credits and debits will still apply, depending on your claims costs and claims experience.

For non-X-Mod employers, all companies are grouped according to their business operation or classification code. So if you have a printing shop, your claims costs will be bundled up with all other printing shops in the state for calculation purposes.

The estimated losses of the group are added together and an average cost is obtained, which is then applied to the entire class. The rates determined are averages reflecting the normal conditions found in each classification.

An employer is assigned to a classification to ensure that the rates reflect the costs of all employers with similar characteristics. Although each classification contains “similar” risks, each individual risk in a class is different to some extent (the X-Mod is designed to reflect these individual differences in loss potential).

So if you had an X-Mod higher than 100, you may see a slight downtick in the amount of workers’ comp premium you pay, but for those employers whose last X-Mod was below 100, the opposite could happen.


The takeaway
The best course of action if you no longer qualify for an X-Mod is to continue focusing on workplace safety and keeping your employees from getting injured on the job and filing claims.

And if you do have claims, you should work with us and the insurance company to manage those claims so that you can get the worker back on the job as soon as is feasible and safe for them.


If you have questions about your workers’ comp policy, contact Wright & Kimbrough.

xmod puzzle conceptual


Workers’ Comp Rates to Dip Mid-year

The workers’ comp reforms that took effect in 2013 are finally starting to bear fruit in the form of falling claims costs, and the result is what looks like a steep mid-year rate reduction.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) is asking California’s insurance commissioner to reduce benchmark rates by more than 10% for policies incepting on or renewing on July 1. Insurers use these benchmark rates as guideposts for pricing their own policies.

When the Rating Bureau’s governing committee voted to file for the mid-year rate decrease, it noted that the decrease could have been even larger if it were not for increasing claims administration costs, which insurers say are due to them complying with laws and regulations governing claims.

But what is pushing rates down is lower-than-expected medical losses and claim severity (the average cost of claims) in the state.

Average medical costs for California workers’ comp claims fell more than 8.3% in 2013 and 2014 following the passage of state workers’ comp reforms in 2012, the WCIRB said. That’s compared with the 10% increase that the Rating Bureau had expected and priced into earlier rate filings.

Furthermore, it had also predicted that indemnity costs (payments made to workers who miss work due to their workplace injuries), increased 6.9% in 2013 and 2014, but that was less than the 12.3% that the Rating Bureau had predicted.

The Rating Bureau has been closely monitoring the cost of claims since the passage of Senate Bill 863 and it notes that its full effects may yet materialize.

“While it remains premature to adjust a number of a number of the prospective SB 863 estimates based on recently emerging post-SB 863 indications, the WCIRB will continue to actively monitor post-SB 863 cost levels and will adjust future pure premium rate indications as appropriate based on emerging experience,” the Rating Bureau wrote in its recommendation.

The takeaway

The Rating Bureau recommends that the average advisory pure premium rate be set at $2.46 per $100 of payroll as of July 1, compared with the $2.74 per $100 of payroll as of Jan. 1.

The bureau submitted its new rate filing to the state Insurance Department for approval on April 6.The state insurance commissioner will hold a hearing and still has to approve the rate filing, but odds are that he will approve it – or even approve a larger decrease than what the Rating Bureau is calling for.

It should be noted that while overall benchmark rates will fall at mid-year, pricing on individual policies will depend on each employer’s claims experience as well as the industry in which they operate.

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