Experience Rating: Understanding the Basics

Transcription

1 Experience Rating: Understanding the Basics Understanding the Basics 1. Purpose of experience rating 2. Formula characteristics and data 3. Line by Line Review What is experience rating? In a nutshell: It is a formula that generates a factor that modifies workers comp premium 1

2 What is the purpose? Comparative analysis Used to modify premium Based on individual past loss experience Creates incentive to promote health and safety To reduce number of losses To encourage return to work Qualifications Workers compensation policies only Mandatory rating component if qualifies Premium range qualifies account if: Premium of at least $10, in 1 year Average annual premium of at least $5,000 in last 2 or more years Rule XVII Premium Incentive for Small Employers Premium Incentive for Small Employers <$5,000 premium No lost time claims 1 year: 10% credit 2 years: 15% credit 1 lost time claim No credit or debit 2 or more lost time claims 10% debit 2

3 Comparative Experience Compares individual account experience against expected losses within the industry Basic formula: Actual Losses (ABC Painters) Expected Losses (All Painters) = E Mod Basic E Mod Formula $50,000 (Actual losses) $100,000 (Expected losses) $50,000 (Actual losses) $75,000 (Expected losses) = 0.50 = 0.67 Formula Characteristics Greater weight is given to frequency over severity Single losses are capped at $15500 in the Actual Primary Losses Smaller losses less than $2000 may be grouped together Employers with expected loss of $100K or less are subject to capped emod Experience for all entities with common majority ownership will be included 3

4 NCCI Participating States Applies in most jurisdictions, excluding California Delaware Michigan New Jersey Pennsylvania Does not apply in the Monopolistic States In 2014, Texas joined the NCCI states Intrastate vs. Interstate Intrastate Includes experience for single state Texas intrastate risk ID# begins with 42 Interstate Includes experience from more than one state Risk ID# begins with a 9 Data Reporting Unit Statistical Department Stat Cards Subsequent Reports q Up to 3 years 4

5 Data Reported for Calculation Payrolls by class codes Claims under $2,000 (lumped as one) Medical only claims only 30% of the loss is included in experience rating Claims over $2,000 (shown individually) Employers liability claims shown separately Data Reporting Timeline 1 st Report 18 months 2 nd 30 Report months 3 rd Report 42 months Emod Revision Exceptions Clerical error Subrogation recovery was collected Claim declared non compensable 5

6 Policy Data Generally consists of 3 years of experience Ending 1 year prior to the effective date of the modifier Example: Rating Effective to to to Maximum length = 3.75 years Minimum length = 1 year Policy Data Policy periods stay on the modifier for up to 3 years. As one year drops off another year is added Rating Effective to to to another year is added. Rating Effective to to to Rating Effective to to to Types of Modifiers Contingent Modifier Missing Data Preliminary Modifiers Pending Rate change Experience Modifier (final) No adjustments expected 6

7 Modifier Changes Emod decreases applied retroactively to effective date of the policy or anniversary rate date Modifier Changes Emod increases Apply retroactively within first 60 days Computed pro rata from endorsement date after first 60 days Exceptions to Emod Increase Rules do not apply if change is: Resulting from reclassification of a risk Resulting from reclassification of a risk Resulting from changes in ownership 7

8 Line by Line See Experience Modifier Worksheet attached Risk Information 8

9 Carrier Code Unique to each company. 9

10 Payroll Information Payroll Information Payroll Information 10

11 List of all class codes on the referenced policy. Any class coded followed by a U represents Longshore & Harbor Workers exposure. Expected Loss Rate (ELR) The amount of losses expected td per $100 of payroll. Di t Rti (D Rti) D t i th ti Discount Ratio (D Ratio) Determines the portion of losses that are expected to be primary losses (the first $15500 of every claim). This is a percentage. 11

12 Payroll Total payroll per class code as reported by the insurance company. Total Payroll Expected Losses The dollar amount of the losses expected, based on the class code and payroll amount. Calculated by multiplying the ELR by the payroll/$ * $3,264,004/$100 = $84,864 12

13 Expected Primary Losses Expected Primary Losses The portion of the expected losses that are expected to be primary losses (the first $5,000 of each claim). Calculated by multiplying the expected losses by the D Ratio. $84,864 * 36% = 30, Claim Data Provides claim numbers for the losses reported by the insurance carrier. Individual claims of $2000 or less MAY be grouped together and the number of claims grouped is listed. In this example, 7 claims have been grouped together. 13

14 Injury Code An injury code is assigned to each claims based on the type of injury. Death (01) Permanent Total Disability (02) Major Permanent Partial Disability (03) Minor Permanent Partial Disability (04) Temporary Total or Temporary Partial Disability (05), Medical Only (06) Contract Medical or Hospital Allowance (07) Compromise Death California Only (08) Permanent Partial Disability (09) O/F Represents the status of the claims, either Open (O) or Final/Closed (F). The * is next to the group of medical only claims Actual Incurred Losses: This is the actual incurred amount of the claim and/or claims. Texas per Accident Limitation $230,500 Texas Multiple Accident Limitation $461,000 LHW per Accident Limitation $512,000 LHW Multiple per Accident Limit $1,024,000 EL Accident Limitation $ 55,000 14

15 Actual Primary Losses For losses under $15,500, the entire amount is taken as the primary value. For losses in excess of $15,500, only the first $15,500 is primary. Actual Primary Losses Final Emod Factor 15

16 Managing Experience Modifiers Implement a loss control program Review loss reserves regularly Keep track of subrogation Prepare a test modifier to estimate renewal premium Prepare a test modifier to estimate renewal premium Verify there are no clerical errors Understand the effects of ownership changes ERM 14 Ownership change File an ERM 14 (Confidential Request for Ownership Information) Ruling made by NCCI to determine effect on Emod 16

17 E mod Caps Expected Losses NCCI Max $ 5K 1.32 $ 10K 1.53 $ 15K 1.75 $ 20K 1.97 $ 50K 3.27 $100K 5.45 Conclusion Experience Rating compares individual experience against industry Frequency has greater impact than severity Experience Modifier Worksheet provides valuable insight into the account Managing the experience modifier pays Resources Texas Mutual Insurance Texas Department of Insurance NCCI com/media/pdf/abc 17

18 Questions? Thank You! Check the Texas Mutual website to see a list of upcoming workshops and webinars for more information about workers compensation Texas Mutual Insurance Company 53 18