How and Why the Experience Rating Plan is Changing

For all of you that have an experience modification on your workers compensation policy this will be important to you. Kelly Lewis from my office represents Small Business California on the Task Force mentioned below.
Small Business California has been very outspoken on this issue and a few years ago we stopped a change that would have been detrimental to small business. We think these revisions will be helpful to many small businesses.

As you all know we have been working hard to get additional stimulus funding for 7a and 504 loans. We will be sending letters to every California House member asking them to coauthor HR 4302.
Today we will be sending a letter to the JOBS Committee in the Assembly. It will be cosigned by 31 Small Business Associations. We are asking that they send a letter of support to the House small business committee and asking committee members to coauthor. We are also asking that a letter be sent to Speaker Pelosi. If you want a list of associations we are working with please let me know.


Scott Hauge
President
Small Business California
2311 Taraval Street
San Francisco, CA 94116
415-680-2188
shauge@cal-insure.com


Dear Scott Hauge,

Some important changes are coming that could affect the premium your clients will pay in 2010.

The changes are to the California Experience Rating Plan (ERP). This is the mandatory plan that produces experience modifications (ex-mods) for all California employers that have sufficient payroll to qualify. The changes are effective January 1, 2010.

The changes to the ERP are based on recommendations from the Workers’ Compensation Insurance Rating Bureau’s (WCIRB) Experience Rating Task Force to improve the ex-mod’s predictive value and make it easier to understand.

Major changes to the Experience Rating Plan:

Claims Split
The methodology formula used for splitting actual losses into primary and excess
components is changing to a “single split” model, with the first $7,000 of every loss
considered primary. This change recognizes that an employer’s claims frequency is
more predictive of future losses than the actual size of a given claim.

Credibility Values Updated
Credibility values are the weights applied to an employer’s loss experience. The updates recognize that the claims experience of a large employer is more predictive of future losses than the claims experience of a small employer.

Who Is Affected by the Changes?

Most employers will experience an ex-mod change of a few percentage points under the new plan. The precise impact on your clients will depend on the size of their payroll and the number and size of their losses. According to the WCIRB, an estimated 47 percent of all employers could see a decrease of up to 10 points under the plan.

If you have further questions about the Experience Rating Plan, please contact your State Fund marketing representative. If you or your client would like more information, visit the Broker or Employer’s page on our Web site at http://www.scif.com/.

Sincerely,
Richard Schultz
Richard Schultz
Regional Vice President of Greater Bay Area