The California Department of Insurance (CDI) reviewed and approved in September 2015 a new formula for the workers’ compensation Experience Modifications (X-mods) that are generated by the Worker’s Compensation Insurance Rating Bureau (WCIRB). The new changes will go into effect on January 1, 2017.
The new plan is a departure from the ‘fixed’ split point —between primary and excess losses —for each eligible employer in the state. The new 2017 experience rating formula utilizes a ‘variable’ split point, which will vary depending on the size of the employer. It will place greater weight on claim frequency than claim severity thus improving overall efficiency of the calculation.
The new formula is expected to reduce volatility by limiting the so-called “shock loss” effect on X-mods, particularly in regard to smaller employers. On the other hand, employers that have greater-than-average claims frequency for their industry will likely experience higher X-mods under this new formula.
The objective of this new X-mod formula is to encourage safety in the workplace through claim prevention. The overall net effect to the entire population of X-mod eligible employers is expected to be premium neutral. Individual employers could, however, see an increase or decrease in their X-mod calculations based on their specific loss experience.
The WCIRB has much more information on its website. Estimating the potential impact of the new X-mod formula is easy using the two calculator programs available for download on the WCIRB website.
In addition, the WCIRB has a fact sheet and answers to frequently asked questions.
Watch this video (by the WCIRB) to get details and statistics about the new 2017 formula.
