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WCIRB ‘s New Mod Formula Hefty Effects Small California Employers


WCIRB ‘s New Mod Formula – Small Employers Must Enact Safety Programs Now

WCRIB’s new mod formula will heavy affect small employers with a less than stellar safety record.

Last Friday, I briefly covered California’s WCIRB and the change in the X-Mod Calculation effective 1/1/2013.   I thought I would cover the formula to show smaller employers in CA that the new X-Mods will no longer have a smaller employer discount.

Hand Holding Calculator With Mod Formula Icon

This may be getting into the numbers-geek area.  Hang in there and read it through once or twice.  You will see that small employers need to invoke or improve their safety program along with monitoring their loss runs very heavily this year and forward. 

The WCIRB, in my opinion, found an anomaly that, instead of leveling the playing field between larger and smaller employers, actually gave too much of an advantage to smaller employers.  One could say the safer smaller employers and all larger employers were subsidizing the smaller unsafe employers.

The old formula for calculating X-Mods was:

[(Ap x Cp) + (Ep x (1 – Cp))] + [(Ae x Ce) + (Ee x (1 –Ce))]
Modification = ——————————————————————————
Ap = Actual Primary Losses
Cp = Credibility Primary Value
Ep = Expected Primary Losses
Ae = Actual Excess Losses
Ce = Credibility Excess Value
Ee = Expected Excess Losses
E = Expected Losses

The Primary Loss is from $0 to $7,000 Total Incurred
The Excess Loss is any part of the loss greater than $7,000 Total Incurre

Actually the new X-Mod formula is no different.  One has to look further into Cp side of the equation.  The Cp is bolded in the above equation.

This is the beginning of the new Credibility Table – Effective 1/13/2013 

Expected Losses     Credibility Primary     Credibility Excess

Below — 14,722               1.00                            0.00
14,723 — 16,505             1.00                            0.01
16,506 — 18,433             1.00                            0.02
18,434 — 20,515             1.00                            0.03
20,516 — 22,760             1.00                            0.04

Man Doing Mod Formula At White Board

This is the beginning of the old Credibility Table  –  Effective before 1/13/2013 

Expected Losses     Credibility Primary     Credibility Excess

Below — 6,456                 0.38                           0.00
6,457 — 6,733                 0.39                           0.00
6,734 — 7,019                 0.40                           0.00
7,020 — 7,316                 0.41                           0.00
38,438 — 40,147             1.00                           0.08

What does this all mean???

The WCIRB has eliminated giving credibility to and lessening the impact of smaller losses.

The X-Mod formula will now be:

Ap  +  (Ae x Ce) + (Ee x (1 –Ce))
Modification = —————————————————————————

There was some type of discount up to 40,000 in primary losses.  That discount  is no longer in effect. The bottom line is there is no longer a discount for smaller unsafe employers.   The larger similar employers (more payroll) will have higher Expected Losses – not so for smaller ones.

Regardless of whether or not this may seem as fair to smaller employers in CA, you must adjust your safety measures and loss run reviews ASAP or you may find that your Mod has jumped appreciably in one year. 

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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