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WCIRB ‘s New Mod Formula Hefty Effects Small California Employers

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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
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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 = ——————————————————————————
E
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
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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 = —————————————————————————
E

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 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.

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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.

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