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.
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
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 That discount is no longer in effect.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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