Several interesting changes took place January 1st that will impact your Workers Compensations total cost of risk. The following is a brief overview of each:
Experience Rating System
Background: Previously, the experience rating formula capped an individual claim at $7,000 with the remainder of the loss calculated with less weight. Now large claims are capped based on the following variables: payroll size and class codes.
Potential impact: The reasoning behind the new formula was meant to place greater weight on frequency of claims than severity. However, early test mod calculations comparing the old formula versus the new have generally resulted in higher experience modification factors (regardless of size and class codes), likely driving up premiums.
Next steps: It will be more important than ever to focus on reducing your exposure to loss by improving workplace safety. To reduce the number of losses, employers must fine tune their risk management pre-loss as well as post-loss business practices in order to close claims early.
First Aid Claims
Background: Prior to the change, California employers worked with their Occupational Clinics to withhold incidents that met the definition of first aid from being reported to their insurance carrier. As of January 1st, all claims for which any medical care is provided, including first aid, must now be reported to insurers and, in turn, the WCIRB.
Potential impact: Given the new Experience Rating formula explained above, this supplementary loss data will likely translate into adding points to the experience mod factor, leading to potentially higher premiums.
Next steps: Considering first aid loss data will be captured in the experience modification calculation, it is important employers conduct a complete review of all safety programs. This thorough review should encompass all facets of your safety program from pre-loss (loss prevention) to post-loss (claim management & resolution).
Officer & Directors Exclusion AB 2883
Background: Previously, owners & officers could be excluded from Workers Compensation coverage. In addition, outside directors were not included withinthe definition of employee. Effective January 1st, AB 2883 mandates certain officers, directors and owners of companies will be covered by Workers Compensation unless they affirmatively opt out. To be excluded, an owner, officer or director must: a) own at least 15% of the companys issued and outstanding stock; and b) a carrier supplied officer & director exclusion form must be completed, received and accepted by the insurer.
Potential impact: There may be an unexpected additional premium at audit due to outside directors and non-eligible officers & owners now captured in the payroll figures.
Next steps: There is a deadline for eligible directors, owners & officers to opt out. It is recommended this get filed immediately in order to be received and accepted by the insurer. Please work with your team to secure the correct insurer form. In addition, any paid directors, officers and owners that cannot (or choose not to) opt out should have their payroll accrued in advance of your yearly Workers Compensation audit. Finally, any out of state officers and directors are not subject to this new law.
Officers & Directors Minimum and Maximum Charges
Background: Each year, the officer minimum and maximum increases to adjust for inflation. 2017 is no different. The following represents the year-over-year change in the officer minimum and maximum.
|Officer Payroll Charge||2016||2017||Change|
Potential impact: For owners and officers included in Workers Compensation and capped at the maximum payroll, there will be a slight uptick in premium. However, the largest impact will be for paid directors now included within the definition of employee (AB 2883). These directors will also be subject to the officer minimum and maximum described above.
Next steps: Confirm your records only capture paid directors that reside in California; as well as the accurate minimums and maximums for the correct policy year.
Pure Premium Advisory Rates
Background: On October 26, 2016, California Insurance Commissioner, Dave Jones, approved new advisory pure premium rates for policies that renew January 1, 2017 or later. This translates to an aggregate 11.33% pure premium decrease. On a more granular level, of the 489 standard class codes, 44 increased, while 444 decreased. Many insurers have followed suit by lowering their filed rates accordingly.
Potential impact: These changes will have a positive effect on the price most policyholders pay for coverage.
Next steps: In order to properly budget and manage your Workers Compensation cost, conduct an extensive review of how your year-over-year rates have changed by class code; and compare multiple carrier reviews for favorable rate reductions.
The information provided in this newsletter should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult an attorney concerning your own situation and any specific legal questions you may have.