Why 2.6% WC Rate Reduction Probably Wont Save You Money
It was recently announced that CA Workers’ Compensation rates will be cut 2.6% in January 2017. While some people and businesses are excited because they think their WC premium will decrease in 2017, I’m here to say that that might not necessarily be the case.
When computing Workers Comp rates several factors come into play.
1. Pure Premium Rate (PPR) set by the WCIRB . These are the rates that the are meant to cover just losses. Read more HERE).
2. Carrier Rate — A carrier typically multiples the PPR by 1.7–2x. This is to cover losses, admin expenses and hopefully make a profit.
3. Territory Rate — Certain carriers apply a territory rate. By way of example, Los Angeles carriers a 1.5x territory “modifier” because of the high amount of claims and costs.
4. Experience Modification Factor (Ex-Mod) — This is the only variable businesses can control. This is a numeric representation of a business’s claims history and safety record as compared to other businesses in the same industry, within the same state. An experience Mod of 1.00 (100%) is in par with the industry average as far as past claims trending within the industry. A mod above 1.00 is riskier with higher claims (frequency and/or severity) and below means less claims than industry average. So, if your Ex-Mod is at 1.50 (150%) your rate will be 1.5x higher than someone industry average. Again, THIS IS THE ONLY VARIABLE A BUSINESS CAN CONTROL.
5. Underwriter Credits/Debits — This is how you/Broker sell your story to the insurance carriers. This is the narrative they put together to show your company in a positive light. It speaks of your return to work program, dedication to safety and safety culture. If you’ve had past claims, how you’ve addressed them and are proactively working to minimize claims/risk in the workplace. Underwriters typically have up to 40% credits/debits to apply to your WC policy (some have as much as 50%).
So, while a rate reduction is good news there are still many factors that come into play when determining your net rates and WC premium. Carriers may increase their rate, reduce your Underwriting credits, or your experience mod may increase. In the end, if you really want your premium to decrease minimize your claims, have a dedicated safety culture supported with a top-down approach. And if you really really want your premium to decrease-CALL OR EMAIL ME . Together we’ll command the best rates regardless of what the industry is doing.
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