California Workers Compensation 2017 Regulatory Changes
Companies in California will soon learn whether their worker’s compensation premiums will be increasing or decreasing.
For some businesses in California, the increases could be significant while others could see their rates drop dramatically. Approximately 20% of California policies are experience rated representing almost 90% of statewide premium. According to the Workers Compensation Rating Bureau (WCIRB) nearly 50% of policies will qualify for a rate reduction in 2017.
The potential rate changes are due to a rule approved last year by California Insurance Commissioner David Jones. Beginning in 2017, the formula to determine an organization’s “experience modification,” the rate used to calculate workers’ comp pricing, will change. The proposed changes will provide employers a direct financial incentive to reduce work-related accidents.
The rationale for the change was to level the playing field for small businesses. Previously, the one-size-fits all formula had the potential to unfairly penalize smaller organizations. A few claims had a dramatic effect on their workers’ comp premiums, a consequence usually not seen with larger businesses. According to the Workers Compensation Rating Bureau (WCIRB) nearly 50% of policies will qualify for a rate reduction in 2017, many of them smaller businesses.
What Is Experience Modification?
The experience modification (ex-mod) calculation is designed to provide employers with a financial incentive to reduce workers’ comp claims from employees. The formula is based on how many claims a company has made over a three-year period. A rating of 1 or below entitle companies to a credit. A rating over 1 means an employer will have to pay more than a similar company in the same industry. A company’s rating is determined by a rolling-three-year average.
The new law applies more weight to the number of claims (frequency) an employer has versus the dollar amount of the claims (severity). The rationale is that while employers can directly impact the number of claims (frequency) by maintaining well-conceived safety programs, the employer has little control over the dollar amounts paid on the claim.
According to the Workers' Compensation Insurance Rating Bureau of California (WCIRB), the experience modification is calculated by comparing actual losses to expected losses. Actual losses are the medical and indemnity claim costs resulting from a work-related injury an insurance company has paid or expects to pay in the future. Expected losses represent a business's projected losses for the industry in which it operates. The larger the business in terms of payroll, the more losses that business is expected to incur.
The bottom line is while this may be confusing, know that we at BBIS can help you maneuver through the proposed changes, and show you how you may qualify for a lower worker’s compensation premium for your business.
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You can get coverage for worker’s compensation and more by simply requesting a quote from your Beacon Broker. Although we have the best stand-alone workers compensation policy out there, when you combine or bundle your general liability with other coverages such as your workers compensation policy, contractor’s license bond, business owner’s policy (BOP), commercial auto policy, you could get incredible discounts you can’t find anywhere else!
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