Opinion: A Year of Opportunity for Agents

Big Changes in Workers' Comp

It seems that 2012 is starting out as a year filled with opportunity for agents in the workers’ compensation world. With the two largest rating bureaus making big changes, agents’ chances to outsmart, rather than outprice the competition have never been better.

In November 2011, the Workers’ Compensation Rating Bureau of California (WCIRB) announced a major revision to the California experience rating form. Gone are the “B” and “W” values that have been part of the calculation. Primary and excess credibility factors replaced them.

The rating bureau indicates that there have been very few mods affected by this change, but possibilities exist in the new format. The WCIRB has done a nice job making the form much easier to read than in the past, but that doesn’t mean it is easier to understand for a non-insurance professional.

Helping business owners navigate the new credibility factors and how they impact the experience mod is an important skill. When an agent can create clarity from chaos, he or she build an image as someone who isn’t just a commodity broker. Business owners desire clarity and crave control. When they understand their experience mod, you give them the ability to control it.

The National Council on Compensation Insurance (NCCI) has announced a major change that will go into effect in 2013.

  • Over the last two decades, the portion of an employee injury that was considered “primary” and counted 100 percent in the experience mod calculation was the first $5,000. Over that $5,000 split, all claims are discounted by the weighting factor.

Beginning in 2013, NCCI will be increasing the split point to $10,000.

In 2014, it will increase to $13,500 and in 2015, NCCI estimates it will increase to $15,000. It is important to note that $15,000 is an estimate. Beginning in 2015, NCCI will index the split point based on the average cost per claim across the states for which they provide rate making services.

The Real Impact

As evident from the chart to the right below, 78 percent of mods will be ±5 points when you apply the $10,000 split point.

This masks the most important facet of this change: The best will get better and the worst will get worse. By making this change, NCCI is making the experience rating formula move more quickly up and down as loss experience changes.

Another important piece is this: The minimum experience mod that every business can reach will decrease because of the increase in expected primary losses. This means that every business will have greater control over costs.

If you can show them how to take control, then you can win. These changes do not change some simple truths about the experience mod:

1. The average mod is always 1.0. While a change may negatively impact an individual business, you can rest assured that there is another business whose mod was positively impacted in the same way. There have already been many words written about how the NCCI split point change is going to cause an increase in every experience mod. This simply isn’t true.

2. The experience mod is the facility through which employers pay for their workers’ compensation claims, often between 100 and 200-percent interest.

Workers’ compensation is the one line of insurance where businesses control what they pay. Business owners do not like to feel out of control. When you can help them exercise that control, you win.

Kevin Ring is the lead workers' compensation analyst for the Institute of WorkComp Professionals, an Asheville, NC-based organization that trains insurance agents to help employers reduce workers’ compensation expenses. A licensed insurance agent, Ring leads workshops, analyzes workers’ comp programs, and is the co-developer of CompImpacta Workers’ Comp software suite. He may be reached at 828-274-0959 or kevin@iwcpro.com.

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