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Warning:  This post is for those of you that understand the basics of how your experience modification affects your workers’ compensation insurance, but want to delve deeper.  There’s going to be some math and technical terms involved, but we’ll do our best to keep things simple and concise.  With that said, let’s jump right in.

Well, that’s intimidating.

Before you have a panic attack, we want you to understand one thing:  This is the equation in its most complicated form.  Essentially, the WCIRB (Workers’ Compensation Insurance Rating Bureau) puts this version of the equation on their website because it can cover all of the special cases that may come up.

It’s absolutely essential to understand that as of January 1st, 2017 the value for Credibility Primary (or Cp) is 1 and the value for Credibility Excess (or CE) is 0.  If you work those numbers into the equation, everything gets quite a bit simpler.  In fact, it looks something like this:

(Ap+Ee)/E = Modification

Definitely easier to work with.  So let’s break this down letter by letter.

First up, “Ap” or Actual primary losses.  This is easily the most important number here because it is the only number in this equation that you as a business have control over.  This number is the Primary Claims cost from any worker’s comp claims that you’ve had over your three year rating period.  Prior to 2017, your actual primary loss number was calculated by adding up the first $7,000 of each claim.  This $7,000 limit was called the split point.  In other words, if your business had three claims that cost $100, $1,000 and $10,000, your primary claims cost would be $8,100 (100+1,000+7,000).  However, that system was changed on January 1st, 2017.  Your business’ split point can now be anywhere from $4,500 to $75,000 and is decided by your expected losses.  (Check out the table at the bottom of the post if your curious about where your business’ split point is now.)  The reason why this change to the split point is such a big deal is that, for most businesses, it allows their actual primary losses to get larger than ever before which then inflates the experience modification and ultimately their premiums.

Next up is the Ee or Expected Excess Losses. We’ll be short here as this is one of the parts of the equation that the business has almost no control over.  Basically, this number is your total expected losses, which we’ll talk about next, multiplied by something called the D-Ratio.  The D-Ratio is a number associated to each class code after years of study into the claims severity for each particular job.  (For more information on that or to see a complete list, go to WCIRB.com and type in “D-Ratio” in the search bar.)  The most important thing to understand here is that this value in the equation is why your ex-mod can never get to 0.

Finally, we have E or Total Expected Losses.  This number is calculated from the size of your business (in payroll) and the risk factors assigned to the class codes that that payroll is allotted to.  Essentially, the more payroll your business has and the riskier the jobs that your employees do, the higher this number will go.  Again, like expected excess losses, the business has very little control over this number, so the most important thing to understand is that you always want your other two number (Ap and Ee) to add up to less than this one.  Another way to look at this is that you want the top of your equation to be lower than the bottom.

And that’s all there is to it.  Not too bad, right?

Okay, maybe don’t answer that last question.  Obviously, when it comes to calculating experience modifications, things can get complicated in a hurry.

But let’s keep it simple.  If your business is able to keep the Actual Primary Losses number low, you’ll have a lower ex-mod.

That’s it.

That’s one of the things we do here at Whiteboard, and we would love to strategize with you about how best to do that for your organization.

 

P.S. – If you made it through that whole thing, you get an A+.

P.P.S. –  Here’s that Split Point chart that I promised you in the post:

Expected Losses Lower Bound Expected Losses Upper Bound Primary Threshold
0 8,910 4,500
8,911 10,140 5,000
10,141 11,432 5,500
11,433 12,789 6,000
12,790 14,212 6,500
14,213 15,704 7,000
15,705 17,266 7,500
17,267 18,900 8,000
18,901 20,610 8,500
20,611 22,396 9,000
22,397 24,263 9,500
24,264 26,211 10,000
26,212 28,245 10,500
28,246 30,366 11,000
30,367 32,579 11,500
32,580 34,885 12,000
34,886 37,288 12,500
37,289 39,791 13,000
39,792 42,398 13,500
42,399 45,112 14,000
45,113 47,937 14,500
47,938 50,876 15,000
50,877 53,935 15,500
53,936 57,116 16,000
57,117 60,425 16,500
60,426 63,865 17,000
63,866 67,442 17,500
67,443 71,159 18,000
71,160 75,023 18,500
75,024 79,039 19,000
79,040 83,211 19,500
83,212 87,546 20,000
87,547 92,050 20,500
92,051 96,728 21,000
96,729 101,588 21,500
101,589 106,635 22,000
106,636 111,877 22,500
111,878 117,321 23,000
117,322 122,974 23,500
122,975 128,845 24,000
128,846 134,941 24,500
134,942 144,526 25,000
144,527 158,178 26,000
158,179 172,896 27,000
172,897 188,765 28,000
188,766 205,876 29,000
205,877 224,328 30,000
224,329 244,230 31,000
244,231 265,699 32,000
265,700 288,864 33,000
288,865 313,868 34,000
313,869 340,863 35,000
340,864 370,020 36,000
370,021 401,524 37,000
401,525 435,578 38,000
435,579 472,407 39,000
472,408 512,257 40,000
512,258 555,398 41,000
555,399 602,132 42,000
602,133 652,788 43,000
652,789 707,732 44,000
707,733 767,370 45,000
767,371 832,151 46,000
832,152 902,575 47,000
902,576 979,198 48,000
979,199 1,062,638 49,000
1,062,639 1,153,588 50,000
1,153,589 1,252,820 51,000
1,252,821 1,361,200 52,000
1,361,201 1,479,700 53,000
1,479,701 1,609,413 54,000
1,609,414 1,751,570 55,000
1,751,571 1,907,561 56,000
1,907,562 2,078,960 57,000
2,078,961 2,267,550 58,000
2,267,551 2,475,358 59,000
2,475,359 2,704,695 60,000
2,704,696 2,958,200 61,000
2,958,201 3,238,897 62,000
3,238,898 3,550,257 63,000
3,550,258 3,896,282 64,000
3,896,283 4,281,595 65,000
4,281,596 4,711,552 66,000
4,711,553 5,192,388 67,000
5,192,389 5,731,377 68,000
5,731,378 6,337,043 69,000
6,337,044 7,019,409 70,000
7,019,410 7,790,317 71,000
7,790,318 8,663,810 72,000
8,663,811 9,656,624 73,000
9,656,625 10,788,802 74,000
10,788,803 & Over 75,000

 

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