Get a Grip on Workers Comp Rates in a Market Seeing Premiums Increase

Over the past several years, throughout the country we’re seeing significant changes in the Workers Compensation market. These changes are affecting employers like yourself in increased premiums and difficulty in getting coverage in standard markets. The increase in premiums is due to a number of reasons, including a rise in claims frequency; diminished underwriting profitability over a number of years for insurers who are now looking for a way to balance rates with loss payouts; and the subsequent start of what is called a “hard market” in the insurance industry. A hard market occurs when rates across the board in all coverage lines (some more than others) begin to firm and underwriting criteria becomes more stringent. 

The net result is that businesses are paying more in premiums even though their revenues may be flat or down. Payrolls have also decreased because of a fluctuating economic landscape, forcing many employers to perhaps lay off workers, cut back on salaries, and put a freeze on new hires. In the end, we’re seeing higher unemployment with diminished revenue and payrolls, but employer Workers Comp fees and charges are continually going up – which is the antithesis of what normally occurs.

If we take a look at three states alone, New York, New Jersey and California, as an employer you have probably experienced a rate hike in your Workers Compensation insurance in the last year.

New York, for example, filed a rate increase of 11.5% for October 2012 on the heels of a big increase in 2011. New Jersey had an increase this year of 6.9%. And, California just approved a 8.25% workers compensation advisory pure premium rate hike for new policies and those renewing on or after July 1, 2012 on top of an earlier increase of 37%. These are dramatic increases we’re seeing, while businesses and employers are struggling.

Exacerbating this situation is that claims frequency is up by 3%. More claims drive up an employer’s experience modification factor, which is used to determine your Workers Comp premium. The higher your mod factor, the higher your rate.

Furthermore, recent changes announced by the National Council on Compensation Insurance (NCCI Holdings) will also have an impact on the Workers Comp market. The experience mod factor will be further impacted by the new splint point value effective in 2013. One of the most important factors in the mod is primary losses, which are made up of frequency losses. Right now the dollar amount for frequency losses is set at $5,000, anything over this is considered an excess loss. With the NCCI changes, over a three-year period the current value will increase to $10,000 for the first year. In 2014, this will increase to $13,500, and from 2015, the split point value will be $15,000 plus inflation adjustments.  These changes are being implemented, according to NCCI, as the average cost of a claim has tripled since the last split point update occurred two decades ago. NCCI says they expect that “good mods will get better and bad mods will get worse.” Yet the concern here is that primary losses have a greater impact on the mod than excess losses. More losses will fall into the newly established primary losses, making the experience mod go up. Employers with poor claims experience are facing major experience mod increases, and perhaps being forced to move into the assigned risk plan at a higher rate with an ARAP surcharge and possible loss of scheduled credits.

As you can see, there’s a confluence of events taking place to form a perfect storm that will continue to drive up Workers Comp premiums.

What can you do as an employer?

Of course, safety programs and loss control protocols are important as are return to work programs and vetting out fraud. These are long-term solutions that require commitment throughout the organization and additional financial resources. They need to be implemented, yet for an immediate effect to take place that addresses your premiums today and into the future, you need to reduce your experience mod by changing losses that have already occurred. You need to go back to move forward in a positive direction. For example, a 2013 experience mod factor (the first year in which the new split point mod value is being implemented) utilizes losses from 2011, 2010, and 2009. In order to knock down your 2013 experience mod and 2014 and 2015 mods, Workers Compensation premium recovery is needed. This involves auditing services designed to find and recover premium errors and overcharges in current and past policies. This includes vetting out incorrect information in your loss-run report; using data that would have lowered your ex mod; pinpointing the use of incorrect factors and rates; assessing if applicable state and federal law were followed; determining whether your policy fits your business classification; and much more.

You can end up with sizeable refunds on policies over the current and six prior years and savings on future years. What’s more, there’s no cost for you – the premium recovery audit service available through Apex Services is on a contingency basis, so you will not incur a dime. You will only receive money back and move forward with lower premiums and an improved underwriting profile.

For more information about Apex Services, please visit: www.apexservices.com. Or, you can call Simon at (888) 380-APEX (2739).