The WorkCompEdge Blog

by Kory Wells with Jeff Adcock and Tony King

ModMaster update 09.11, available to our clients on Friday, November 20th, includes support for the California rates and the split calculation change recently approved by the California insurance commissioner, effective 1/1/2010. If you do business in California – whether you use ModMaster or not – you need to be aware of how these changes may affect your or your client’s workers compensation mod.

Our actuaries have been analyzing the data, and it’s going to take us a few more days to get more details in a form to share with you. (Don’t miss our previous post that excerpts the WCIRB summary of changes.) But we wanted to go ahead and alert you to a few key principles that may affect your mod under the new rules:

1. Our actuaries have determined that, on average, expected loss rates (ELRs) have decreased 6.4%. In fact, over 100 payroll codes had ELR decreases of 10% or more. While your results will depend entirely on the mix of payroll codes in your mod, an overall decrease in ELRs means that, if everything else stayed the same in your mod, you would have a good chance for your mod to increase in 2010.

2. An important loss level to keep in mind is $24,500. Under the new primary/excess split method, losses under $24,500 will have a greater primary value than they did under the old method.  Since primary losses affect the mod more than excess losses do, this is another factor that may drive your mod up, especially if you tend to have more smaller losses than very large losses. Losses over $24,500 will generate a lesser primary value than they did under the old method, so if you have only losses over $24,500, this may benefit your mod.

3. The best defense is to be prepared for a mod increase, and a good way to do that is to compute your old mod with the new rates and split method.  In ModMaster, this is easy to do (remember, you must be on update 09.11, code level 091118, or later):

• Select the desired mod file with a 2009 effective date, and note the current mod value. Use the Utilities/Copy feature to make a copy of the file with a new name.
• On the Company Setup page, change the effective date to 1/1/2010. Don’t worry that this isn’t the policy anniversary date, and don’t change any other policy dates or other data.
• Calculate the mod and see what the 2010 value would be.  You may want to look at your favorite ModMaster reports for the 2009 vs. 2010 files side-by-side, but don’t forget that the Mod Comparison report will do a quick comparison for you.

Of course, in the real world, your 2010 mod will have different payroll and loss amounts due to the oldest policy period leaving the experience period and the new policy period coming in. In the real world, there are also a lot of other moving parts to the mod formula aside from the ELRs and the primary/excess split values. Certainly not everyone is going to see a mod increase, and some entities will see a decrease. But our testing and analysis has revealed some cases of attention-getting mod increases.

More details of our analysis are forthcoming now available in the article More Details on the Significance of the 1/1/2010 California Workers Compensation Experience Rating Plan Changes. We’d love to hear from our users how the 2010 changes appear to impact the mod files they run with a 1/1/2010 effective date in ModMaster.