WORKERS' COMP EXTRANET
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About California's WCIRB
WCIRB California (Workers Compensation Insurance Rating Bureau of California) is an agency which manages California’s Experience Rating System. This merit rating system provides a financial incentive for employers to reduce work place accidents as it factors the cost of their workers’ compensation insurance. Their rating system equitably distributes the cost of Workers’ compensation insurance based on industry classification. In addition to industry classification many, but by no means all, employers are ‘experience rated’. The Experience Rating System’s regulations are in the California Workers’ Compensation Experience Rating Plan (ERP). Employers who are eligible, experience rating is mandatory. Currently there are more than 110,000 California employers who are experience rated which represents about 80% of WC insurance annual premiums. When an employer is experience rated, it is mandatory that their Exmod be applied to their policy irrespective of the insurer.
An experience modification, or Exmod, is expressed as a percentage. In order to determine the percentage, a comparison of the claims history one a company is compared to all other companies of the same classification and similar size. This comparison creates a percentage which reflects whether a business has a less losses or more losses than average. An Exmod of more than 100% increases workers’ compensation premiums, while less than 100% Exmod would decrease premiums.
Determining Eligibility for Experience Rating
In order to determine eligibility for experience rating a company must look at their data. The payroll during an experience period is totaled by classification code and then multiplied by the expected loss rate for their classifications. The factors of the calculation must reach or surpass the minimum eligibility thresholds established. The Experience Rating Eligibility thresholds change. For example, in January of 2020 the threshold was $9,700.00 and January 2021 the threshold had increased to $9,900.00. The threshold ensures a stable number of experience rated employers in California. The threshold can be found in Section II, Rule 1 of ERP in Filings and Plans section.
Experience Period and Rating Effective Date
The Experience Period is the three year time range used in the calculation of payroll and losses. The Experience Modification Effective date is the anniversary effective date or start date of the policy, otherwise known as the Rating Effective Date (RED). If a company’s workers’ comp policy always starts March 1st, then the rating effective date would be March 1st. This date dictates the experience period (or time period) and the effective date of the experience modification.
When determining eligibility for experience modification, the experience period is determined by the Rating Effective Date. Payroll and losses are calculated using the experience period. The experience period begins four years and nine months prior to the effective date and ends one year and nine months prior to the effective date. This gives the experience information needed to calculate experience rating. For example, if a Rating Effective Date is January 1, 2022, the experience period is April 1, 2017 to April 1, 2020.
Changing the policy inception date could cause an adverse effect on the experience modification. A policy can be used between 2.5 to 3.5 years in the calculation of the experience modification. Having a large loos year being used for 3.5 years instead of the normal 3 years will have an adverse effect.
Unit Statistical Report (USR)
All workers’ compensation insurance policies written in California must be reported to the WCIRB in a Unit Statistical Report (USR) or Unit Stat. The USR must include losses, payroll by classification codes. These reports are submitted by all insurance companies with California workers compensation policies. The data from these reports are used by the WCIRB as the data source for the Experience Rating System and the subsequently published experience modifications.
When a worker is injured and a workers’ compensation claim is filed, a total claim estimate is calculated by the insurer and that information is included on the next USR to the WCIRB. On a ‘first level’ USR 18-month value must be reported 20 months after the policy inception date or two months after the valuation date. Claims that are still open are valued and reported again a year later on a ‘second report’ for a 30-month USR Valuation. The ‘third report’ is the 42 month USR Valuation. This reporting continues until claims are closed or for ten reports. However, it is important to note that typically data from the first three reports is the only data used in the experience modification calculation.