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We wrote last Summer about changes that would be coming to the workers compensation experience modification formula starting this year. You’ll remember that experience modifications are calculated based on reported losses valued six months after normal workers compensation policy expirations. For policyholders with December 2013 policy anniversaries, your claims will be valued as of June; you’ll be the last to feel the impact of these changes, but feel them you will.
It’s a good time to talk a bit about some things you can do to try to affect your experience modification in a positive way. Understanding the timing described above is the first step. Experience modification factors are developed from your actual claim information reported by your insurance company to the National Council on Compensation Insurance (NCCI) or other governing rating bureau. That reported claim information is just a snapshot of your claims experience, valued and reported at a specific point in time.
Claims reported on that valuation date include both actual dollars paid for your workers compensation claims, and your insurance company’s estimates of future payments, the claim reserves. Those estimated reserves have a direct impact on your workers compensation costs on only one day each year, the day they are reported to the rating bureau. Since claim reserves, as of the valuation date, are included as losses in the report submitted to the rating bureau, it only makes sense to examine those reserves to make sure they are properly set. It is critical that you examine those reserves to be sure that your open claims are not over-reserved as of the valuation date, and that claims that should be closed are in fact closed prior to the valuation date, since closed claims will have no reserves.
Remember, claim experience for three years goes into determining your experience modification, so be sure to minimize any over-reserving on claims occurring in all three policy years that will be used to calculate your experience modification factor.
Of course it’s not a bad idea to pay attention to what’s happening to your claims throughout the year. And as a practical matter there is one other time that claims values can affect your insurance cost, although less directly. That’s about three months after the experience modification valuation; that’s when underwriters will be looking at your claims history as they price your renewal. Getting an earlier jump on correcting any problems with your claims will pay dividends here, too.