For the first time in two decades, the National Council on Compensation Insurance is making some changes that could raise employers' workers-compensation insurance premiums.
The NCCI, a rating organization, is raising the primary-excess split point over a three-year transition period.
Employers' premiums are determined partly by an experience modification, which is the amount of expected losses or claims for any industry. If an employer has fewer claims than expected, its experience modifier will decrease, resulting in a lower premium, but the premium will increase if the employer has more claims than expected.
The number of claims has more of an impact on the employer's premium than the cost of the claims.
The split point is the cutoff amount between frequency losses and excess losses. Before the changes, any claim less than $5,000 was considered a frequency loss and had a greater impact on an employer's experience modification and, subsequently, its premium than the excess losses.
The first stage of the split-point changes takes effect this year with the frequency-loss rate increasing from $5,000 to $10,000. The rate will increase to $13,500 in 2014 and $15,000 plus two years of inflation adjustment in 2015. Starting in 2016, the rate will be increased annually for inflation.
The new rates mean more workers-compensation claims will be categorized as frequency losses and therefore will count toward the employer's premium, said Mary Frazier with Mountain West Insurance and Financial Services in Durango.
Employers who have more claims can consider paying for the costs out of pocket rather than making an insurance claim and having it count against their premium.
Which employers will be hit the hardest is still an unknown, said Tracey Lucero, a predictive modeler for Pinnacol Assurance. But employers can look at their recent claims for an idea of how the coming changes will affect them.
“If they are already paying more in insurance because they have a poor loss history, (the premium) is probably going to go even higher,” Lucero said. “If they have good safety measures in place, then their rate is going to go down even further than it is right now.”
Durango Roofing Co. is seeing its premium go up slightly because of the changes, but it won't have a large impact on the business, said owner Deby Patterson.
The company had its first claim in 15 years this year after a man broke his leg when he slipped while shoveling snow off the roof of a building.
NCCI is raising the split point to more accurately predict the number of claims an employer should have, said Barry Lipton, a senior actuary with NCCI.