The Simple Truth About Modifications in California
In dealing with the changes in the new modification calculation (4th one in 4 years) by the WCIRB, I have been attempting to explain what happened to a majority of my clients. Below is an actual email that I sent to a client in order to attempt to explain what I believe is an obvious false inflation of a modification.
Dear Valued Client,
“I was just in process of preparing a full report on your new mod. As you may know, the WCIRB has changed the way they are calculating modifications (4 times in the last 4 years) and this one was a massive makeover of the system. Your new modification, which under last years plan would have been 117, is now 130. In order to explain how the WCIRB changes effected your modification (and every modification on every client that I have), I have attached some documents showing the difference.
The main difference is the increasing of the cap on Actual Primary Losses from a max of $7,000 to a max of $40,000 effective 1/1/17. This has effectively artificially raised your modification 13 points from 117 to 130. I have attached two documents (17 Mod based on 17, and 17 Mod based on 16) to show you the difference in the calculation using the identical payroll and loss information in each year. The last page of the 17 Mod based on 17 document shows the difference of the change using the same payroll / claims info.
Also attached is the WCIRB Experience rating form for both 2016 and 2017 showing the change in the Actual Primary Losses category from $7,000 to $40,000.
After many heated arguments with the WCIRB on behalf of clients I get the same answer “The changes have no net effect on premiums system wide”, which I disagree with as I have seen the same types of increases in all three (small, medium, and especially large) Ag and non Ag clients. What they are saying is that “this will be corrected with declining rates”, which would be true if we were still under the mandatory rate system where the WCIRB sets the rates for all companies, but may not be true in the current “suggested” rate system.
I’ve actually sent complaints to the Department of Insurance on this matter, but they refer me back to the WCIRB on every point. My last query was “How does a company with a 38% loss ratio (premium to Incurred losses) over the calculation period deserve a debit or high mod?” This, they have never, and will never answer as I believe they do not have an answer for it. Even if their theory is true and rates decline based on loss ratios and the effect higher mods can and do have on premium, why would you just take money out of one pocket and put it another? The WCIRB is putting a lot of faith in the competitive nature of companies.
On the flip side, Insurers are not blind to this change, and see that this new change is affecting everyone and in turn how it will affect the way they all underwrite. They will not and cannot put as much weight on the X-mod in the future under the new calculation. They will underwrite simply based on their own data analytics and the loss ratio histories of the client companies they underwrite.”
If Experience Modifications hold no real underwriting value, Insuring Companies have their own big data analytics, and all WCIRB rates are “Suggested”, does this make the WCIRB irrelevant?