Last year the Workers’ Compensation Insurance Rating Bureau of California instituted new rules that limited to 25 percentage points the amount an X-Mod can change due to a single claim.
Now it’s considering additional regulations to further improve the way X-Mods are calculated. The goal is to ensure that X-Mods better reflect the true claims history and costs of employers, and to eliminate the X-Mod spike for smaller employers who experience just one claim.
The issue of one claim sending an X-Mod spiraling has been a thorn in the side of many smaller employers. Sometimes the insurer may increase reserves for a claim because it expects costs to mount quickly. When those reserves are placed on a claim, it will be reflected in your loss reports when it comes to calculating your X-Mod.
Currently, the Rating Bureau uses a single split point for dividing primary and excess losses. The new system it’s mulling would use 90 or more different thresholds based on the size of any given employer.
The goal of this possible change is to make California’s current X-Mod system a better predictor of an employer’s likelihood to suffer a compensable workplace injury.
As currently drafted, the multiple split point formula would essentially use just an employer’s actual primary losses, plus their expected excess losses divided by their expected losses, to determine their X-Mod.
Primary losses are the costs that the insurer would expect to pay for a given workplace injury, and excess losses are those that go above and beyond those initial primary losses. Excess losses are driven by the severity of the injury and the worker’s ability to recover from the injury and return to work.
This process is in its early stages and the proposed effective date is not until 2017, according to press reports.
Currently, the experience rating plan uses a single split point set at $7,000 for all employers, which critics say unfairly affects smaller risks and is not as responsive for larger employers.
Any claims incurred up to the split point value are included in an employer’s X-Mod calculation at full value, while the rating formula only considers a portion of the claims dollars over that amount.
The Rating Bureau has resisted raising the split point (last year it entertained a recommendation that it be raised to $9,000) because of the negative impact it would have on smaller employers, and has been exploring alternatives to the single split point system.