WC experience rating passes test

Wonky, but this is a blog for actuaries:

In 2009, California approved new ballast weights (B and W) for workers compensation to improve the rating plan. So far it seems to be working.

I’d describe the study more, but Insurance Journal, channeling the Workers Compensation Insurance Rating Board, does just fine:

[A WCIRB analysis] shows that approximately 65 percent of experience-rated policyholders received a lower experience modification than would otherwise have been the case as a result of these formula changes. Approximately 29 percent of policyholders received a higher experience modification and approximately 6 percent of the policyholders were unaffected by the 2010 formula changes. Roughly 5 percent of experience rated policyholders saw increases of between 11 and 20 points in their experience modifications, and approximately 2 percent saw increases of more than 20 points. The small percentage of policyholders who experienced large increases were employers with worse than average underlying loss experience.

The average statewide experience modification for 2010 of 94 percent has not been affected by the 2010 changes to the formula. In other words, the total statewide pure premium generated after application of 2010 experience modifications has not been affected by the 2010 formula changes.

So the changes did what they were supposed to. They increased rates on supposedly good risks, decreased rates on supposedly poor risks but didn’t generate more revenue than the old system had. A chart from WCIRB’s web site summarizes:

Mod used to mean cool.

What the study doesn’t appear to say – and can’t at this early juncture – is whether the experience mods are more accurate than the old system.

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