New Issues in Workers Compensation Pose Challenges for Casualty Actuaries

My latest, written in conjunction with the CAS.

The challenge was to describe the split point in experience rating:

What’s changing is the delineation between the primary and excess portions of a claim, known as the split point. For the past two decades, the split point has been $5,000. This value is important, because the primary portion of each claim has a much larger impact on an employer’s mod than the excess portion – the idea being that the primary loss amount is more predictive than the excess amount.

But inflation has both eroded the primary/excess split point and hurt its predictive power. These days, the mod doesn’t give enough credit to good experience and doesn’t penalize poor experience enough.

“The plan was not being as predictive as it used to be” in distinguishing between good and bad risks, DiDonato said.

The change: Raising the split point – to $10,000 in 2013, to $13,500 in 2014, and to an estimated $17,000 in 2015. These adjustments, incorporated into the entire rating formula, improve the experience mod’s predictive power.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: