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.