Lower Workers' Compensation Rates = Higher Experience Mods? How Does That Add Up?
For the 8th consecutive year, the Wisconsin Compensation Rating Bureau (“WCRB”) has lowered workers' compensation premium rates for Wisconsin employers, effective October 1, 2023. This is great news for employers with relatively few (or no) claims or a very large payroll/workforce. However, for employers that DO have compensable claims without a large payroll to offset them – this decrease tends to result in higher experience modification factors. Let’s dig into why that is (besides, of course, the ever-growing cost of healthcare – which is inherently driving claim costs up). Math lovers – get ready to live!
For more information on the basics of experience mods and how they are calculated, click here.
Why do lower rates result in higher mods?
This is going to make a lot of sense in just a few seconds! When your manual rates (WC premium calculated based on your payroll and industry rates) are lower, your expected losses are also lower. So…every dollar you incur in claims will have that much larger of an impact (or get you closer to or over that expected loss amount).
For a visual example, imagine your WC premium dollars filling up a swimming pool with water and your claim dollars creating a hole in the side of the pool to let the water escape. When there isn’t as much water in the pool it doesn’t take as long for the water to drain all the way.
Below is an example of a calculation that was made apples to apples, changing only the WCRB rates from 10/1/2022 rates to 10/1/2023 rates. This example assumes the exact same payroll compared to the exact same loss dollars. As you can see, the mod changed by 2 points (from 0.92 to 0.94). On a policy that is worth $500,000 in manual rate, this would equate to a $10,000 increase in premium. This is just one hypothetical example – every industry is impacted differently.
For those of you who may have received a preliminary mod earlier this year, prior to the release of the new Wisconsin rates, you may want to prepare yourself for an increase in your final mod (this would impact policies with a 10/1/23 effective date or later).
For more information on your experience mod, or to request a mod projection from Hausmann Group’s experienced Claims team, please reach out to your Hausmann Group contact.
If you'd like to learn more about workers' compensation, registration is open for the 2023 Wisconsin Workers’ Compensation Forum on October 4-5, 2023. Learn more about the forum here.