Some states are talking "reform" this year, California most notably. Reform talks always center around "costs" but "costs" are not the same to insurance companies as they are to employers.
Carriers see lots of costs that comprise the total rate that is going to be the basis of the premium requested of a particular risk (employer).
On the other hand, employers see only one cost (unless the employer is self-insured, self-administered...) and that is the premium that comes across the desk with the generic policy declarations page once a year.
When regulators and politicians talk about "reform" they typically are talking about the costs that are experienced by carriers, and they assume that control of those costs will trickle down to employer premiums.
Sometimes they do, to a certain extent. The 2004 California reforms saw carrier costs cut in half. Employers saw a benefit, but not a 50% reduction in their premiums. Most employers saw a reduction of about 25%.
The mid-2000 reforms throughout the nation were the product of a dissatisfaction with spikes in premiums - or in other words, lack of stability in the employer costs to maintain legal compliance. While there is some concern with now much a workers' compensation policy may cost in any one particular scenario, the employer community gets most vociferous when there is lack of stability in the pricing and particularly when there are severe spikes in premiums from one renewal to the next.
Imagine then the uproar we are about to experience if and when states adopt the National Council on Compensation Insurance (NCCI) proposed changes to the formula it uses to calculate premium credits or debits based on previous claims, aka experience modification factor, known in some states as the x-mod and other states as the e-mod.
Presently NCCI uses an experience rating split point to calculate experience modifiers. NCCI uses the full amount of a loss up to $5,000, known as the primary loss, and discounts the amount of a loss greater than $5,000, known as the excess loss.
The $5,000 “split point” has not been adjusted since 1991, despite the fact that the average cost of a claim has tripled over the past two decades, NCCI said in a document explaining the changes. Because the split point hasn’t changed, the portion of each claim classified as the primary loss is smaller than it was 20 years ago and the Experience Rating Plan now gives less weight to each employer’s actual experience and the plan has become less responsive.
NCCI is proposing to increase the split point over the next three years starting Jan. 1, 2013 and pending regulatory approval in NCCI states. If approved, on 1/1/2013 the split point will double to $10,000. NCCI is also proposing to increase the split point to $13,500 in 2014 and to about $15,000 in 2015. The split point for the third year will also include an adjustment for inflation.
Non NCCI states are also considering tinkering with the x-mod.
The New York Compensation Insurance Rating Board (NYCIRB) is also planning to ask for approval to increase the split point to $10,000 in 2013 as part of its 2013 loss-cost filing, Ziv Kimmel, vice president and chief actuary, told WorkCompCentral news.
In California minutes from the last meeting of the Workers’ Compensation Insurance Rating Bureau's (WCIRB) Classification and Rating Committee indicate consideration of raising the split point from $7,000 to $9,000.
Regardless, this is a cost factor that DOES concern employers.
When talk of reform circulates it is typically involved with the benefit delivery system. X-mod tinkering is a reform that involves the risk allocation system. Savings in the benefit delivery system might migrate down to the employer's premium, but not directly, and not in a dramatic fashion that most employers are going to notice.
Changes to the risk allocation system are direct, and will be noticed by employers.
How much a change to the risk allocation system is noticed will depend on how dramatically any particular employer's premium will spike. Most can only speculate what the effect will be because the x-mod is so claim specific, ergo employer specific.