The recent release of 2011-2012 Workers’ Compensation rates and supporting rating factors has created a significantly heightened exposure to employers as it relates to larger claims and their impact on the modification factors of employers. Effective October 1, 2011, the new loss limitation factor (large loss cap) in Wisconsin has been raised from $154,000 to $171,000.
Since calendar year 2001, WCRB has steadily and aggressively increased the maximum loss limitation factor in Wisconsin from a limit of $69,500 to the present $171,000. This 246% increase over an 11 year period has magnified the impact a large loss has on the experience modification factor of an individual employer on claims which would have been capped at the lower amount.
What does this mean to an employer and what steps are necessary to mitigate the impact of this change? Experience modification factors of employers are based on payroll, rate, and claim experience for three policy periods pre-dating the most recently expired policy period. Each year, as modification factors are updated and revised the new rating elements are included in the calculation. As a result of this change, a loss of $175,000 in year 2009 which had been capped at $133,500 will now be revised to $171,000, thereby having a negative impact on the mod factor.
The increase in loss limit factor also belies the importance of employers in managing and creating awareness of the importance of cost containment and claims management due to the financial impact to the employer on
modification factors and ultimately the cost of Workers’ Compensation insurance. Claim management including the monitoring of paid claims and reserves will need to be reviewed regularly with the understanding of the impact of this change.
If you wish to learn more about the change in the rating structure along with an analysis of your firm’s modification and any potential impact, please contact Doug Henderson, Vice President, Horton Risk Management Services, at 262.347.2673 (doug.henderson@thehortongroup.com) or Ryan Smale, Sales Executive, Horton Risk Management Services, at 262.347.2604 (ryan.smale@thehortongroup.com).