Author, Kevin Howard, C.R.I.S., Account Executive, Rancho Mesa Insurance Services, Inc.
COVID-19 has created a multitude of challenges for California business owners in the first half of 2020. A concerning trend is the potential combination of lower payrolls and the California Workers’ Compensation Insurance Rating Bureau’s (WCIRB) recommendation to lower expected loss rates, creating what very likely could be significant Experience Modification Rate (XMOD) increases for numerous California businesses.
Whammy #1 - Lower Payrolls
With the economy screeching to a halt in March of this year due to the shelter in place restrictions, payrolls and employee counts have been dramatically reduced. Since the XMOD calculation is based on a rolling three years of payroll and claims, should the year dropping out of the calculation have larger payrolls than the year entering and assuming the same claim amounts for each year, the XMOD would increase.
Whammy #2 – Lower Expected Loss Rates (ELR)
ELRs are the factors used to anticipate a class code’s claim cost per $100 for the experience rating period. Stated simply, it’s a rate per, $100 of payroll by class code that projects the claim amounts the WCIRB believes should occur for that class code. Thus, should ELRs decrease; it would have the effect, given no change in the claims, of raising the XMOD.
California businesses should pay close attention to their individual ELRs as the WCIRB annually recommends updated rates during their June regulatory filing period. The 2021 rates were recently proposed on June 25, 2020 by the WCIRB and will be waiting approval in September by Insurance Commissioner Ricardo Lara.
Below is a breakdown of the 2021 proposed ELRs by class code with notable double digit increases highlighted:
2021 Proposed ELRs
| Class Code | 2020 ELRs | 2021 Proposed ELRs | Increase/Decrease % |
|---|---|---|---|
| 3724 Solar/Millwright | 1.74 | 1.81 | 4% |
| 5187 Plumbing > $28 | 1.18 | 1.13 | -4% |
| 5183 Plumbing < $28 | 2.6 | 2.6 | 0% |
| 5542 Sheet Metal > $27 | 1.4 | 1.35 | -3% |
| 5538 Sheet Metal < $27 | 2.3 | 2.39 | -12% |
| 6258 Foundation Prep | 2.65 | 2.48 | 2% |
| 0042 Landscape Gardening | 2.59 | 2.38 | -8% |
| 0106 Tree Pruning | 3.91 | 4.11 | 5% |
| 5140 Electrical Wiring > $23 | 0.81 | 0.73 | -10% |
| 5190 Electrical Wiring < $23 | 1.89 | 1.82 | -4% |
| 5470 Glaziers > $33 | 1.63 | 1.81 | 11% |
| 5467 Glaziers < $33 | 4.3 | 3.81 | -11% |
| 5028 Masonry > $28 | 2.17 | 2.13 | -1.8% |
| 5027 Masonry < $28 | 4.73 | 4.03 | -14% |
| 5482 Painting/ Waterproofing > $28 | 1.42 | 1.57 | 10% |
| 5474 Painting/ Waterproofing < $28 | 3.68 | 4.08 | 10% |
| 5186 Automatic Sprinkler Install > $29 | 1.11 | 1.14 | 3% |
| 5185 Automatic Sprinkler Install < $29 | 2.45 | 2.2 | -10% |
| 5205 Concrete/Cement work > $28 | 1.95 | 1.71 | -12% |
| 5201 Concrete/Cement work < $28 | 3.95 | 3.45 | -12% |
| 5432 Carpentry > $35 | 2.01 | 2.05 | 2% |
| 5403 Carpentry < $35 | 5.27 | 4.91 | -7% |
| 5447 Wallboard Application > $36 | 1.34 | 1.14 | -14% |
| 5446 Wallboard Application < $36 | 2.76 | 2.67 | -3% |
| 5485 Plastering or Stucco >$32 | 2.66 | 2.55 | -4% |
| 5484 Plastering or Stucco < $32 | 4.78 | 4.41 | -8% |
| 5443 Lathing | 2.37 | 2.23 | -6% |
| 5553 Roofing > $27 | 3.9 | 3.89 | -2% |
| 5552 Roofing < $27 | 9.85 | 9.23 | -6% |
| 6220 Excavation/Grading > $34 | 1.24 | 1.08 | -12% |
| 6218 Excavation/Grading < $34 | 2.34 | 2.59 | 10% |
| 5436 Hardwood Flooring | 2.03 | 2.01 | -1% |
| 3066 Sheet Metal Prod Mfg. | 1.94 | 2.00 | 3% |
| 8018 Stores - Wholesale | 2.67 | 2.81 | 5% |
| 8804 Shelter/Social Rehab | 1.25 | 1.30 | 4% |
| 8827 Hospice and Homecare | 1.72 | 1.54 | -10% |
| 9059 Childcare | 0.99 | 1.07 | 8% |
| 8834 Physicians | 0.34 | 0.34 | 0% |
| 8868 Colleges/ Professors Private-Teachers | 0.36 | 0.37 | 3% |
| 9101 Colleges/Schools Private-Other | 2.50 | 2.13 | -14% |
Should Commissioner Lara approve the ELR changes in September, a majority of class codes will be seeing a decrease which can lead to higher XMOD’s in many cases. That possibility, combined with lower incoming payrolls, requires proactive risk mitigation, claim management and detailed planning with your broker.
If you are seeking a partner with the tools to address these needs, please reach out to Kevin Howard at Rancho Mesa Insurance Services, Inc. at (619) 438-6874.