WCIRB Proposes Expected Loss Rate Decrease for Landscape Industry

Author, Drew Garcia, Vice President, Landscape Group, Rancho Mesa Insurance Services, Inc.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) has proposed a 2% decrease (from $2.42 to $2.37) in the expected loss rate for the landscape class code 0042. 

The proposed $2.37 would impact Experience Modifications (ExMod) for all workers’ compensation policies that take effect on or after September 1, 2022.

The expected loss rate is used to calculate each company’s individual ExMod within the industry. A decrease in the rate would generate lower expected losses and lower primary thresholds.  So, the lower number puts pressure on the ExMod to increase. Whereas, an increase in the expected loss rate would help provide some potential ExMod relief.

The proposed decrease would impact the lowest possible ExMod for landscape companies by increasing it about 5% or 2 to 3 ExMod points.

So, landscapers need to implement effective safety programs to ensure losses don’t exceed the new lower expected loss rate for the industry.  

To help landscape businesses manage their individual ExMod, Rancho Mesa introduced the KPI Dashboard in January 2021 to provide insights that help organization leaders stay informed and prepare for future changes like these.

If you’re not a Rancho Mesa client, and are a landscape business in California, we would welcome the opportunity to forecast your ExMod to help you better prepare. Contact me to request your customized KPI Dashboard.

Changes on Horizon Likely to Affect Workers’ Compensation

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Businesses in California have become accustomed to many changes in legislation and the filings from the Workers’ Compensation Insurance Rating Bureau (WCIRB). 

Changes by the WICRB typically take place at the first of every year and can impact workers’ compensation Pure Premium Rates, Expected Loss Rates (ELR) and Wage Thresholds. However, the WCIRB has amended its filing schedule in 2021 to take effect September 1st.

Below are key changes that businesses should be aware of that can alter Experience Modification Rates (ExMod) and workers’ compensation renewal pricing.

Assembly Bill 1465

The proposed Assembly Bill 1465 (AB 1465) could have significant impact on workers’ compensation rates in the years to come.  If passed, AB 1465 will establish the California Medical Provider Network (CAMPN), a broad and largely unregulated network run entirely by the state that would apply to the workers’ compensation system.  All licensed physicians in good standing who elect to treat injured workers will be included in the network.  Injured workers can choose any provider within the network and can transfer among providers multiple times without any limitation.

If this bill passes and a CAMPN is created, employers can anticipate:

• Doctor shopping by injured workers and attorneys;

• Increase in temporary disability and time to return to work;

• Increase in permanent disability ratings;

• Overall increase in medical costs per claim;

• Poorer quality medical reports due to fewer controls and less oversight.

Workers’ Compensation Rates

The WCIRB recently proposed a 2.7% workers’ compensation rate increase, effective 9/1/2021. This would be the first rate increase since 2015.  Updated fee schedules for med-legal review reports and physician office visits are what is driving this potential increase.

Expected Loss Rates

A characteristic of a Best Practice business is their focus on managing their ExMod. In simple terms, if a business’s ELR increases, it will have a positive effect on their ExMod. Conversely, if their industry’s ELR decreases, it will have a negative effect. While understanding what an ELR is and how it can specifically impact your ExMod is critical, this should be something your insurance advisor is explaining to you and projecting the impact it will have on your ExMod and ultimately your insurance premium.

To put this information at our clients’ finger tips, we have created a Key Performance Indicator (KPI) dashboard to not only show the impact of any changes in the ELR but also provide other key indicators like industry benchmarking, claim trending, and many other critical factors.  Request your customized KPI dashboard.

To stay up to date with these topics and related insurance news, subscribe to our weekly safety and risk management newsletter and podcast. Or, contact me directly at (619) 937-0167 or sclayton@ranchomesa.com to discuss how your company may be affected.

California’s Landscape Industry Prepares for Ex-Mod Changes

Author, Drew Garcia, Vice President, Landscape Group, Rancho Mesa Insurance Services, Inc.

For the first time in several years the Expected Loss Rate for class code 0042 has increased from $2.38 to $2.42, a 2% increase.

Bottom line, although very minimal, this should help bring the experience mod down.

This information will impact any landscape company who has a policy effective date of September 1, 2021 and beyond.

Based on a couple of projection comparisons, we have seen an impact of 1 to 4 points come off the experience mod for landscape companies.

Landscape companies working with Rancho Mesa with policy effective dates after 9/1/2021 will see updated information on their KPI Dashboard, at the next review.

For landscape companies not working with Rancho Mesa, you can request a custom KPI Dashboard today by reaching out to Drew Garcia.

Profitable Bids Should Include Often Overlooked Insurance Costs

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

We will take a look at factors that go into your bid and ways to ensure you are hitting your target profit margin.

There are many factors that go into creating a profitable bid on a construction project. They include:

• The scope of the work

• The location of the project

• Material costs

• Labor costs

For most construction companies, their estimators are well versed in all of the areas mentioned earlier and yet despite their best efforts, an unforeseen circumstance may occur and drive up the cost of a project, resulting in reduced profitability or a loss on the project.

One area that is often overlooked, but controllable, is the impact insurance has on the profitability of the project. The question to ask is how prepared are you and your staff to address the following questions:

Do you have the required insurance, coverages, limits, and terms in place to meet the contractual requirements of the project? If not, what will be the cost to add those requirements?

Will the project overlap your insurance renewal? If so, what changes in your Experience Modification Rate (EMR) can you anticipate and what will be the dollar impact?

What changes in your General Liability and Excess Insurance rates can you expect? 

Working with your insurance advisor on the above is a necessary step is helping to create a better opportunity for profitable jobs. At Rancho Mesa, we follow strict Best Practices and have prescheduled meetings with our insureds throughout the policy term, but additionally conduct a focused pre-renewal meeting 120 days prior to policy expiration.

Those meetings allow us to:

• Keep our clients aware of changes in the insurance marketplace that may impact their business.

• Project their EMR for the coming year and discuss how this might influence your bidding process.

• Review industry workers’ compensation trends in both Pure Premium Rates and Expected Loss Rates and their impact on workers compensation costs.

So, work with your insurance advisor and uncover those overlooked insurance costs to minimize risk and maximize profitability. To understand these factors in more detail or to look at our new KPI Dashboard that puts this information at your fingertips you can reach me at 619-486-6900 or ccraig@ranchomesa.com.

California’s Workers’ Compensation Landscape May Reach a Valley in Coming Year

Author, Drew Garcia, Vice President of the Landscape Group, Rancho Mesa Insurance Services, Inc.

The workers’ compensation market for landscape companies in California has remained in a downward trend since 2015. As a result, landscape business owners have realized lower rates and subsequently aggressive premiums.

The following are some key insights to help landscape businesses prepare for their 2021 workers’ compensation insurance renewal.

For Experience MOD (XMOD) purposes, it’s important to know the Expected Loss Rate (ELR) for the landscape class code (0042) has decreased 8% over last year, $2.38 per $100.  With a lower ELR comes an adverse effect for landscape companies’ individual XMOD, as a result of lower expected losses.  Lower ELRs also drive down the primary threshold, amplifying each claim’s impact on the XMOD.  Have your 2021 XMOD projected early to identify any possible implications. 

Pure premium rates are developed by the Workers' Compensation Insurance Rating Bureau of California (WCIRB) and approved by the insurance commissioner to reflect the expected losses and loss adjustment expenses for each class code.  Insurance carriers can then use these rates to come up with their own base rates to establish premiums.  Pure premium for the landscape industry is down 8% over last year, from $5.61 to $5.14.    The WCIRB also added a $.06 surcharge for COVID-19 claim impacts for the landscape industry.  The Landscape Industry was labeled under tier 3 of 5, were the $.06 surcharge will be applied.  Other tiers such as 4, 5, and 6 saw $.012, $.18, and $.20 surcharges as it was deemed those industries have a larger exposure share to COVID claims.  In the end, with the surcharge, Pure Premium is slightly down and theoretically should lower carrier base rates.

Watch a 10-minute webinar where Drew Garcia explains the California Workers' Compensation marketplace for the landscape industry.

Areas like Los Angeles Country, Riverside County, and San Bernardino Country have had higher claims activity and claim outcomes than other parts of the state. Carriers use territory factors to more accurately align their premium for your business, depending on your location. Territory factors can either credit or debit your policy based on the location of your business or surrounding areas where you operate. For example, if you are a landscape company in Riverside County but doing business in San Diego Country, make sure you are breaking out these operations so your underwriter can accurately evaluate the correct percentage of operations in Riverside vs. San Diego.

The average base rate filed by insurance carriers for class code 0042 is $10.63, which is down 7% over last year.  Carriers determine base rates based on industry appetite, historical loss experience, pure premium rates, and overhead.  Not all carriers have an appetite for landscape business and the lowest base rate does not mean the lowest net rate.  Insurance carriers have the ability to apply “schedule rating” which is a list of criteria they file for with the California Department of Insurance to allow underwriters the ability to deviate off the price.

In 2019, the top three carriers writing workers’ compensation insurance in California by premium volume was State Fund (10.56%), Berkshire Hathaway Homestate Companies (7.12%), and Insurance Company of the West (6.94%).  Rounding out the top ten were Hartford, Travelers, AmTrust, Zurich, Chubb, Fairfax, and Employers. 

Our advice for 2021:

• Have your companies 2021 XMOD projected today, if not at least 6 months before your policy is set to renew.

• Meet with your insurance professional 120 days before renewal to determine the renewal strategy.

• If you are discussing different carrier options with your agent, ask the next level questions:

  • What other landscape companies does this carrier work with?

  • What is their rating?

  • How long have they written workers’ compensation in California?

  • Are claims handled in house or by a third party?

The numbers above indicate the perpetuation of a soft market, however, we are steadily seeing the delta of decrease shorten.  Take this information to help your company formulate your renewal strategy and impact the discussions you have with your insurance agent in 2021.

If you have questions about your workers’ compensation renewal, contact me at (619) 937-0200 or drewgarcia@ranhcomesa.com.

Post COVID-19 XMODs Threaten a Double Whammy

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.

Contractors Brace for Impact of 2020 Expected Loss Rates

Author, Kevin Howard, CRIS, Account Executive, Rancho Mesa Insurance Services, Inc.

California contractors focused on their experience modification are paying close attention to the soon to be published 2020 Expected Loss Rates (ELRs).

ELRs determine the expected claim cost per $100 in pay roll for each class code during an Experience Modification (Ex-Mod) period. These rates are updated annually. The 2020 rates were recently approved on September 5, 2019. Changes in each specific class code’s ELR can positively or negatively impact a contractor’s Ex-Mod calculation.

In a nutshell, if an expected loss rate drops from one year to another with no material changes to payroll or claims, Ex-Mod’s will increase. Additionally, if an expected loss rate increases, Ex-Mod’s will decrease using the same example.

Below is a breakdown of the 2020 ELRs per class code with notable double digit increases highlighted:

Class Code	2020 ELR	Increase/Decrease %
3724 Solar/ Millwright	1.74	-4%
5187 Plumbing > $28	1.18	-8%
5183 Plumbing < $28	2.6	-5%
5542 Sheet Metal > $27	1.40	-4%
5538 Sheet Metal < $27	2.30	-12%
6258 Foundation Prep	2.65	-3%
0042 Landscape Gardening	2.59	-15%
0106 Tree Pruning	3.91	-21%
5140 Electrical Wiring > $23	.81	-6%
5190 Electrical Wiring < $23	1.89	+2%
5470 Glaziers > $33	1.63	+7%
5467 Glaziers < $33	4.30	-2%
5028 Masonry > $28	2.17	-9%
5027 Masonry < $28	4.73	-18%
5482 Painting/ Waterproofing > $28	1.42	-15%
5474 Painting/ Waterproofing < $28	3.68	-7%
5186 Automatic Sprinkler Install > $29	1.11	+5%
5185 Automatic Sprinkler Install < $29	2.45	-18%
5205 Concrete/Cement work > $28	1.95	-5%
5201 Concrete/Cement work < $28	3.95	-4%
5432 Carpentry > $35	2.01	-7%
5403 Carpentry < $35	5.27	-9%
5447 Wallboard Application > $36	1.34	-12%
5446 Wallboard Application < $36	2.76	-21%
5485 Plastering or Stucco >$32	2.66	-6%
5484 Plastering or Stucco < $32	4.78	-27%
5443 Lathing	2.37	-18%
5553 Roofing > $27	3.90	-14%
5552 Roofing < $27	9.85	-4%
6220 Excavation/Grading > $34	1.24	-24%
6218 Excavation/Grading < $34	2.34	-5%

The data above shows that a majority of class codes will be seeing a decrease in ELRs which will cause higher Ex-Mods in many cases. That reality creates a heightened need for loss control, claim management and post claim strategies. If you are seeking a partner with the tools to address these needs, please reach out to Rancho Mesa Insurance and our team of professionals at (619) 438-6874.

The Ticking Time Bomb for Plumbing and Mechanical Contractors: Lower Expected Loss Rates Can Mean Higher Experience Modifications

Author, Kevin Howard, CRIS, Account Executive, Rancho Mesa Insurance Services, Inc.

The Workers Compensation Insurance Rating Bureau (WCIRB) released the 2019 Expected Loss Rates (ELRs) in the 4th quarter of 2018. ELRs are the average rate at which losses for a classification are estimated to occur during an experience rating period. They are generally expressed as a ratio per $100 of payroll and can often have a dramatic impact on experience modifications. To support this point, the ELRs in the plumbing class code 5187 dropped 17% on January 1, 2019. This decrease is not getting significant attention, but could potentially create negative implications for California plumbing contractors and their respective experience modifications in 2019, 2020, and beyond. All plumbing and mechanical contractors should be made aware so they can prepare and make changes to protect themselves from the impact. Similar to a leak behind a wall, this could go undetected until the experience mods are released and then it is too late and too much damage has been done.

LINKING ELRs WITH YOUR PRIMARY THRESHOLD

The lowered expected loss rates also impact primary thresholds. Your primary threshold is the maximum primary loss value for each individual worker’s compensation claim. If primary thresholds move lower, one small lost time claim can cause a significant spike in an experience modification. An elevated experience modification can impact not only pricing, but opportunities to bid certain types of work within the commercial sector.

WHAT CAN YOU DO TO GET OUT IN FRONT OF THIS?

If these terms are completely new to you and your organization, lean on your insurance broker to provide the education needed to get up to speed. That can start with building a detailed service plan that focuses on controlling your experience modification. Some examples of critical elements that should be discussed would include:

• Addressing open reserves on claims that are impacting the future experience modification.

• How the timing of the unit stat filing will affect the future experience mod and cost.

• Ensuring that your safety program addresses the root cause of claim frequency and severity.

• Trainings that are aligned with OSHA compliance.

• Experience MOD forecasting up to 7 months prior to your firm’s effective date.

AVOIDING THE TICKING TIME BOMB

The ticking time bomb can be avoided by taking certain steps and actions that are strategically put in place with your insurance broker. If this article has created concern and/or these terms are brand new to you, pick up the phone and schedule an experience modification control meeting with an advisor from Rancho Mesa at (619) 937-0164. Their Best Practices approach to managing risk starts with a client-centric process that is focused on education and execution.

2019 Expected Loss Rates Published in California’s Updated Regulatory Filing – X-MOD Impact Inevitable for 0042 Class Code

Author, Drew Garcia, Vice President, Landscape Group, Rancho Mesa Insurance Services, Inc.

The 2019 Expected Loss Rate (ELR) for Landscaping class code 0042 was recently published at a 15% decrease or $2.97.

The ELR is the factor used to anticipate a class code’s claim cost per $100 for the experience rating period. It is not to be confused with the Pure Premium Rate (PPR). The ELR differs from the PPR in that the ELR simply measures the basic claim cost for a class code without including loss adjustment expense, excess loss load (capped at $175,000 for X-MOD purposes), and loss development. The PPR includes all of the mentioned above factors and is the rate for which a carrier can expect to pay for all of the cost associated with claims in a specific industry. The PPR does not account for the carrier’s overhead, profit, tax, and commissions.

Under most circumstances, when you hear the word decrease as associated with insurance its a good thing, but in the case of the ELR, a decrease will have a negative impact on your Experience MOD (X-MOD). In simple terms, if your losses stay the same and the ELR for your industry is down 15%, your X-MOD is going to go up.

At 15%, the landscape class code accounts for one of the largest swings in the 2019 regulatory filing for all industries. This only reinforces the importance of mitigating claim frequency, superior carrier claims handling, internal claims advocacy, claim cost consolidation efforts, and a proven system to keep all of these aspects running constantly. Fortunately, Rancho Mesa has a system in place today and it is a proven success.

Don’t be caught off guard in 2019; have a plan and always anticipate for the future. Let Rancho Mesa help manage your landscape insurance needs. For more information, call (619) 937-0164.

Changes in the 2019 Experience Modification Formula – Are You Ready? (Part 2)

Author, David J. Garcia, A.A.I, CRIS, President, Rancho Mesa Insurance Services, Inc.

As we approach 2019, there will be several changes in the experience modification formula that directly affects the calculation of an employer's 2019 Experience Modification Rate (EMR).

Part 1 of this article describes the Primary Threshold and Expected Loss Rate. Read Part 1 of this article. Part 2 provides an overview of the changes to the EMR calculation. 

The Simplified Formula

Individual claim cost (i.e., both paid and reserved) will go into the calculation up to the primary threshold limit are considered the actual primary losses. Any claim cost that exceeds your primary threshold is considered the actual excess loss. In past experience mod formulas, the actual excess loss was used in the factoring of your EMR; in 2019, it will have no effect. However, under the new calculation, the industry expected excess losses will be considered in the 2019 simplified formula.

Actual Primary Losses + Expected Excess Losses / Expected Losses  

The expected excess losses are calculated by multiplying your class code’s payroll per $100 by the expected loss rate for that same class code. This number is then discounted by the “D Ratio” to determine expected primary losses and expected excess losses. There are 90 different D-Ratios for each classification based on the primary threshold. The D-Ratio is different for each classification and is determined by the severity of injuries that occur within that particular class code.

The first $250 of all claims will no longer be used in the calculation of your EMR.  

This is a major change and one that was initiated in part to encourage all employers to report all claims, including those deemed first aid, without having a negative impact on the companys’ EMR. This change will affect all claims within the 2019 calculation; so yes, it will include years previously completed and reported. This will have a positive impact on EMRs in that claim dollars will be removed from the EMR calculation. 

Confused – Want more details?

Help is on the way. We are going to hold a statewide webinar on Thursday, October 4th at 9:00am in order to dig deeper into this subject and answer specific questions. You may register for the webinar by contacting Alyssa Burley at (619) 438-6869 or aburley@ranchomesa.com.

Changes in the 2019 Experience Modification Formula – Are You Ready? (Part 1)

Author, David J. Garcia, A.A.I, CRIS, President, Rancho Mesa Insurance Services, Inc.

As we approach 2019, there will be several changes in the experience modification formula that directly affects the calculation of an employer's 2019 Experience Modification Rate (EMR). Sadly, most businesses are both unaware and unprepared.

Before we breakdown the changes to the 2019 EMR formula, we must first have a strong understanding of the two critical components that directly affect the outcome of the EMR. This article will be broken out into 2 parts. Part 1 will describe the Primary Threshold and Expected Loss Rate. In Part 2, I will provide an overview of the changes to the EMR calculation. 

The single most important number to my EMR is not my final rating?

Primary Threshold

Rancho Mesa has long taken a stance on the importance of a business owner knowing their primary threshold as it relates to the EMR. Proactive business owners should monitor their primary threshold annually as it is subject to change due to payroll fluctuations, operations, and the annual regulatory filing of the expected loss rate. In general terms, the more payroll associated with your governing class (the class code with the preponderance of your payroll) the higher your primary threshold will be. The primary threshold is unique to every business. The 2019 EMR formula is heavily weighted by the company's actual primary losses, the claim cost (both paid and reserved) that goes into the calculation up the primary threshold amount. Controlling claim cost and knowing your company's primary threshold is the first step to understanding the EMR.

Expected Loss Rates

The expected loss rate is the factor used to anticipate a class code's claim cost per $100 for the experience rating period. The expected loss rate (ELR) is not to be confused with the pure premium rate (PPR). The ELR differs from the PPR in that the ELR simply measures the basic claim cost for a class code without including loss adjustment expense, excess loss load (capped at $175,000 for X-MOD purposes), and loss development. The PPR includes all of the mentioned above factors and is the rate for which a carrier can expect to pay all of the cost associated with claims in a specific industry. The PPR does not account for the carrier’s overhead, profit, tax, and commissions.

The ELR changes, annually. It’s important to monitor the change; if your expected loss rates go down (from our analysis this is the direction most are going) and if nothing else changes, your EMR will go up. Why is this? Again, without going too deep, in simple terms, your EMR is a ratio of actual losses to expected losses. If your expected losses go down, but your actual losses remain the same, then your EMR will go up.  

To illustrate this, consider the following. Actual losses are $25,000 and your expected losses are $25,000 your EMR would be 100. Now, if your actual losses stay the same at $25,000, but your expected losses drop to $20,000, your EMR would now be 125%. (There are other factors that would go into the actual calculation, so your actual EMR would be different – this was just to illustrate the expected losses impact to the EMR.)

In Part 2 of this article, will cover the actual changes to the EMR calculation.

For more information about the EMR, contact Rancho Mesa Insurance Services at (619) 937-0164.