Here’s what you need to know.
By Jon Coppelman
On Oct. 1, 2022, the New York Compensation Insurance Rating Board (NYCIRB) implemented a new approach to experience rating. This is no set of small changes: it’s a paradigm shift that challenges long-standing assumptions about fairness, flexibility, and accountability.
Here we provide a brief introduction to the new system, focused on the essential changes and the implications for policyholders across the state. We will also touch briefly upon the implications for out-of-state employers whose employees work in New York, whether part-time, intermittent, or full time.
A Sliding Scale for Primary Losses
Primary losses are supposed to be a measure of frequency: the first dollars of each new claim are generally valued at 100% in the rating calculation, up to the split point where excess losses begin. The standard operating procedure in New York and in NCCI states was to set the same primary split point for all insureds. This favored the big companies and clobbered the smaller ones. When it comes to primary losses, one size does not fit all.
New York has now joined California as the only states with a sliding scale for primary losses: the smaller the company, the lower the split point; conversely, the bigger company, the higher the split point.
For example, expected primary losses might be capped at $2,000 for a small company and rise to $100,000 for a very large company. This is an important adjustment.
Only Primary Losses Count
Traditional rating systems divide claims into two buckets: primary losses, valued at 100%, and excess losses, which are discounted substantially. Experience rating would compare actual primary losses to expected, and actual excess losses to expected.
By only counting primary losses, New York has placed a laser focus on frequency: a single claim during the three-year rating period – no matter how large – would have a limited impact on the rating. However, numerous claims over the rating period would generate a very large penalty in the form of a high mod.
|Number of claims in 3-year rating period||Cap on experience rating|
As you can see, even with relatively few losses, the cap goes up substantially. This will result in sticker shock for many policyholders.
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A Reduced Maximum Cap on Individual Claims
New York now caps the amount any single claim will impact the rating at $175,000; the prior cap was $500,000. Again, the focus in the new calculation is on frequency, not on the rare catastrophic incident.
Everyone Gets a Mod
As in most states, New York used to limit experience rating to entities generating at least $5,000 in premiums. Insureds with lower premiums were covered by the merit rating system, which rewarded loss-free years with a small credit, while not penalizing these insureds for any claims. Harnessing the newly developed sliding scale for primary losses, NYCIRB has brought all policyholders into the rating process. The good news is that under the new rating system, loss-free insureds may see significantly lower premiums through experience mod credits; the bad news is that smaller insureds, especially those with multiple claims, may see significantly higher costs due to debit ratings under the new experience mod.
Multiple Injuries in a Single Incident are Capped
When multiple employees are injured in a single incident, only the costs of the largest two claims are included in the experience mod. For example, a car crash might involve four or more employees. The mod will only include the two most expensive claims.
Uninsured Subcontractors will be Included in the General Contractor’s Payroll
Unlike many states struggling with the independent contractor issue, New York has not created specific criteria for “independence.” In all cases involving uninsured subcontractors, whether they are required by law to carry workers’ comp insurance or not, the payroll portion of billings will be added to the General Contractor’s payroll, in the appropriate class code. General contractors need to become aware of this policy.
One-Year Trial Run
All policies beginning Oct. 1, 2022, will be rated under the new system. However, if the old rating system yields a lower mod, the latter will be used for any policies running from Oct. 1, 2022, through Sept. 30, 2023. For policies beginning after that point, the new calculation will be used.
Key Point for Out-of-State Agents & Insureds
As long as New York is listed under section 3A of the employer’s workers’ comp policy, employees of out-of-state insureds are covered while working in New York. Companies in assigned risk pools cannot list under 3A and will have to secure a separate New York policy for their employees working in New York.
New York Agents Face a Brave New World!
In this major revamping of experience rating, NYCIRB has launched a fascinating experiment. The winners – with lower mods – will be delighted. The losers – with higher mods – will be upset. It’s important for agents to track these developments on a policy by policy basis and be prepared to walk their clients through these changes.
I am available to help, especially when mods shoot up – which will likely occur frequently. I look forward to working with you and your clients through the implementation of this intriguing new approach to experience rating.
Jon Coppelman, Workers Compensation Consultant