Steven Bell, Vice President, Underwriting & Sales
On May 15, 2023, the New York Compensation Rating Board (NYCIRB) filed with the Department of Financial Services, a 2.6% decrease in the overall loss cost level in New York State, to be effective on October 1, 2023. The proposed loss cost decrease was determined by NYCIRB applying their standard ratemaking methodology.
This marks the seventh consecutive year where NYCIRB has filed for a loss cost decrease. While insurance costs have been on the rise across most lines, Workers’ compensation loss costs have defied inflationary pressures. Since 2017, loss costs in NYS have decreased on average nearly -45%.
During the same time, the average weekly wage increased nearly +31.6%.
There are many factors that have been driving the rate decreases such as improved loss experience and development, lower loss frequency, lower loss severity, higher wage trend factors, modest growth in loss adjustment expenses, higher benefit levels, lower catastrophe and disaster premium, and modest industry differentials. While all these factors play a role, calculated future wage trends appear to have had the most significant impact on loss costs during the last seven years. Conceptually, if the entire potential cost of losses for NYS is $5 billion, then loss cost must be set to raise $5 billion in premium. In this example, if wages are expected to increase 5%, and losses remain the same, then loss costs must decrease to generate the same amount of premium.
Loss Costs, Rates and Premium
In New York State, workers’ compensation pricing begins with the creation of what is known as a loss cost. NYCIRB collects payroll and loss data divided into approximately 580 classes of businesses such as plumbers, electricians, and painters. The loss cost is created by determining the total losses and payroll for those in a similar class of business. The result is a loss cost, which is an average unit of cost that can be charged for each one hundred dollars of payroll exposure. Carriers in NYS then apply a loss cost multiplier to the loss cost to create their rate. The multiplier, generally greater than one, is based upon each carrier’s expenses and loss experience and covers the carrier’s expenses and profit. Workers’ compensation premium is then determined by multiplying the amount of payroll (divided by 100) for each class code/business type by the carrier’s rate.
There are many factors that drive your final premium. In addition to manual rates, the final cost you pay is affected by your experience modification, the size of your payroll, the construction premium adjustment program, the payroll limitation, scheduled rating and the carrier discount. The experience rating modification is designed to adjust the manual rate to better fit an individual employer’s loss experience compared to all other employers in their class. You may have seen a larger credit or debit on your renewal due to NYCIRB’s recent change to the methodology for determining your experience modification. The construction premium adjustment program (CPAP) develops a credit for those employers who pay higher hourly wages for construction operations. Its purpose is to address premium differences between high–wage and low–wage paying construction employers. In addition to the CPAP program, employers performing commercial construction are also eligible to apply a payroll limitation equivalent to the NYS average weekly. Schedule rating credits and debits along with carrier discounts are also applied in many cases but are subjective and applied by your carrier based on their assessment of your operation. The maximum schedule rating credit/debit is 5% and private carriers can also apply a premium discount, which generally ranges from 1-15% of premium based on premium size. NYSIF can apply discounts and differentials based on their assessment of each individual insured. Policies that perform poorly may be debited and employers who are performing better than average, such as employers in a NYSIF safety group, receive as much as a 30% upfront discount.
If Loss Costs are Down 45%, Why Aren’t My Premiums?
The likely answer to the question is a combination of many of the factors noted above. Given the yearly increases in other lines of insurance, you may not be looking hard at your workers’ compensation costs as your premium may not be increasing. This is human nature, as we tend to focus on those items that are increasing in cost. However, it is wise to periodically market your insurance. If your payrolls have not gone up significantly and all other factors are equal, then your workers’ compensation renewal may be a place where savings awaits you!
For more information on workers’ compensation, contact Lovell at 1-800-5 LOVELL or visit online www.Lovellsafety.com.