Workers' Comp Schedule Rating Plans Can Be Used to Increase or Reduce Premiums.

• Author: Decarlo, Donald T.
• Position: [WORKERS' COMP]

* In 2017, of the 38 states where the National Council on Compensation Insurance (NCCI) -the insurance rating and data collection bureau specializing in workers' compensation for the majority of states- made rate filings, 36 of those filings were for decreases; many of which were double digit decreases. The trend continued in 2018 where NCCI filings showed decreases proposed in 36 states. In 13 of those states, the rate filings decreases were greater than 10%:

In states where rates are approved by independent bureaus, there is a similar downward trend in compensation rate. The New York Department of Financial Services approved a 11.7% decrease in workers' compensation loss costs effective October 1, 2018. In New Jersey, the insurance commissioner approved a 5.1% rate decrease for workers' compensation premiums on a new and renewal basis. And in California, the rate filing approved, effective January 1, 2019, a decrease in workers' compensation pure premiums costs an average of 8.4%.

The continuing trend to reduce workers' compensation rates and/or loss costs at the state level prompts insurers to look for ways to increase premiums based on available pricing mechanisms. To that end, the majority of states allow discretionary credits or debits by insurers. These are generally known as schedule rating plans and work much like experience modification factors. They are percentage discounts or surcharges that further adjust the modified premium. A 25% schedule credit would further reduce an employer's premium charges by 25%, while conversely, a 25% schedule debit would increase an employer's premium by 25%.

Schedule rating is used to alter manual rates to reflect individual risk characteristics and unique employer traits that are expected to have a material effect on the insureds future loss experience that are not actually reflected in the manual rate. For example, if a company implements a new loss control program, it is expected that future losses will be lower than that indicated by the actual historical experience; consequently, an underwriter can use schedule rating to reflect this.

These schedule credits and debits are filed by the rating organizations on behalf of the insurers with state regulators and are intended to be used on a rational and specified basis. If approved, the insurer can then apply up to that maximum credit or debit for a particular policyholder. While some states permit schedule rating for any size risk, a number of...