The New York State Department of Financial Services recently approved amendments to the New York Experience Rating Plan Manual, which is written by the New York Compensation Insurance Rating Board—also called the Rating Board. With the approved amendments, the Rating Board is changing the experience modification formulas for New York employers. This means new formulas will be used to calculate employers’ experience modification factors for workers’ compensation insurance.
In addition to using these new formulas, New York state is removing itself from the National Council on Compensation Insurance (NCCI) interstate rating plan. On or after Oct. 1, 2022, New York will work off experience modification formulas that apply only to their state-specific exposures. The Rating Board’s merit rating plan will no longer be used, and the use of current experience modification formulas will be discontinued. This article provides an overview of the changes.
Reasoning Behind the Changes
In 2017, the Rating Board began a multiyear project of analyzing its experience rating program for workers’ compensation insurance. During this review, credits and debits issued under the current experience rating plan were found to be inadequate. This means the credits and debits were insufficient to adjust premiums to an appropriate level for individual risk or incentivize workplace safety. Essentially, risks with good outcomes were not given enough credit, and the risks that had worse outcomes than expected were not given enough debit.
Ideally, a good experience modification rating will account for the risk of loss appropriately; the current formula was not doing so.
The New Plan
As a result of the current program’s inefficiencies, a new experience modification rating plan for New York state is set to begin on or after Oct. 1, 2022. The new plan will aim to incentivize workplace safety appropriately. This plan will also provide larger credits for those risks that have better-than-expected outcomes and larger debits for those whose outcomes are worse than expected.
By providing larger credits and debits, the plan will either decrease or increase or New York companies’ loss ratios, thus impacting their workers’ compensation premiums.
This new plan provides for several new rating methods. Specifically, the new plan includes the following types of methods:
- Split points
- Simplified rating formulas
- Novel claim caps
These different rating methods are intended to provide a more equitable rating. By providing a reasonable system, New York companies will be encouraged to implement and enforce more effective workplace safety programs.
During the first year of the new program, New York employers may use the transitional modification factor. This formula can be used for experience modifications that are effective between Oct. 1, 2022, and Sept. 30, 2023. This formula provides that if the experience modification exceeds the modification that would have been generated by the old formula by more than 30%, an employer’s experience modification will be capped at the modification derived from the old formula in addition to the 30%.
Who Is Eligible?
All employers with New York state exposures during the “experience period” are eligible for participation in the experience rating plan. The experience period represents the total amount of past exposure and loss data used in an experience rating during a specified timeframe.
For More Information
New York employers should become familiar with this new experience modification program. Additional resources regarding the new program can be found on the New York Compensation Insurance Rating Board’s website.