As discussed in the previous post, Primary losses have a much greater impact on an Employers Experience Mod. Rating (EMR) than excess losses. The topic of primary losses is more important now because the "Cap" for primary losses will increase each year until it reaches $15,000 in 2016. This will negatively impact employers with larger claims and have a positive affect (reduce the EMR) for employers with good claims history.
Why EMR's will go up even though there is no change in claims history:
Claims activities stay on an Employers EMR report for 3 years. Using the example of an Employer that had a $20,000 claim during in 2012 to 2013 policy term (and remains claims free for the next 3 years):
- The claim will be listed on the 2014 EMR with $7,500 applied to the primary losses and $12,500 to the excess column
- By 2016, $15,000 will flow into the primary loss column causing an increase to the EMR.
The rational for the increase is that for much of the last 20 years, $5,000 (the previous primary loss "Cap") was in line with the average cost of a Workers’ Compensation claim. However, for the last few years, the average cost has far exceeded $5,000, due to wage inflation but primarily increased medical costs.
Posted by Dan Hebbeln: firstname.lastname@example.org