NORTH BAY, CALIFORNIA – The impact of new changes to workers' compensation experience modification factors that went into effect in January are only now being realized and have the potential to significantly increase employers’ premiums on claims, insurers said last week.

The Workers’ Compensation Insurance Rating Bureau recently submitted proposed changes to Insurance Commissioner Steve Poizner to alter the experience rating formula.

Large employers are finding that their premiums are rising, and the potential to incur fees from the Occupational Safety and Health Administration have increased as the new rating pushes their workers' compensation claim rate up, particularly if it is above 125. The  average rating is 100.

Brian Murphy, vice president of Heffernan Insurance Brokers’ North Bay branch, said the increases could reach 10 percent or more for employers.

“What it ended up doing is increasing modules and costs,” Mr. Murphy said, calling the changes “pretty significant.”

Under the previous system, for example, a wholesale company with 250 employees, or a $12 million payroll, with an average of seven claims at the standard amount of $7,000 would have an experience modification rating – its claims relative to the industry – of 113.

With the newly implemented experience modifiers – the determining comparison of a company’s claims losses to other employers within the same industry – that same company would see an increase on its experience modification of 12.5 percent, to 127 – thus putting it in line for fines from OSHA, which average $6,700 for companies of such size. OSHA fines are commensurate to the size of the company’s payroll.

“The rating formula modifications implemented this year by the WCIRB present an extra concern for employers,” said David Weinstein, assistant vice president of the CompZone Division of Vantreo Insurance Brokerage.

He added that despite the potential benefit of more credible ratings issued by WCIRB, “The degree to which the changes will impact 2010 ratings may come as an unpleasant surprise to many companies.”

Mr. Murphy said smaller employers, with around 30 or so employees, and companies with zero or fewer than average claims, may not feel the impact as acutely as larger companies because the likelihood of claims increases as the number of employees increases.

“Once you have a certain amount of payroll, odds are you’ll have some claims,” he said.

Mr. Weinstein, however, cautioned that small and mid-size companies could see their premiums rise as a direct result of increased ratings that could stem from the new changes.

Mr. Murphy provided several examples: A work force of 100 wholesale industry employees will average 3.4 claims per year. Similarly, a wholesale company with 40 employees with a typical number of claims for its industry could see its rating go from 90 under the old system to 100 under the new system, which in turn would alter its premium from $90,000 to $100,030 – an increase of over 10 percent, according to data furbished by Heffernan.

Additionally, a workers' compensation claim of $7,500 would have cost the aforementioned company $15,117 in increased premiums over the next three years under the old system, whereas now, that same claim would cost $22,638 over three years, according to the Heffernan data.

“They’re pretty dramatic back-ended changes,” Mr. Weinstein said. “California employers are sort of the testing ground.”