Elimination of Workers' Comp ARD in Effect 5/1

The Work Comp Anniversary Rating Date (ARD) was eliminated countrywide on 5/1/17 because it created confusion for employers. One of the initial reasons for the ARD was to discourage or prevent employers from cancelling policies mid-term to take advantage of a recent loss cost/rate filing decrease. With the elimination of the ARD, an employer could cancel a policy to take advantage of a rate change. However, the short rate penalty still applies and could potentially substantially reduce or eliminate any “gains” for cancelling mid-term.

Here is an example of how eliminating ARD will impact an employer:

An employer has a 1/1/2017 policy with a classification rate of $3.40. Effective 7/1/2017, an approved rate decrease lowers the rate 10% to $3.06. The employer cancels the 1/1/2017 policy on 8/15/2017 and obtains another full‐term policy effective 8/15/2017.

Under the previous ARD rule, a cancellation of the 1/1/2017 policy on 8/15/2017 would not result in application of the lower 7/1/2017 rate to the rewritten policy until 1/1/2018, the ARD. At that point, the rewritten policy is endorsed to use the lower (7/1/2017) rate from 1/1/2018 until the policy expiration on 8/15/2018.

As of 5/1/2017, with elimination of the ARD, the rewritten 8/15/2017 policy immediately uses the lower rates that were approved on 7/1/2017.

Questions have arisen regarding experience rating modification factors. There is NO impact from elimination of the ARD to the process of determining the rating effective date. See below for an outlined example:

Date

Action

1/1/2017

An employer has a renewal 1/1/2017 policy with a classification rate of $3.40 and Exp. Mod of 1.15

3/1/2017

An approved rate decrease lowers the rate 10% to $3.06.

7/1/2017

Insurer files unit reports with NCCI for purpose of developing the 1/1/2018 Mod, which is determined to be an increase for a new Exp. Mod of 1.35 effective at the rating effective date (RED of 1/1/18)

9/1/2017

Employer cancels the 1/1/2017 policy and obtains another full-term policy effective 9/1/2017

  • New lower rate applies to 9/1/2017 policy
  • 1/1/2017 Exp. Modification factor applies to 9/1/2017 policy
  • 9/1/2017 Policy is endorsed* that an increase or decrease will apply based on new mod at RED

 

1/1/2018

Split Mod is applied – 1.35 mod is applied at RED of 1/1/2018




Although the renewal experience modification factor may be calculated prior to the rate effective date (RED), the renewal mod cannot be applied any earlier than the RED. But the renewal mod is applied at the RED regardless of whether it is an increase or decrease.

Confusion arises regarding the Experience Rating Plan Manual Rule 4 E. Changes in Experience Rating Modifications. Rule 4 E only applies when the Experience Mod is changed due to a correction report being filed, or one of the stated exclusions. Rule 4E does not apply to the regular annual modification calculation or application.

*This is the endorsement that would be applied to a policy to notify the employer that the experience rating modification factor shown on the Information Page may be revised during the policy period.

EXPERIENCE RATING MODIFICATION FACTOR REVISION ENDORSEMENT

This endorsement is added to Part Five—Premium of the policy.

The premium for the policy is adjusted by an experience rating modification factor. The factor shown on the Information Page may be revised and applied to the policy in accordance with our manuals and endorsements. We will issue an endorsement to show the revised factor, if different from the factor shown, when it is calculated.

Note: This endorsement is used to notify the employer that the experience rating modification factor shown on the Information Page may be revised.