| INSIDE THE CHANGE | |
| Q: | Why is the plan being updated? |
| A: | The goal of the research was to enhance plan performance through improved predictive accuracy that incentivizes workplace safety. The current Experience Rating Plan (ERP) has been used for more than two decades. Research identified opportunities to improve the current plan and to improve the cohesiveness between the Merit Rating and Experience Rating Plans. |
| Q: | Is the formula changing? |
| A: | No. While other formulas and approaches were analyzed, it was determined that the current formula could be sufficiently optimized to achieve the target performance metrics. Also, some of the formulas in other states were comparable to the DE formula as credibility levels approach 100%. The current formula is [Ap x C + E x C x L + E(1.000 – C)] / E, where Ap = Actual Primary Loss, E = Expected Loss, C = Credibility, and L = Limitation Charge. |
| Q: | What key components are changing in the new plan? |
| A: | Eligibility requirement: The minimum premium requirement is being reduced to $5,000 over the three-year experience period from a single-year annual amount of $3,161. The premium requirement is based on premium developed by the audited payrolls or other exposures of the experience period, extended at current DCRB Residual Market Rates. The premium requirement for merit rating will be for risks that generate less than $5,000 on the same basis as stated above. Split point/loss limit: The plan runs on variable split points based on expected loss amounts ranging from $10,000 to $300,000. This is different from the current plan, which ranges from $30,405 to $553,000. Credibility values: With the change to variable split points, credibility was increased, especially for the smaller risks ranging in value from 69% to 97%. Capping rules: A maximum modification formula will be used with a starting value of 1.10 and increase as a function of expected losses as follows: Max Mod = 1.10 + 0.0004 (E/G), Where E = Expected Loss, G = 12 |
| Q: | How do these changes improve plan performance? |
| A: | By introducing a maximum modification formula and reducing the eligibility level, this will result in a better transition for risks that move between the Merit and Experience Rating Plans. It also limits debit modifications for the smaller more volatile risks compared to the current plan. Also, the plan maintained the variable split point approach as this improves stability and allows for the application of higher credibility values on the actual primary losses to improve performance across all risk sizes. Lastly, introduction of the max mod formula ensures a reasonable level of stability for year-to-year changes. |
| IMPACT ON MODS | |
| Q: | How will mods change? |
| A: | As with any new plan, this question is difficult to answer as there will be modifications that don’t change very much (between +/-10%), some that go up by more than 10%, and some that go down by more than -10%. The current variable split point plan has performed relatively well, however our recent research and research performed in other states, including Pennsylvania, supports that this type of plan, when coupled with higher levels of credibility, tends to yield better performance. |
| Q: | What will my current mod be under the new plan? |
| A: | A Modification Calculator Tool will be published on our website in the coming weeks, allowing users to enter exposure and loss data and show how their mod will change under the new plan. |
| Q: | How does the new max mod and capping process work? |
| A: | The maximum modification formula increases with higher expected losses. If the indicated modification is higher than the maximum modification, then the final published modification will be the maximum modification. |
| Q: | How will mods change for smaller risks? |
| A: | For the risks that are currently merit rated, risks getting a merit mod of 0.95 will generally see a lower credit mod and for risks that are getting a 1.05 debit mod will generally see a larger debit, however they might be subject to the maximum modification. Due to the maximum modification formula, risks with expected losses of $25,000 or less will no longer have modifications above 1.93. |
| IMPACT ON ELIGIBILITY | |
| Q: | What is the new plan eligibility amount? |
| A: | The minimum premium requirement is being reduced to $5,000 over a three-year experience period from single-year annual amount of $3,161. The premium requirement is based on premium developed by the audited payrolls or other exposures of the experience period, extended at current DCRB Residual Market Rates. Risks that do not qualify for experience rating will be considered for the Merit rating program. |
| Q: | Why was the eligibility amount changed? |
| A: | The new ERP was designed to perform better for both larger and smaller risks. The Merit rating plan is a very basic plan intended for only the smallest of risks. Testing on risks between $5,000 and $10,000 showed that the new ERP performed well. In addition to performance, a lower eligibility threshold in conjunction with the use of maximum modifications allows for a better transition between the Merit and Experience Rating Plans for the smaller risks. Due to statutory limitation, the Merit Rating Plan could not be eliminated entirely. Even with the lower eligibility amount, 62% of the statewide risks would remain merit-rated. |
| Q: | What happens if I am no longer merit rated? |
| A: | Small risks that now meet the lower $5,000 ERP eligibility threshold will get an experience rating factor instead of a merit rating factor. |
| IMPACT ON WORKSHEET | |
| Q: | Is the mod worksheet changing? |
| A: | Yes, a new modification worksheet is coming. The format will be updated to improve readability and align more closely with practices in other states. New information will be added such as a listing of all individual losses rather than only the losses that were above the spit point/loss limit and a modification status to show if the modification has been revised. |
| Q: | How can I understand the new terminology used in the worksheet? |
| A: | A Glossary of Terms in the Fact Sheet can be found within the ERP section of the DCRB website, www.dcrb.com, with definitions of all terminology found on the worksheet. |
| TRANSITION PERIOD | |
| Q: | How does the 1-year transition period work? |
| A: |
For a 1-year period, (December 1, 2024- November 30, 2025) swing limits of +40% will apply, along with the use of a maximum modification formula. The final experience modification will be determined by selecting the lower of the two modifications during this transitional phase, and it will not exceed +40% as policies transition to the new plan. The 1-year transition period capping will no longer apply for mods effective December 1, 2025. |
| Q: | What happens after the 1-year transition period? |
| A: | After the 1-year transition period, only the new max mod capping applies. |
| OTHER IMPACTS | |
| Q: | Will the new ERP impact the class loss cost values? |
| A: | Yes. When the updated ERP is filed with a target effective date of 12/1/2024, the corresponding loss costs filed for 12/1/2024 will be adjusted (off balanced) to make the ERP changes revenue neutral. For example, if the updated ERP plan results in average experience modification factors that reduced premiums by 2%, then the average loss costs will need to increase by 2% to achieve no overall change in premium due to the implementation in the updated plan. If it is assumed that the overall loss cost indication change was -6% in this example, then the final filed overall change to loss costs with the implementation of the updated ERP would be roughly -4% (-6% plus the 2% off-balance). |
| Q: | Is there any change in how recoveries under subrogation rights or from third parties are handled for Experience Rating? |
| A: | No. With the approval of DCRB Filing No. 2103, ratable losses that enter the plan formula will be reduced by the subrogated amounts and then limited by the split point if applicable. |
| Q: | Does the change in the ERP affect any other programs? |
| A: | Yes. SB-306 amended § 2379 of the Workers' Compensation Act with changes to the Delaware Workplace Safety Program. This was considered a “cleanup” or “technical” bill with changes designed to better align the program with contemporary standards that enhance its effectiveness in promoting workplace safety. Previously, the program specified an annual premium threshold of $3,161 for eligibility. The revised language no longer includes this specific amount, focusing instead on qualifying through the uniform ERP. This provides coordination and flexibility for future adjustments without needing additional legislative changes. The updated eligibility will also allow additional small employers to consider joining the workplace safety program. Additionally, the Workplace Safety program utilizes credibility values from the ERP. |