Employers in California typically pay workers’ compensation insurance premiums based on an “experience rating” issued by the Workers’ Compensation Insurance Rating Bureau, often referred to as the “WCIRB” by brokers, attorneys and the workers’ compensation court system. Often an employer wishes to establish, modify or reduce its “experience modification.”
Employers concerned about the inner-workings of insurance, experience modification ratings and the role that frequency and severity of injuries play relating to insurance premiums, loss prevention and bottom-line operational expenses often consult insurance brokers for market analysis and our firm for legal challenges to WCIRB calculations. The firm often fields inquiries regarding the possibility of managing, reducing or controlling their experience modifications through litigation and/or establishment, sale or re-configuration of core businesses.
According to the WCIRB Experience Rating Plan (2011), if an employer establishes a new business then that business, once qualified, would be entitled to an independent WCIRB rating. However, separate entities shall be combined for experience rating purposes when the same person or persons own a majority interest in each of the entities. The WCIRB will scrutinize a request for new and independent rating assuming the same ownership, employees, nature of the business etc.
An experience modification can be changed, challenged or re-issued under some circumstances, particularly when there is a change in ownership, management, control, operations or employees. The Plan governs the use of past experience in future experience ratings whenever a change in ownership, management, control, operations or employees occurs. Experience of the past shall be used in future experience ratings, unless a material change in ownership is accompanied by a material change in operations or employees. This fairly high standard, but can be proved on rare occasion. There must be significant analysis, research and a critical look at whether such an action is appropriate.
It is very important that every employer understand that the Plan is very clear: the use of subterfuge or device in any form to evade the promulgation or application of an experience modification determined in accordance with the Plan is prohibited. Whenever the WCIRB has good cause to believe or receives any complaint that the application of an entity’s experience modification is being or has been evaded, it shall investigate the matter. If it finds an “evasion” the Plan allows the WCIRB to “take any action permitted by law” to preclude evasion.
A decision to challenge an experience modification or rating of the WCIRB is an important one. It should not be undertaken lightly. It must be done within the strict boundaries of WCIRB Experience Rating Plan and never with the intention of evading, affecting, altering or avoiding altogether the WCIRB promulgation and application of an employer’s experience modification.