Nevada Insurance Commissioner Alice A. Molasky-Arman has approved revised workers’ compensation voluntary loss costs and assigned risk rates filed by the National Council on Compensation Insurance (“NCCI”) to become effective March 1, 2008. The new loss costs and rates will apply to employers on their anniversary rating dates. Voluntary loss costs are decreasing an average of 10.5 percent and assigned risk rates are decreasing an average of 10.1 percent.

Molasky-Arman said, “I am pleased that many Nevada employers will see their workers’ compensation premiums decrease and am confident that these decreases enhance Nevada’s business environment.” 

The changes vary by classification. By industry group, the average changes are as follows:

The experience rating formula was adjusted to bring the average experience modification closer to 1.00. Experience rating is used to encourage employers to maintain safe workplace environments. Under experience rating, employers with better than average recent historical loss experience pay less premium than those with poorer than average loss experience for the class of business. Experience rating applies to all but the smallest or newest employers. The impact of this adjustment is approximately a 0.1 percent premium increase, overall. With the change to the experience rating formula, the overall voluntary premium decrease is 10.4 percent and the overall assigned risk premium decrease is 10.0 percent.

When comparing Nevada workers’ compensation loss costs and loss cost changes to those in other jurisdictions, it is important to keep in mind that the Nevada exposure base, payroll, is capped at $36,000 per employee per policy year. In other states, the full payroll is generally used to compute the premium. When wages increase, the workers’ compensation premiums automatically increase since rates are a function of payroll. In Nevada, the rate of increase in premiums, not considering the impact of loss cost changes, is less than the rate of increase in wages because the wages used to calculate the premiums are capped. To keep up with the increased benefits due to higher wage levels and other increasing costs, loss costs generally increase more than loss costs in a state where unlimited payroll is applicable, the rest remains the same. The Nevada average annual wage is about $36,000 per year. While the median wage is lower than the average wage, a significant proportion of workers (more than 25 percent but less than 50 percent), earn more than $36,000 per year, according to the Occupational Employment Statistics Wage Survey Data for 2007 (Source: Nevada Department of Employment, Training & Rehabilitation,  Research & Analysis Bureau).

Decreasing claim frequency is driving the proposed decreases. Decreasing claim frequency is offsetting increasing indemnity and medical costs per claim, the cost of living benefit adjustments that were enacted during the 2003 Legislative session and the impact of the payroll cap.

Molasky-Arman emphasized that the NCCI loss costs are only one component of the rates charged by insurers. Each insurer must file a loss cost multiplier to include expenses and profit. As a result, not every insurer charges the same rate. In fact, rates are increasing for a minority of classifications under the approved filing. Molasky-Arman urges employers to comparison shop for the best rate. In a competitive environment, such behavior is essential to maintain an efficient market.