Ask Your Peers  California State Fund Tier pricing - How is it calculated? 

My company is a retail insurance broker. Because we specialize
in contractors, my #1 provider of workers’ comp is State Fund. I am
looking at a roofer’s 2014 renewal quote. In order to education my client
on what he can do in order to maximize his discounts, I’d like to educate him
on what things affect the different modifiers. Do you have insight into
any of this? Have you written an article about it since they started tier
pricing?



My client has a tier modifier of 1.25. Last year it was
1.4. How do they calculate that modifier? How did he earn a
discount over last year? How can he lower it even further? When I
asked State Fund, I was told it is a proprietary formula that is computer
generated and that’s all they could tell me. Ideally, I’d like to tell my
client what he can control that might reduce his costs even further.
I understand there are A, B, C, and D tiers? What are the
modifier ranges of each tier?



Schedule Rating Plan Modifier: His is .67. So, that
is a .33 discount. Where do they come up with that number? Anything he
can do to increase that discount?



Rating Plan Modifier: .87937. How is that number
calculated? Anything he can do to earn an even bigger discount?

Have you talked to your actual SCIF rep? These are all questions that the rep could readily answer (not the service number). Does he have a group/affiliation/safety discount?

To breakdown all of the facets of the billing, final premium determination, surcharges, annual rating etc, SCIF has really cool breakdowns on their site. This page has it written in "employer" language.

http://www.statefundca.com/Home/StaticIndex?id=http://old.statefundca.com//forms/Employers.asp

Hope it helps.

SCIF has 4 Tiers (A, B, C, D). Tier "A" has a modifier of 62%, Tier "B" has a modifier of 95.1%, Tier "C" has a modifier of 150% and Tier "D" has a modifier of 200%. You can review the figures here: https://interactive.web.insurance.ca.gov/warff/front?event=rateFilingPdf&function=warffRateFiling&filingNumber=13-9005&filingType=publicFiling (specifically look to page 25).

A client is placed into a tier based on something called a "claims history attribute." This is the portion that is SCIF's proprietary formula. That said, I believe (but cannot tell you for sure) that it includes employee count, classification rate (i.e., manual premium), and loss results over a prior period (i.e., perhaps 2 years) [both frequency, and loss ratio]. Beyond that there may be other factors, but again I'm not privy to those.

If you have a schedule rating factor of 67% that is a 33% discount. How they come up with it - I'm not sure. It is likely a reflection of something the underwriter saw in the file that they deemed to be better than the average account.

Your "rating plan modifier" should be the "Schedule Rating" times a "Territory Factor" times the "Tier Rating" (0.67 x 1.05 x 1.25). The "Interim Billing Factor" also includes the Premium Discount. I'd imagine if you had a waiver of subro it would be in both of those factors as well.

To your question re: how to get costs down - I suppose in the SCIF world it comes down to lowering that "Tier" from C to B to A. If my assumption of what goes into the tier rating is correct (mostly loss history) one could deduce that decreasing their loss activity is probably the best method of getting their tier rating down.