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Ninetieth Annual Report May 15, 2007
 
 

REVISION OF MANUAL RATES - 2007

 

  
 

RATE LEVEL

The rate level change of 1.3% effective January 1, 2007 was based on the latest two policy years and latest calendar accident year of experience along with other considerations.  Analysis of the latest two policy years after adjustments for development and present premium and benefit levels using paid and incurred losses separately produced an increase of 1.7%.  Analysis of the latest calendar accident year after adjustment for loss development and present premium and benefit levels using paid and incurred losses separately produced an increase of 1.5%.  An equal mix of these results produced a premium level increase of 1.6% due to experience. Analysis of the latest experience also indicated that a trend factor of -0.6% was necessary for inclusion in premium level determination.

Effective January 1, 2007 the maximum weekly benefit with respect to all types of injuries was increased from $691 to $711.  The minimum weekly benefit also was increased from $184 to $190 for all kinds of injuries except permanent partial disabilities. A premium level increase of 1.0% was necessary to recognize the changes in benefits.

A decrease of 0.1% was applied to recognize a change in the allowance for general expense and a decrease of 0.5% was applied to recognize the effect of a change in the allowance for loss adjustment expense.  The change in premium level resulting from adjustment to the allowance for the Security Fund assessment was a decrease of 0.1%.

The combined effect of the changes for the components above produced an overall premium level increase of 1.3%.  The overall rate level change was also an increase of 1.3%.

A Foreign Terrorism premium charge of $0.03 per hundred of payroll is applicable to policies effective January 1, 2007 and thereafter except for those policies providing coverage exclusively for private estate or residence employees or those policies where negotiation is used to determine the premium cost. Upward deviation from the $0.03 rate, to a maximum of $0.06, is also permitted.

A Domestic Terrorism, Earthquakes and Catastrophic Industrial Accidents premium charge of $0.01 per hundred of payroll is applicable to policies effective January 1, 2007 and thereafter except for those policies providing coverage exclusively for private estate or residence employees or those policies where negotiation is used to determine the premium cost.

Finally, the Uninsured Employers Fund Surcharge was changed to 0.00% and the Second Injury Fund Surcharge was changed to 6.31%.

Table I shows the historic record of rate level changes since 1918.

 
  RATE RELATIVITY
 

The adjustment of rate relativity effective January 1, 2007 was based on the classification experience of policy years 1999 through 2003 for one year policies and policy years 1997 through 2001 for the three year fixed rate policies as reported under the New Jersey Statistical Plan.

There were 587 classifications in the Manual effective January 1, 2007, including the codes in the Admiralty and Federal Employers' Liability Schedule.  There were 9 classifications, which carried no rate assignment.  Of the remainder, 332 developed increased rates, 229 showed decreases and 16 were unchanged. There is one new classification.

The rates for the classifications applicable under the Admiralty and Federal Employers' Liability Act were adjusted to reflect the most recent experience.

The rates for Private Residence - Household Employee Classifications remained unchanged.

The Expense Constant remains at $200 for all policies except Private Residence - Household Employee Policies, which stays at $15.

The revised Manual of Rates was included in Circular Letter #1739, dated November 15, 2006.

 
 

EXPENSES AND TAXES

 
 

The most important purpose of pricing is to generate the funds required to meet the cost of benefit obligations but allowance must also be made for expense and tax requirements.  These needs are regularly reviewed each year and adjustments made where appropriate.  Since loss adjustment expense arises from claims against the employer and the payment of benefits prescribed by Statute, it is functionally related to the benefit obligations.

The benefit cost experience of all insured New Jersey employers and the standard expense and tax provisions constitute the basis of the Manual of Rates which determine standard premium for New Jersey Workers Compensation and Employers Liability Insurance.  Standard premium is a device to express results on a common and comparable statistical basis.  The standard expense and tax provisions apply only to the first $5,000 of standard premium per risk.  Such provisions are included in the Manual of Rates effective January 1, 2007 in the following amounts:

 
 

 

Taxes include: Security Funds 0.95%, General State Premium 2.10%, Rate Supervision 0.25%, Rating Bureau 0.40%, Miscellaneous Fees and Federal Taxes 0.30%.  Production includes commissions and branch office support to perform policy preparation functions.  General Expenses include general administration, payroll audit and inspection.  The P & C allowance provides for profit and contingencies.

In respect to premium in excess of $5,000 per risk, certain of the expense provisions are reduced by the application of one of two systems of premium discount – Schedule Y or Schedule X.  The discounts in Schedule Y are greater than those in Schedule X and each company may choose one or the other to apply uniformly to its policies.  The retrospective rating factors contain the same premium discounts.  The Schedule Y discounts effective January 1, 2007 are:

 

 
First Next Next Over
Schedule Y $5,000 $95,000 $400,000 $500,000
Applicable Discounts -- 9.4% 11.1% 12.1%

 

The Schedule X Discounts are applicable to policies written by carriers electing this Schedule.  Schedule X discounts, while based on the same principle as indicated above, result in lower discount percentages.  The Schedule X discounts effective January 1, 2007 are:

 

 
First Next Next Over
Schedule X $5,000 $95,000 $400,000 $500,000
Applicable Discounts -- 3.5% 5.0% 7.0%

As of January 1, 2006, premium discount is not applicable to policies written in accordance with the New Jersey Workers Compensation Insurance Plan.


 

TABLE I
HISTORY OF RATE LEVEL CHANGES

                                                                        

 

Benefit

Percentage

Eff. Date

Experience

Level

Taxes

Miscellaneous

Total

Change (%)

1918 - 1971

0.679

4.330

1.031

1.034

3.038

--

 

 

 

 

 

 

 

July  1, 1972

1.037

1.011

0.999

1.000

1.047

4.7

Dec. 1, 1972

1.000

1.002

1.000

1.000

1.002

0.2

July  1, 1973

0.974

1.013

1.013

0.998

0.998

(0.2)

July  1, 1974

0.955

1.007

1.014

1.000

0.975

(2.5)

July  1, 1975

1.012

1.014

1.009

0.965

0.999

(0.1)

Jan.  1, 1976

1.000

1.017

1.000

1.000

1.017

1.7

July  1, 1976

1.131

1.000

0.985

0.985

1.097

9.7

Jan.  1, 1977

1.000

1.020

1.000

1.000

1.020

2.0

July  1, 1977

1.198

1.000

1.002

0.984

1.182

18.2

July  1, 1978

1.065

1.015

1.019

0.965

1.063

6.3

 

 

 

 

 

 

 

July  1, 1979

1.157

1.018

0.950

0.970

1.085

8.5

Jan.  1, 1980

1.000

1.225

1.000

0.907

1.111

11.1

Jan.  1, 1981

1.087

1.029

0.986

0.979

1.080

8.0

Jan.  1. 1982

0.847

1.096

1.043

0.972

0.941

(5.9)

Jan.  1, 1983

0.820

1.065

1.023

0.954

0.852

(14.8)

Jan.  1, 1984

0.886

1.059

0.988

0.959

0.889

(11.1)

Jan.  1, 1985

0.882

1.036

0.982

0.968

0.869

(13.1)

Jan.  1, 1986

0.967

1.037

1.010

0.987

1.000

0.0

Jan.  1, 1987

1.032

1.037

1.097

0.942

1.106

10.6

Jan.  1, 1988

1.087

1.036

1.011

0.963

1.096

9.6

 

 

 

 

 

 

 

Jan.  1, 1989

0.995

1.040

0.874

0.955

0.864

(13.6)

Jan.  1, 1990

1.136

1.037

0.984

0.897

1.040

4.0

Jan.  1, 1991

1.086

1.023

1.008

0.936

1.048

4.8

Jan.  1, 1992

1.194

1.032

0.995

0.895

1.098

9.8

Jan.  1, 1993

1.208

1.032

0.995

0.921

1.143

14.3

Jan.  1, 1994

1.207

1.039

0.998

0.852

1.066

6.6

Jan.  1, 1995

1.125

1.012

1.004

0.926

1.058

5.8

Jan.  1, 1996

1.052

1.015

1.009

0.893

0.962

(3.8)

Jan.  1, 1997

0.915

1.019

0.987

0.994

0.915

(8.5)

Jan.  1, 1998

0.964

1.023

0.993

0.926

0.907

(9.3)