Many of you are likely aware of the recent Tennessee Voluntary Advisory Loss Costs Changes.  The following information was taken from NCCI’s Regulatory Services Bulletin FYI-TN-2014-01, dated May 7, 2014 (a copy of which is attached).  This information explains these changes as well as our response:

Background

The Tennessee voluntary advisory loss costs changed effective March 1, 2014, and will change again on July 1, 2014.  These changes are the result of two separate filings:

•      The first change to voluntary advisory loss costs, effective March 1, 2014, was the annual change resulting from Tennessee experience data. This approved average overall decrease of 6.95% applies to new and renewal policies only.
•      A second change to voluntary advisory loss costs occurs on July 1, 2014, as a result of workers compensation law changes in Tennessee (SB 0200/HB 0194/Pub. Ch. 289). The approved average overall decrease of 5.9% applies to new, renewal, and all outstanding policies.

(The approval circular (TN-2013-07) initially issued for the July 1, 2014 change inadvertently omitted the reference to outstanding policies. An updated approval circular was issued the next day to appropriately reflect that the proposed overall average loss cost decrease of 5.9% effective July 1, 2014, applies to all outstanding policies.)

Outstanding Policies, as referred to in this situation, are policies with an effective date between July 2, 2013 and June 30, 2014, or active as of July 1, 2014.  Therefore, rate adjustments are required on all policies in-force on July 1, 2014.  Frankenmuth Insurance will apply the appropriate adjustment percent to the Total Manual Premium at each Policy’s Expiration.  This premium adjustment will be identified on the Audit Premium Notice as – TN Law Premium Adjustment.

Example 1

Policy Effective December 15, 2013 to December 15, 2014 with $1,200 TN Manual Premium.  Since the policy’s effective date is between July 2, 2013 and June 30, 2014, it is considered an outstanding policy needing an adjustment from July 1, 2014 to December 15, 2014 (unexpired policy portion).  Based on -5.9% loss costs decrease and the unexpired policy portion, the appropriate adjustment to premium would be -2.7% (167 unexpired number of days in policy / 365 days in policy term = 45.8% * -5.9% overall decrease = -2.7%).  This rate adjustment is applied to the $1,200 TN Manual Premium, which results in a return of -$32 ($1,200 * -2.7%).      

Example 2

Policy Effective March 1, 2014 to September 1, 2014 (canceled for non-payment of premium) and $500 TN Manual Premium.   Policy effective date falls between July 2, 2013 and June 30, 2014 therefore adjustment is needed from July 1, 2014 to September 1, 2014.  62 days of unexpired policy portion (July 1, 2014 – September 1, 2014) / Number of days in Policy Term 184 (March 1, 2014 – September 1, 2014) = 33.7% * -5.9% = -2.0% adjustment.  Applied to the $500 Manual Premium, the return would be -$10.

As always, should you have additional questions regarding this matter, please contact your Underwriter or Field Manager.