Do these phrases sound alike? Hmmm…maybe to some…but in the world of workers compensation there’s a big difference! In this post we’ll do a little exploring about the real difference between the Anniversary Rating Date (ARD) and the Rating Effective Date (RED.)
How about an update? Effective May 1, 2017, the NCCI has eliminated the use of Anniversary Rating Date endorsement for the states where they act as the rating bureau or advisory organization. While the term, Anniversary Rating Date, still applies, the method previously imposed where an employer could not move their policy for a lower rate until the ARD no longer applies.
The elimination of the ARD endorsement appears to certainly be an improvement, eliminating so much confusion as to how rates are applied to an employers workers comp policy. For information on what the ARD is and how it was used please read on!!
Lets start with the Anniversary Rating Date (ARD). For states following National Council on Compensation Insurance (NCCI) rules, according to the Basic Manual, it is, to quote “the effective month and day of a workers compensation policy in effect and each anniversary thereafter unless a different date has been established by NCCI or other licensed rating organization.” The manual goes on to say “rules, classifications and rates are applied on an Anniversary Rating Date basis for all risks.” They go on to indicate that when material changes in ownership occur, the ARD of the new risk changes. They also refer to their tables for determining the correct ARD. So, the ARD has everything to do with determining correct rules, classes and rates that apply to a risk. Note the ARD is defined in both the Basic Manual and the Experience Rating Plan Manual which indicates it has an application on both non-experience rated and experience rated policies.
Here’s some examples of the ARD:
- An employer has had continuous coverage on a policy with an original effective date of 1-1-2008; they have year after year renewed consecutively with the same effective date and the policies have not been cancelled causing a gap in coverage or rewritten with another effective date. Insurance companies may have changed but the effective date has always remained the same, that’s the key here. The insurance company must use rules, classes and rates that apply for the term effective on the renewal date, so the ARD for this employer is the effective date of the policy. As a side note, the rules also allow the original ARD to be applied for any other policy for this employer up to 3 months after the renewal date. So for this employer, rates used to calculate premium on his 1-1-2012 renewal will be the current rates the insurance company has in effect for the 1-1-2012 date.
- Now lets use the same employer who started his policy on 1-1-2008, with no coverage gaps and who renewed it on 1-1-2012. But on 9-1-2012 they decide to cancel the old policy and move it to another carrier with a new effective date of 9-1-2012. Applying ARD guidelines, the new policy effective 9-1-2012 will use the ARD of 1-1-2012. The new policy will have split rating. For the 9-1-12 to 1-1-13 part of the policy insurance company rates effective 1-1-12 will apply. Then for the rest of the policy, 1-1-13 to 9-1-13, rates effective 1-1-13 will apply. After the first new policy term has been completed the normal ARD will then be moved to the 9-1-13 date and all rates, rules and classes effective on that date will be applied to the 9-1-13 to 9-1-14 renewal. This applies regardless if the employer rewrote his policy with the same insurance company of if he moved to a different insurance company.
What’s the purpose of the ARD? Remember, it controls the rates, classifications and rules that are used to govern any specific workers compensation policy. You see, these items are constantly changing. More specifically, rates are constantly changing. The employer above may have decided to change his policy to another insurance company who on 9-1-2012 had lower rates than his current company. It’s the ARD that attempts to keep some control over the action of moving to different carriers just for cheaper rates or to take advantage of new rule or classification changes. So in the above example lets say the new insurance company had just lowered their rates on the 9-1-2012 date. Under ARD guidelines the new company must use the rates they had in place on 1-1-12 to rate the policy. Not the new lower rates that were in effect on 9-1-12!
You’ll find different methods employed in application of the ARD by different insurance carriers. Some will employ a split rating method where they issue an annual policy but pro-rate payroll and accordingly apply the correct rates to match up with the rating dates. Others will write coverage on short term policies matching the expiration date of the short term policy up with the anniversary rating date.
The Rating Effective Date (RED) has nothing to do with application of rates, rules or classes! That’s what the ARD does. Under NCCI rules, found in the Experience Rating Plan Manual, the Rating Effective Date is the “earliest date that a specific modification is applied to a policy.” Most commonly it’s the application date of an individual risks Experience Modification Rate or E-Mod. A risk must be experience rated and have a E-Mod that needs to be applied to a policy in order to have a RED. You can find the Rating Effective Date for any risk printed on their individual Experience Modification Rate worksheet.
In most cases, for experience rated risks, the Rating Effective Date (RED) will be the same as the Anniversary Rating Date (ARD), but do not be confused, they are not the same thing and are not always the same date! For the typical employer the RED is the earliest date their Experience Modification Rate can be applied to their policy.
Here’s some examples of the RED:
- Continuing with our example from above, lets say our employer is now experience rated and has had his policy with the original effective date 1-1-2008. No cancellations or gaps in coverage and his policy renewal is coming up for 1-1-2012. The Rating Effective Date for this employer will be 1-1-2012. This will be the date his Experience Modification Rate will be applied to his policy. It’s the effective date of his most recent full term policy.
- So this year, the employer decides to cancel the 1-1-2012 to 1-1-2013 policy and rewrite his new policy with a 9-1-2012 effective date. His Rating Effective Date is 1-1-2012 so the new policy will be split rated. For the period 9-1-2012 to 1-1-2013 the 1-1-2012 Experience Modification Rate will be applied. For the period 1-1-2013 to 9-1-2013 the 1-1-2013 mod will be applied.
Common reasons the Rating Effective Date (RED) may be different than the Anniversary Rating Date (ARD) as used in experience rating are:
- Cancellations and rewrites of coverage;
- Changes in ownership, entity or combinability of interests;
- Coverage gaps and other inconsistencies in effective dates;
- Short term policies or policies issued for more than one year and sixteen days;
- Rating authority receiving statistical data from the insurance carrier late;
- Of course there are other reasons…
Both ARD and RED deal with rating dates and are guided by rules set out by NCCI in the Basic Manual and Experience Rating Plan Manual. Both dates may also be changed or assigned by the rating authority. Keep in mind there are individual state exceptions for both terms. Assumptions should not be made as to their application to a policy without checking the actual rules that apply for any specific state.
So here’s a quick recap:
- Anniversary Rating Date (ARD) is all about timing and the application of rules, classification and rates on a workers compensation policy; It is referenced in both the Basic Manual and Experience Rating Plan Manual and while meanings are cross referrenced, applications may differ.
- Rating Effective Date (RED) is all about timing and the application of a specific modification to the policy.
Workers compensation terms are confusing, intermingled, mangled and many folks just get it wrong. But these are two distinct phrases referencing two distinct functions in the rating process of a workers compensation policy.
Hope this helps you out!