Colorado SB175, which passed the state Senate on second reading May 1, would require workers’ comp insurers to revise an employer’s experience modification factor when a claim closes for less than the amount originally reported. The bill now heads to the House. If enacted, it takes effect January 1, 2027, and applies to claims closed on or after that date.
What the bill does
Under SB175, an employer or licensed insurance producer can request that the insurer notify the authorized rating organization to recalculate the e-mod after a claim closes below the originally booked reserve. The rating organization then has 30 days to issue the revised factor. A revision can only be requested when the correction would reduce the e-mod by at least 0.05 or bring it to 1.0 or below. The insurer must credit any resulting premium difference within the policy period.
The bill names Pinnacol Assurance alongside private carriers, suggesting the problem is most visible in the state fund market where Pinnacol writes the majority of Colorado’s WC policies. The adjustment is not automatic; the employer must initiate it, which means some eligible employers may never file.
A referendum clause applies: if a petition is filed within 90 days of the legislature’s final adjournment, the bill would require voter approval at the November 2026 general election before taking effect.
Who it affects
The direct beneficiaries are insured Colorado employers whose e-mods are inflated by case reserves that overshoot actual payments. Construction firms, staffing companies, and manufacturers with moderate claim volume are the most likely to see a meaningful swing from a single reserve correction crossing the 0.05 threshold.
But the bill points to a structural problem that extends well beyond insured programs. Self-insured employers in any state face the same distortion: when TPAs consistently set case reserves above ultimate payments, historical loss development patterns carry that inflation forward. Paid-to-incurred ratios on closed claims look artificially favorable, and age-to-age factors derived from reported triangles overstate the tail.
The reserve mechanism
The core issue is case reserve adequacy on open claims. When case reserves routinely exceed the amounts ultimately paid, the reported loss triangle develops downward at closure. That pattern inflates chain ladder development factors selected from reported data and, by extension, the IBNR estimate.
For self-insured programs, this is the same diagnostic described in Berquist-Sherman adjustments: if case reserve adequacy has shifted over time, the unadjusted reported triangle no longer tells a consistent story. SB175 addresses the insured side of this problem through e-mod corrections. Self-insured employers need to address it through their actuarial review.
What this means for your next review
If your TPA sets case reserves that consistently close above actual payments, ask your actuary to quantify the gap. Pull the ratio of initial case reserves to ultimate paid on claims that closed in the last three accident years. If reserves are systematically overshooting by 15% or more, your reported development factors may be overstating the IBNR. A paid-only or Berquist-Sherman adjusted analysis can provide a cleaner read. The question is not whether Colorado’s bill passes; it is whether the data distortion it targets is present in your own triangles.