Nevada’s decision to scrap its long-standing $36,000 workers’ compensation payroll cap and replace it with a floating, state-calculated figure could introduce fresh complexity – and cost – for employers and insurers alike.
“The market is going to do what the market is going to do,” said Greg Pike (pictured) at LP Insurance Services, LLC, Las Vegas. “But the way they went about it creates more confusion in the marketplace than it needed to be.”
The change was introduced during the last legislative session through a bill initially aimed at cleaning up language. The cap removal language was added late in the process, Pike said, shifting the scope of the bill dramatically.
“The $36,000 cap has been on the books here for quite some time,” he said. “There’s been conversation about removing it, but not the appetite to do so. In the middle of the process, someone came up with the idea of sliding this language into the bill to remove the cap.”
Under the new law, which takes effect in 2026, payroll caps will be tied to an annual state calculation of the average wage used for workers’ compensation claims. Pike noted it was already around $93,000 and is projected to hit $102,000 by the time the law is implemented.
“Only in America do we try to fix things that aren’t broken,” Pike said. “They should have left the cap where it was or removed it entirely and just underwritten comp on actual gross payroll like every other state.”
While NCCI, the National Council of Compensation Insurance, is expected to adjust quickly by recalibrating rates based on the new data, Pike warned that insurers will still face a complex recalibration process. “Insurance companies are going to have to go through their own process to figure out what lost cost multiplier they want to use,” he said.
That recalibration could have significant implications. Most loss cost multipliers (LCMs) range from about 1.25 to 1.9, depending on the risk profile. “Depending on the individual characteristics of the risk, an underwriter will determine which paper he wants to put it on,” Pike said.
The change is likely to hit small businesses hardest – especially in a state like Nevada, where the vast majority of employers have fewer than 10 employees.
Larger companies may absorb the rate changes more easily, but for smaller employers already operating on slim margins, the shift could be disruptive. “Vegas is a service industry town. We have a lot of employers that are relatively smaller,” Pike said. “I think they’re going to feel the impact more than the large 300- or 500-employee groups.”
Pike said premiums will likely increase for many employers, but the extent of the impact will depend on how the competitive market shakes out. “I do believe that employers are going to suffer increases in their cost,” he said. “It may take several cycles for the competitive nature of the market to normalize.”
One of the biggest pain points may come during audits. Pike flagged the new floating cap as a future flashpoint for billing confusion, especially since workers’ compensation premiums are estimated upfront and reconciled at the end of the policy period.
“Most insurance policies are an estimate of exposure upfront,” he said. “After it’s canceled, the carrier audits your books… With this new artificial cap that changes year after year, I think that’s going to create the biggest amount of confusion in the market.”
He added that carriers already struggle with third-party auditors who overlook the current $36,000 cap. The annual variable figure will only amplify those errors, Pike said, causing additional headaches for employers and brokers during premium reconciliations.
Another unknown is how NCCI will handle the shift when calculating experience modification rates (e-mods), a critical component of pricing.
“NCCI said they could get the rates done right away,” Pike said. “The more interesting question is whether they can take their empirical data and run it backwards three years to promulgate a new e-mod… That’s the bigger question I have.”
While the transition may create friction, Pike said it also presents an opportunity for businesses to rethink their approach to safety and risk management. With premiums expected to rise, employers have more incentive to minimize claims through tighter operational controls.
“Risk management surrounding an insurance program is critical for its success,” he said. “Trying to run a safer company is only going to benefit the insured by reducing the number of claims.”
Pike pointed to underused tools in Nevada law that could help - such as post-accident drug testing that, if failed, can allow insurers to deny a claim. “Very, very few people adopt that because they are either uneducated on it or think it’s a hassle,” he said.
LP Insurance, which Pike said has a dedicated risk management department staffed by attorneys and loss control specialists, supports clients with inspections and customized training to reduce claims and exposures. But he acknowledged that change will likely be gradual.
“I think the reaction might be slower,” he said. “Premiums are going to escalate. People are going to start losing their minds. Those that don’t do anything to control the exposure are going to be at risk of seeing their premiums continue to escalate.”
Despite the overhaul, Pike said he doesn’t expect a drastic shift in the rate differential between industry classes, like roofers and plumbers. “I don’t think the delta between those two are going to change by percentage,” he said.
But he does anticipate movement in overall rate levels. “I believe that rates are actually going to come down some,” he said. “If we can accurately predict the claim activity of a client… then we should be able to accurately predict the amount of premium that one needs to collect.”
Ultimately, the law forces a reckoning between actuarial complexity and real-world billing mechanics – one that will likely play out over multiple renewal cycles. “They very seldom make mistakes,” Pike said of NCCI, “but occasionally we’ll find a mathematical error and have to go back to help them redo it. That’s just part of what a good broker does.”
