Workers Compensation Experience Rating

Workers compensation experience rating is mandatory program of individual risk rating which compares an employer's past actual experience to the expected or average experience. An experience modification is developed and applied to risks of a size large enough for the insured's past experience to be an indicator of how much benefit costs will be paid to the insured in the future. If an employer's past experience is better or worse than average, his premium is adjusted downward or upward, respectively.

In general insurance terminology, experience refers to a record of premiums and losses under a policy. This provides a basis to predict future rates or costs.

For workers compensation, experience is further defined as:

1. The comparison of the basis of premium (usually payroll) and losses developed by a risk during a policy period.

2. The loss record of an insured.

3. The history established by a risk as disclosed by the losses and the payroll appearing on the unit card. The premium paid is compared to losses paid out on an insurance policy.

4. The aggregate premium or losses developed within a state during a period of time as reflected in a financial call.

Experience Rating Modification:

This is a factor applied to the policy premium for a risk to reflect variation from the experience of the average risk of its type. From the risk's own past experience, the experience modification is determined by comparing actual losses to expected losses. This comparison of losses results in a premium reduction (credit) or a premium increase (debit). For example, a modification of .85 results in a 15% credit or savings to the risk, while a modification of 1.10 produces a 10% debit or additional charge to the risk. In some cases, no change results and a modification of 1.00 (unity) is applied.

Experience Modification Factor (MOD):

In computing insurance premiums, experience modification factor refers to a provision for premium adjustment that recognized the merits or demerits of individual risks.

The modifier or "mod" is a factor calculated from actual case loss experience, as reported on the unit statistical reports, used to adjust an insured's manual premiums (up or down). It compares the insured's experience to average class experience.

Workers' compensation costs fall into three categories – Incurred, Paid and Reserved.

Paid Losses		Money spent on a claim
Reserved		Money set aside (outstanding) for future payments
Incurred Losses		Combined total of paid plus reserved amounts

workers compensation experience rating worksheet

NCCI Credit Modifier:

A credit experience rating modification lowers the net premium cost of the insured. A credit experience rating modification shows that the insured has less than average loss experience.

NCCI Debit Modifier:

A debit experience rating modification increases the net premium cost of the insured. A debit experience rating modification shows that the insured has greater than average loss experience.

Qualifications for an NCCI Experience Rating:

A risk is eligible for an experience rating when the payrolls or other exposures developed in the last year or last two years of the experience period produced a qualifying premium, which varies by state. If based on more than two years, a higher qualifying premium is required. To qualify for interstate experience rating, a risk must be eligible for intrastate experience rating and develop exposure in at least one additional state subscribing to interstate rating.

Expected Loss Rate (ELR):

A factor used in the experience rating calculation that estimates average anticipated loss levels of a classification for the experience rating period. The ELR factor is calculated for each classification and is applied per hundred dollars of payroll for that classification.