Experience rating is used to project claim costs based on the employer’s claim history.
It allows premium to more accurately reflect potential future claim costs by comparing the employer’s actual losses to the expected losses for businesses of the same size and industry.
Use the sections below to learn how experience rates are calculated and what applies when your account isn’t eligible for experience rating.
Starting with the fifth active policy period, accounts with an aggregate premium of $15,000 or more within the three most recently completed policy periods are automatically enrolled.
*Only claims with costs exceeding the $250 medical expense assessment threshold are considered. Noncompliance periods are excluded from the experience rate calculation.
The experience rating plan looks at how often claims happen (frequency) and how serious they are (severity).
Claim frequency has more impact on the calculation because employers with more frequent claims represent a greater risk. For this reason, the first $15,000 of each claim is used to measure frequency.
Claim severity is also considered in the calculation, but large claims happen less often and are harder to predict than smaller ones. For this reason, costs over $15,000 are used to measure severity and the maximum amount included for any claim is capped at $225,000
The amount of premium charged is directly impacted by the account’s experience rate.
- An experience modification factor (EMF/mod) of 1.00 indicates an average risk.
- An EMF/mod less than 1.00 indicates a risk with lower-than-expected loss experience and results in a discount.
- An EMF/mod greater than 1.00 indicates a risk with greater-than-expected loss experience and results in a surcharge.
Discounts are limited to 75% and there is no limit to surcharge amounts.
The formula used for Experience Modification Formula (EMF) is:
EMF = (APL + (CF × AEL) + ((1 − CF) × EEL) + B] ÷ (TEL + B)
In this formula:
- APL = Actual Primary Losses
- CF = Credibility Factor
- AEL = Actual Excess Losses
- EEL = Expected Excess Losses
- TEL = Total Expected Losses
- B = Ballast
Understanding the formula:
- Actual Primary Losses (APL)
- The first $15,000 of any loss
- A measure of loss frequency
- Credibility Factor (CF)
- The formula attempts to accommodate for the size of the risk by utilizing a Credibility Factor
- Credibility Factor is not applied to the Primary Losses, therefore Primary Losses have more of an impact on the EMF/mod than excess losses
- Multiplied by the Actual Excess Losses of the risk
- 1 minus Credibility Factor is multiplied by Expected Excess Losses
- The Credibility Factor increases as the expected losses for a risk increase
- Actual Excess Losses (AEL)
- All loss amounts over $15,000, capped at $225,000 per claim
- A measure of loss severity
- Frequency represents greater risk than severity, therefore Actual Primary Losses are not weighted and impact the EMF/mod more than excess losses
- The larger the risk, the more weight is placed on the Actual Excess Losses
- Expected Excess Losses (EEL) / Total Expected Losses (TEL)
- Calculated using an industry average loss rate and the amount of payroll by class code
- Ballast (B)
- A stabilizing factor which varies depending on the employer’s Total Expected Losses
Employers with less than 5 years of active policy periods do not qualify for experience rating programs and are considered at unity or 1.00.
WSI issues a No Experience Modification Rating letter to these accounts annually.
WSI has the Small Account Credit/Debit Program for policyholders who don’t qualify for experience rating. This program encourages small businesses to manage claims and use safety programs.
Starting with the fifth active policy period, accounts with less than $15,000 in total premiums within the three most recent policy periods are automatically enrolled.
How the program works:
- Claims under $250 are not used.
- The credit/debit rate is determined by the number of claims over $250 during the 3-year look back period.
- If there are no claims over $250, the account will receive a 10% premium credit.
- If there is one claim over $250, no credit or surcharge is applied.
- If there are two claims over $250, a surcharge of 5% is applied.
- For each additional claim over $250, an additional 5% is added to the surcharge up to a maximum of 25%.
*Credits cannot reduce the premium below the statutory minimum premium.
Experience rating encourages employers to create and follow safety programs. These programs help make workplaces safer, lower the number and size of claims, improve future experience ratings, and help injured employees return to work as quickly as possible.
Learn more about WSI Safety Incentive Programs.