What is Experience Rating for Workers Compensation?
What is Experience Rating for Workers Compensation?
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Experience Rating is a method to tailor the characteristics of a specific employer when determining costs associated with their workers compensation insurance premiums.

The National Council on Compensation Insurance, (NCCI), is the experienced provider of workers compensation insurance information, gathering data and preparing industry trends to help prepare objective insurance rates and loss cost recommendations.  The Plan helps develop loss experience where it can predict whether loss to a specific employer will be better or worse that average risks with the same industry classification.  The main objective of the Plan is to provide an in incentive for employers to reduce their frequency of claims and to encourage the injured employee to return to work within a reasonable time frame.

The Plan modifies the employer’s workers’ compensation premium by a factor developed from the employer’s past loss experience in an effort to project future losses.

The factor can be both a debit or a credit modification to the employer.  This rating gives employers an incentive to implement loss control measures to help eliminate or reduce injured employees, and develop return-to-work programs to reduce their costs and additional exposures to loss.

Risks in the same industry utilizing the same classification will experience a reduction in workers compensation premium for better than average claims experience.  Those employers in the same group experiencing debit modifications for worse than average loss have an opportunity to work towards improving their risk management programs to help control these costs in the future.

There are premium eligibility requirements developed by each State.  Depending upon these requirements will determine if the employer will be eligible for the experience modification rating factors.  The other factors to be considered are the employer’s past payroll and individual loss experience.  Keep in mind a risk that has one large loss in a three-year period may yield a better modification than an employer that has five or ten much smaller claims.  Claims frequency will usually generate a higher modification over the employer that has suffered only one large loss in that same experience period.

While the qualification factors will vary by state, usually the employer must meet the state’s established premium by one or two methods.  One is to have enough premiums in the most recent 24 months, or to achieve the state’s established premium threshold on average over the entire experience period.

Insurance is the spread of risk and costs associated with the loss from specific groups will most likely incur similar losses.  Perhaps the costs associated with a group can have some predictability of injuries, while it is not possible to determine which employer in this group will actually incur these costs.

Identify your potential exposures to loss, implement a good risk management program for your employees, and continuously monitor the performance and programs you have developed to control loss.  While loss cannot always be avoided, reducing the costs associated with the loss and reducing the number of losses within an employer organization will benefit the employer in the application of the experience modification.

If you would like further information or would like to discuss this important topic, please feel
free to contact Roseanne Gedman at 908-598-7853 or 

Schechner Lifson Corporation