UNDERSTANDING THE MYSTERIES OF EXPERIENCE RATING … (As it related to your California workers compensation insurance)

 The Experience Rating system is designed to reward employers for their safety efforts or punish them for their lack thereof.   Regulators have the strong belief that employers will only spend money on safety if there is a reward or punishment.  

The (WCIRB) Workers’ Comp Rating Bureau is responsible for collecting the individual loss and payroll data on each employer.   This information is reported once annually whether an employer has an experience mod or not.    Based on this information the WCIRB recommends, and the Department of Insurance approves, expected loss rates.  The payroll for each employer by class code helps them to determine what the average losses should be for each employer.   With this information, the employer is issued a mandatory “experience mod” for one year.

 To qualify for a mod, every employer must meet the minimum premium which varies each year.  (Currently, this minimum is approximately $23,000).  This is what is called “pure” premium, set by the WCIRB before any expenses (costs) are added in my carriers, not the premium you paid.

 The employer’s actual loss experience over a three (3) year period is then compared to the expected losses of the other employers in the same class code.  The WCIRB establishes the average loss expectancy for this specific class of business.  If your losses are less than the average, then your mod will be a credit.  If your losses are greater, the mod will be a debit which will in turn increase your premiums.  

Experience mods are recalculated every year with the premium, expected loss rate, losses and payroll adjusted by deleting the oldest year and adding the next.   

When losses and rates are declining, as they currently are, then the average losses also decrease which reflect the improvement in loss rations.   The result is that if your losses stay the same, your mod will usually go up and your losses decrease then your mod will usually decrease. 

Employers who have active safety programs and claims management programs are much more likely to pay lower workers compensation premiums.


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