Experience Modifications:  Frequently Asked Questions...

Experience rating is designed to reflect the individual differences in loss potential an insured. While establishing class codes for various types of operations will give you an "average rate" per manual rating, there is a further need to distinguish the differences between an insured that practices good loss control practices and, as a result has good experience and one that does not.

In workers compensation experience rating, the actual payroll and loss data of the individual employer is analyzed over a period of time. Usually, the latest available three years of data is compared to similarly grouped risks to calculate the experience modification. In general, an employer with better-than-average loss experience receives a credit, while an employer with worse-than-average experience carries a debit rating. Experience rating takes the average loss experience and modifies it based on the individual’s own loss experience. The two primary benefits of experience rating are:

• It tailors the cost prediction and final net premium cost to the individual employer more closely than does manual rating alone

• It provides added incentives for loss reduction that are absent from manual rating alone

While the premium and loss experience is collected by the various insurance companies writing workers' compensation, they report their data to The National Council on Compensation Insurance. NCCI is the body that calculates the experience modification based on the information reported.

Your Anniversary Rating Date (ARD) is the date that your experience rating changes. It is the date that your new Experience Modification goes into effect each year, replacing the prior years' Experience Modification.

Normally, it is the same date, (month/day), as your policy effective date. However, it may be a different date if you changed your renewal date over the last year.

It may also be a different date if the same owner(s) own majority of multiple companies which are determined to be "combinable". (The experience of the combinable companies will be included on one experience rating. )

To be eligible for an experience modification rating within the State of Florida, the requirement for new business is that a firm must have workers’ compensation premiums of at least $10,000 the first year, average of $10,000 for the first two years. or an average of at least $5,000 over a 3-year period.

The short answer is "Yes", but let me explain a little more...

When you become insured with a PEO, you don't get your own individual policy, you become part of their "Master Policy" and as a result, you lose your experience modification and adopt theirs. If you had bad experience... and as a result, a high experience modification, then that may be one of the considerations for why you would get insurance with a PEO vs. a policy with a voluntary market carrier. (See PEO's)

When you choose to exit a PEO and obtain your owner policy, you can request that the PEO submit a form called an ERM-6 to the National Council on Compensation Insurance (NCCI). The form contains your payroll and claim information so the NCCI can calculate your own experience rating. It generally takes about 30 to 60 days to get the new experience modification in place. (most of the time is for the PEO to report the information to NCCI. The rest is for NCCI to calculate and assign the mod.)

In the example given in the 1st paragraph, if you went in to the PEO with a higher experience modification, but had good experience with the PEO, you can end up with very good experience modification on your exit.

Give us a call at Work Comp Associates, Inc. and we will be glad to show you the options.

Let me first explain that the calculation for your Experience Modification includes a minimum of 1 year for new insured's, but normally includes a 3 year period over the last 4 years, but excluding the most recent year. It can be up to 5 years, if you have policies during this period that are partial year policies.

Now, if your loss experience has improved but the experience of the other insureds in the industry within your class code is better, it is possible that your costs could still go up.

(Remember, the Experience Modification is based on your loss history as compared with the overall history of the insureds within that class code.)

But, there are times that mistakes do happen. Information may be included that shouldn't be or even information that doesn't belong to you at all.

If you feel there has been a mistake on your Experience Modification calculation, contact your agent as they should be able to help verify your calculation and it's accurateness.

If you have not found the answers to your questions about your experience modification, please don't hesitate to contact us and we will be glad to help you. It is one of the services that WCA provides to all of it's customers.