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