| Determining Credibility |  | |
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The science behind how much credibility weight to give to a firm with a given amount of experience
Both the old experience rating system and the new experience rating system give more credibility weight to firms with greater past experience, with the amount of experience measured by the sum of past expected losses.
The new experience rating system is designed based on studies of past rating years. The actuaries found out which weights would have given the best predictions during past rating years, comparing the predicted experience to the experience found in these past years. This methodology has been used since the early 1990s in workers' compensation insurance and is now the general practice in almost all states.
The weights for the old experience rating system were designed so that no single claim could increase the experience factor by more than 25%. This methodology was used in workers' compensation insurance in almost all states in years prior to 1990. When this type of system was studied in Washington and other states, there were significant groups of firms that were found to be subsidized by others. The subsidization showed a consistent pattern between states.
Read the Reducing Subsidies page to learn more about subsidization.
