Firm with a Compensable-Claim Experience Factor Calculation Example

In this example, the firm installs overhead garage doors and this work is reported in risk class 0514-00. The firm also has an office staffed by an employee who answers phones, handles correspondence and bookkeeping whose hours are reported in risk class 4904-00. This firm had three claims in the 2014 experience period (fiscal years 2010-2012):

  1. A smaller medical only claim with $916 in incurred losses.
  2. A larger medical only claim with $2,894 in incurred losses.
  3. A timeloss claim with $9,897 in incurred losses.

The Actual Primary and Excess Losses are shown in column (b) and the Expected Primary and Excess Losses are shown in column (c). The 2014 Primary and Excess Credibilities for a firm with these expected losses are shown in column (d), and the calculation of the Credible Primary Actual Loss Estimate and Credible Excess Actual Loss Estimate is shown in column (e).

Experience Factor Calculation Example
(a) (b) (c) (d) (e) = (b) × (d) + (c) × [100% − (d)]
  Actual Losses Expected Losses Credibility Credible Estimate
Primary 10,181 13,877.04 42% 10,181.00 × 42% + 13,877.04 × (100% − 42%) = 12,324.70
Excess 0 14,783.80 7% 0.00 × 7% + 14,783.80 × (100% − 7%) = 13,748.93
Total 10,181 28,660.84   26,073.63

The Computed Experience Factor is the total Credible Estimate from column (e) above divided by the total Expected Losses from column (c) above, or 0.9097 = 26,073.63 ÷ 28,660.84.

This firm has a compensable claim, the timeloss claim, in its Experience Period, so it is not eligible for the Compensable-Claim-Free Experience Factor. The 2014 Compensable-Claim-Free Experience Factor for a firm with $28,660.84 in expected losses would be 0.7000.

Since the computed factor, 0.9097, is within 25% of the firm's prior experience factor of 0.9000, the limitations in WAC 296‑17‑865 (www.leg.wa.gov) do not apply, so the Final Experience Factor is 0.9097.

Computed Experience Factor 26,073.63 ÷ 28,660.84 equals 0.9097
Compensable-Claim-Free Experience Factor     N/A
Prior Experience Factor     0.9000
Final Experience Factor     0.9097

The current Primary and Excess credibilities can be found in WAC 296‑17‑880 (www.leg.wa.gov), and the current Compensable-Claim-Free Experience Factors can be found in WAC 296‑17‑890 (www.leg.wa.gov).


Calculation of Expected Losses

The summary of the Expected Losses is shown in the table below.

Expected Loss Calculation Summary
0514 risk class
(a) (b) (c) (d) (e) (f)
Fiscal Year Employee Units (hours) Expected Loss Rate Expected Losses Primary Ratio Expected Primary Losses
2010 6,716 1.9479 13,082.10 0.484 6,331.74
2011 4,952 1.6904 8,370.86 0.484 4,051.50
2012 5,122 1.3941 7,140.58 0.484 3,456.04
Class Total 16,790   28,593.54   13,839.28
4904 risk class
(a) (b) (c) (d) (e) (f)
Fiscal Year Employee Units (hours) Expected Loss Rate Expected Losses Primary Ratio Expected Primary Losses
2010 960 0.0271 26.02 0.535 15.00
2011 960 0.0236 22.66 0.535 14.07
2012 960 0.0194 18.62 0.535 11.71
Class Total 2,880   67.30   40.78
All Classes 19,670   28,660.84   13,877.04

In each risk class the expected losses are calculated for each of the three years in the experience period. For Rating Year 2014 the experience period consists of the three fiscal years 2010, 2011 and 2012.

Column (b) shows the firm's hours worked in each fiscal year. Column (c) shows the 2014 Expected Loss Rates for each of the three fiscal years in the experience period.

The Expected Losses in column (d) are the result of multiplying the hours in column (b) by the rates in column (c). The firm's total Expected Losses are shown in the All Classes row of column (d).

The Rating Year 2014 primary ratios are shown in column (e). Column (f) is the result of multiplying the Expected Losses in column (d) by the Primary Ratios in column (e). The Expected Primary Losses for the firm are shown in the All Classes row of column (f).

So for the 2014 experience factor for this firm, the Expected Primary Losses are $13,877.04 (column (f)) and the Expected Excess Losses are $14,783.80 (column (d) minus column (f)).

One can find the latest Expected Loss Rates and the Primary Ratios for any class by looking them up in the Expected Loss Rate and Primary Ratio tables in WAC 296‑17‑885 (www.leg.wa.gov).


Calculation of Actual Losses

The summary of the Actual Losses is shown in the table below. There were three injuries during the experience period (fiscal years 2010 2012): two were Medical Only claims with Incurred Amounts of $916 and $2,894, and one was a time-loss claim with an incurred amount of 9,897 (column (d)).

Actual Loss Summary
(a) (b) (c) (d) (e) (f)
  Actual Losses
Class Claim no. Loss Type Incurred Charged Primary
0514 1 Med Only 916 0 0
0514 2 Med Only 2,894 284 284
0514 3 Time loss 9,897 9,897 9,897
Total     13,707 10,181 10,181

Because Claims 1 and 2 are both Medical Only Claims the Medical Only Deduction applies. For 2014 the Medical Only Deduction is $2,610 so they are reduced by the lesser of $2,610 or the Incurred Loss Amount. Claim 1 is below $2,610, so it is reduced to zero (column (e). Claim 2 is reduced by $2,610 to $284 (column (e)). Claim 3 is a timeloss claim so it is not eligible for the Medical Only Deduction.

The 2014 Primary Formula is then applied to determine the primary portion of each loss, which is shown in column (f). For each claim the charged amount (column (e)) is less than $20,112, so the Actual Primary Loss (column (f)) is equal to the charged amount (column (e)).

All three of the claims are below the Maximum Claim Value for rating year 2014, $270,128, so they are not capped at the Maximum Claim Value.

None of the claims is a fatality, so the Incurred Loss Amount is not replaced with the 2014 Average Death Value, $270,128.

So for the 2014 experience factor for this firm, the Actual Primary Losses are $10,181 (column (f)) and the Actual Excess Losses are $0 (column (e) minus column (f)).

The latest Medical Only Deduction and Primary Formula can be found in WAC 296‑17‑855 (www.leg.wa.gov). The latest Maximum Claim Value and Average Death Value can be found in WAC 296‑17‑880 (www.leg.wa.gov).

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