Primary and Excess Claim Costs

The Washington State Department of Labor & Industries' (L&I) web site does not properly display because JavaScript is disabled or not supported by your browser.The following links may help you navigate the L&I web site:

Topic Index.

Home.

Safety.

Find a Law (RCW) or Rule (WAC).

Help.


Primary and Excess Claim Costs

In the experience rating formula the charged cost of each claim is split into a primary portion and an excess portion using a formula specified in WAC 296-17-855 (www.leg.wa.gov).

For smaller claims (claims below $20,112 in 2008) the entire cost is considered primary. As claims grow larger the primary portion also grows larger but it makes up a smaller percentage of the total claim cost. The chart below shows how the charged cost for an individual claim between $10,000 and $270,000 is split into primary and excess portions in 2008.

The 2008 experience rating plan chart shows the claim cost from $0 to $300,000 and total loss charged from $10,000 through $270,000. The primary loss stays under $50,000 for every claim. The excess loss is the difference between the claim cost and the primary loss.

Why are claim costs split into primary and excess portions?

The purpose of experience rating is to charge each risk a rate that is proportional to their expected future insurance costs. Splitting the claim costs into primary and excess portions improves the accuracy of the predicted future insurance costs. This helps improve the accuracy of the rates.

Because primary losses have greater predictive value than excess losses, primary losses receive more credibility in the calculation of the experience factor. The credibilities assigned to the primary and excess losses are shown in WAC 296‑17‑880 (www.leg.wa.gov).

Examples of Calculating Actual Primary and Actual Excess Claim Costs for individual claims.