Experience Rating Frequently Asked Questions

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  • Expand/Collapse A worker died as the result of a workplace injury. They had no survivors, so the claim cost was small. Why is the firm charged the cost of the average fatal claim instead of the cost of their actual fatal claim for purposes of experience rating?

    The actual cost of a death claim varies greatly depending on the number and ages of the survivors, not the hazards of the workplace. In order to improve the prediction of future expected losses, the actual fatal claim cost is replaced with the average fatal claim cost in the experience rating calculation. The average is computed over all Washington State Fund death claims during the three year experience period. By using the average death claim cost, all firms with death claims are charged an amount reflecting the seriousness of these injuries. This is also done in other jurisdictions, such as California.

  • Expand/Collapse Why do we use a three year period ending 18 months before the rating year as the experience period?

    There are three criteria that should be considered in selecting the experience period:

    1. It is important to include enough claim data to make accurate and stable statistical forecasts. For this we need to include a longer period of time in the experience period.
    2. It is also important to use recent claim experience. The nature of the work performed by a firm, the technologies used on the job and the safety programs in place all change over time. Older claim data may not reflect the current workplace hazards.
    3. Finally it is difficult to estimate the cost of a claim soon after injury. It takes time for claims to be reported and further time before we can estimate the ultimate severity of the injury. Because the accuracy of the estimated claim costs increases over time, it is important to have claim data that is old enough that the estimated costs are reasonably accurate.

    The selected experience period is a compromise between the three criteria above. Three years is long enough to provide sufficient claim data in the calculation. The period is old enough that the costs of individual claims can be estimated, but the data still reflect the recent activity of the firm.

    This is also the common practice used in other states.

  • Expand/Collapse Where can I go to find my firm's experience modification factor, or to see the calculation of my firm's experience modification factor?

    Your account manager can provide you with the calculation of your experience modification factor. Your account manager's phone number is on your quarterly report. You can also call 360‑902‑4817 for general information or to be directed to your account manager.

  • Expand/collapse My firm has been compensable claim free for over ten years. Why doesn't my Experience Factor get better each year?

    Currently we only consider three years of experience in the calculation of the Experience Modification Factor. In order to give firms credit for more than three years of compensable-claim-free experience we would need to consider more than three years of experience in the Experience Rating Plan. We may change the plan in the future to consider additional years of experience.

  • Expand/collapse My firm has no compensable claims and many employees. Why isn't my Experience Factor smaller?

    The compensable-claim-free discount is based upon a firm's Expected Losses, not the number of employees. For Experience Rating it is standard industry practice among workers' compensation insurers to use a firm's Expected Losses to determine the weight assigned to the firm's past actual claim experience. A firm may have many employees, but these employees may be classified in low hazard occupations. In such a case the Expected Losses for the firm would still be low, so less weight would be given to their good loss experience when calculating their premium rates.

  • Expand/collapse L&I encourages firms to keep injured workers on salary to avoid losing the compensable-claim-free discount. Why can't I pay the Permanent Partial Disability (PPD) awards for my employees as well, to avoid losing my firm's compensable-claim-free discount?

    One of the purposes of the Experience Rating Plan is to use a firm's past actual losses to help estimate their future claim costs. Studies show that firms that have had larger compensable claims in the past are likely to have larger claim costs in the future. Permanent Partial Disability, and other larger compensable claims, are included in the Experience Rating Calculation to improve the accuracy, and therefore the fairness, of the rates. A more accurate rating system is more fair because the premiums assessed for each firm will reflect the future costs that firm is expected to bring to the workers' compensation system.

  • Expand/collapse What is Credibility?

    Credibility is the weight assigned to a firm's Actual Losses and (100% minus Credibility) is the weight assigned to a firm's Expected Losses when calculating the firm's Credible Actual Losses. The greater the Credibility, the more weight is given to the firm's Actual Losses in the calculation of the Experience Modification Factor.

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