No. We estimate that more firms would have seen their experience factors move above 1.0 in 2007 from below 1.0 in 2006 under the prior plan. In a recent study of firms with compensable claims the proposed 2007 experience factors were compared to the 2007 experience factors using the prior experience rating plan (updated to 2007 cost levels). Of the firms with experience factors under 1.0 in 2006, it is estimated that 3,146 have a factor over 1.0 using the proposed 2007 plan while 3,613 would have a 2007 factor over 1.0 using the prior plan.

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.

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.

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.

The actuaries estimate that the new experience rating plan will not have a significant impact on the overall retro refunds. This is based on an actuarial study of rating years 2000 through 2004 that showed the new plan would have reduced retro loss ratios by approximately 0.3% in aggregate, which is statistically insignificant. However individual retro associations may see some offsetting impacts depending on the specific sizes and loss histories of their enrolled firms.

In actuarial studies of Washington data we observed that large firms with low experience factors had larger loss ratios (the ratios of incurred claim costs to assessed premiums) than large firms with high experience factors. By lowering the weight, or credibility, given to the actual claim experience of large firms the experience factors for those with better claim experience will increase and the factors for those with worse claim experience will decrease. With this change the assessed rates should be more proportional to the expected claim costs for large firms, bringing the subsequent loss ratios into balance, and making the plan more fair.

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.

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.

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.

The proposed 2007 changes to the Experience Rating Plan will accomplish three things:

• The new experience modification formula will be simpler and easier to understand compared to the previous formula.
• For the smaller employers, most of whom use the compensable-claim-free Experience Rating portion of the plan, small claims entering the recent claims experience will cause small increases to the Experience Factor. This is especially important when a firm has their first injured worker with a small time-loss claim. In the current plan, small claims can create large increases to the Experience Factor.
• For the medium to large employers, the overall accuracy of the firms' rates in predicting firm's future cost experience will improve.

For rating year 2007 we are proposing to reduce the cost of non-compensable claims in the Experience Factor calculation by the lesser of $1,510 or the cost of the claim. The deduction of $1,510 is twice the average cost of a non-compensable claim. This change will help to ensure that small claims entering the recent claims experience cause small increases to the Experience Factor.

The use of this deduction will remove approximately 70% of the non-compensable claim costs from the Experience Rating calculation.

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.

Each year, approximately 80% of the firms have compensable-claim-free experience and these firms will have no significant change to their experience rating calculation. Of the remaining 20% of firms that are not compensable-claim free, applying the new Experience Factor Calculation to historical data for firms with compensable claims, approximately 41% of these firms would have a larger Experience Factor under the new plan and approximately 41% would have a smaller Experience Factor under the new plan and the remaining 18% would have the same factor under either plan based upon a study of rating year 2007 data. So approximately 41% of 20% = 8% of all firms will have a larger factor as a result of the changing of the plans.

Note that based on a study of rating years 2000 through 2004, it was previously estimated that of the remaining 20% of the firms that are not compensable claim-free, 44% of the firms would have larger factors, 39% would have smaller factors and 17% would have the same experience factor using the new plan.