Purpose of Experience Rating

All firms that do not self-insure are assigned to a workers' compensation insurance risk classification (some may be assigned several). Annually, L&I calculates the firm's experience modification factor using the experience rating plan that predicts how much better or worse the firm's claim costs are likely to be in the future compared to the benchmark for this class. For example, if the firm is expected to have higher claim costs per unit of insurance exposure (usually hours worked) than the benchmark for the class, then the factor will be greater than 1. This results in:

  • Fairness and equity.
  • Encouragement of accident prevention.
  • Facilitates collection of premiums.

Fairness and equity

The amount of the premium charged should be in proportion to the expected costs of future accidents covered by the premiums.

Encourage accident prevention

The lower the past accident costs, the lower the expectation of future costs and hence the lower the premium rates charged to the employer. This provides an economic incentive to prevent accidents.

Facilitates premium collection

The experience factor allows L&I to calculate each firm's rates per unit of insurance exposure by risk classification in order to calculate the total premiums assessed.

Final note: Only the accident and medical aid premiums are experience rated. The benefits paid by these funds are prefunded. The supplemental pension premiums are not experience rated and these benefits are not prefunded. Instead these benefits are funded on a pay as you go basis because of the funding statute RCW 51.32.073 (www.leg.wa.gov).

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