WCIRBCalifornia. California Workers Compensation Experience Rating Overview

Transcription

1 California Workers Compensation Experience Rating verview WCIRBCalifornia W R K E R S C M P E N S A T I N I N S U R A N C E R A T I N G B U R E A U C A L I R N I A

2 2010 Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. Each WCIRB member company, including any registered third-party entities, (Company) are authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any Web site or through any computer or electronic means for any purpose. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB nline, X-Mod Direct and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the Workers Compensation Insurance Rating Bureau of California, 525 Market Street, Suite 800, San rancisco, California

3 WCIRB. To measure the cost of providing workers compensation benefits, the WCIRB collects payroll and loss information regarding every California workers compensation insurance policy, examines insurance policy documents, inspects insured businesses, and performs test audits of insured employers payrolls and insurers audits of these payrolls. nce data is collected, the WCIRB uses statistical and actuarial techniques to produce advisory pure premium rates for workers compensation insurance. These advisory rates are submitted to the California Insurance Commissioner for approval. Advisory pure premium rates are used as a benchmark for insurance companies as they develop their own premium rates for specific types of businesses. In addition, the WCIRB uses the payroll and loss data to produce experience modifications for eligible employers. The WCIRB is licensed by the California Insurance Commissioner and operates under authority of the California Insurance Code. It is an unincorporated, nonprofit association and is the Insurance Commissioner s designated statistical agent for workers compensation insurance. The WCIRB s membership is comprised of all companies licensed to transact workers compensation insurance in California. WCIRB operating funds are derived from membership fees, premium assessments paid by members, and revenue generated from fees for services and products. WCIRB California 1 15

4 California s workers compensation Experience Rating System is a merit rating system intended to provide employers a direct financial incentive to reduce work-related accidents. The Experience Rating System objectively distributes the cost of workers compensation insurance more equitably among employers assigned to particular industry classifications. or more information about the WCIRB and other workers compensation topics, see the Helpful Information section of the WCIRB website, WCIRB California

5 Experience Rating verview. The regulations governing the Experience Rating System are contained in the California Workers Compensation Experience Rating Plan This plan is part of the California Code of Regulations and is approved by the Insurance Commissioner. Not all employers are eligible for experience rating. See Determining Eligibility, Page 4. Experience rating begins with a projection of the future cost of benefits that must be paid by an insurer based on the insured s history of payroll and claims (collectively referred to as experience ). The WCIRB is able to compare the insured s experience to the experience of other companies within the same classification. This comparison results in an experience modification. Experience modifications, which are expressed as a percentage, compare the loss or claims history of one company to all other companies in the same industry. Generally, an experience modification of less than 100% reflects a better-than-average experience, while an experience modification of more than 100% reflects a worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of an employer s workers compensation premiums, while an experience modification that is less than 100% usually decreases the cost of an employer s workers compensation premiums. or those employers who qualify, experience rating is mandatory. Today, more than 120,000 California employers are experience rated, representing approximately 80% of all the workers compensation insurance premiums paid. Using information submitted by insurers, the WCIRB calculates and publishes experience modifications for each qualified employer. Regardless of which company provides workers compensation insurance coverage, if an employer is experience rated, the insurer is required to apply the experience modification to the policy. WCIRB California 3 15

6 Unit Statistical Reports. Data, including losses and payroll by classification, resulting from every workers compensation insurance policy written in California is reported to the WCIRB in a Unit Statistical Report (USR). These reports, submitted by the insurance company, are the source of the data used by the WCIRB to administer the experience rating system and to publish experience modifications. Unit Statistical Reports are submitted by insurance companies to the WCIRB and are the source of the data used to publish experience modifications. When a worker is injured on the job and a workers compensation claim is opened, an estimate of the total claim value (present and future) is made by the insurer and is included on the next Unit Statistical Report for the policy filed with the WCIRB. USRs are reported at specific intervals defined in the California Workers Compensation Uniform Statistical Reporting Plan The first time that a claim is valued for unit statistical reporting is 18 months after the policy inception month. This 18-month value is reported on a first report Unit Statistical Report, which must be submitted to the WCIRB two months after the valuation date, or 20 months after the policy inception month. Claims that are still open as of the first report are required to be valued and reported again 12 months later (30-month valuation, due into the WCIRB at 32 months after the policy inception month) on a second report. This process continues, either until all claims are closed or for a total of ten reports. Generally, only data contained in the first three reports is used for experience rating purposes. Unit Statistical Reporting Assumption: Policies begin January 1 each year and end December Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q Q 2Q 3Q 4Q 2005 Policy, 1st Report 2005 Policy, 2nd Report 2005 Policy, 3rd Report 2006 Policy, 1st Report 2006 Policy, 2nd Report 2006 Policy, 3rd Report 2007 Policy, 1st Report 2007 Policy, 2nd Report 2007 Policy, 3rd Report 4 15 WCIRB California

7 Experience Period. The data used to calculate an experience modification is determined by the employer s anniversary rating date. The inception date, or start date, of the employer s policies determines the employer s anniversary rating date. or example, if a policy always starts on January 1, the anniversary rating date would be January 1. If an employer switches inception dates or if there are multiple policies with varying inception dates, determining the anniversary date may be more complicated. The anniversary rating date determines the experience period and the effective date of the experience modification. In most cases, all payroll and losses developed under any policy beginning within this period will be used in determining the experience modification. The experience period begins four years and nine months prior to the anniversary rating date and terminates one year and nine months prior to the anniversary rating date. If the anniversary rating date is January 1, 2010, the experience period is April 1, 2005 to April 1, Generally, all payroll and losses developed during the experience period will be used to determine the experience modification. Experience Period Anniversary Rating Date (ARD) of January 1, Months 2006 Months 2007 Months 2008 Months 2009 Months Experience Period Beginning of Experience Period 4 Years and 9 Months Prior to ARD End of Experience Period 1 Year and 9 Months Prior to ARD Anniversary Rating Date January 1, 2010 WCIRB California 5 15

8 Determining Eligibility. Experience Rating Eligibility Threshold (000) 40 $30, $23,288 $20, $15,700 $16,300 $13,728 $14, Whether or not a company is eligible for experience rating is determined by a number of factors. To determine eligibility, payroll developed during the experience period is totaled by classification. These totals are multiplied by the pure premium rate, not the insurer s rate, for the particular classification. The sum of these premium calculations must equal or exceed the minimum premium threshold. As of January 1, 2010, the qualifying threshold is $16,300. See Experience Rating Eligibility Threshold, this Page. The underlying pure premium rates and the eligibility thresholds are adjusted annually to reflect changing wage and payroll levels for the employer s industry. The threshold can be found in Section III, Rule 1 of the California Workers Compensation Experience Rating Plan In the table below Employer 1, whose premium at the pure premium rate level totaled $14,521, does not meet the eligibility threshold for experience rating even though the employer actually paid more than $16,300 for its workers compensation insurance policy. In the second example, Employer 2 does qualify for experience rating because the amount of premium generated at the pure premium rate level ($18,886) is above the eligibility threshold of $16,300. Employer 1 Pure Premium Rate Actual Premium Classification Code 2006 Payroll 2007 Payroll 2008 Payroll Payroll Total (per $100) Total Paid to Insurer , , , , $ 13, ,542 78,235 78, , $ ,569 48,536 48, , $ 513 $ 14,521 $ 18,877 Employer 2 Pure Premium Rate Actual Premium Classification Code 2006 Payroll 2007 Payroll 2008 Payroll Payroll Total (per $100) Total Paid to Insurer , , , , $ 17, ,109 93,551 93, , $ 1, ,233 52,555 52, , $ 571 $ 18,886 $ 24, WCIRB California

9 Experience Modification. Calculating an Experience Modification nce the WCIRB determines an employer is eligible for experience rating, its experience modification is calculated by comparing its Actual Losses to its Expected Losses. Actual losses are the claims, both medical and indemnity, that an insurance company must pay as a result of a work-related injury. Expected Losses represent a company s share of the annualized cost of projected losses for the industry in which it operates. In other words, given its classifications and payroll, Expected Losses represent the statistical average losses that a business of similar size is expected to incur. Given two businesses within the same industry, the larger the business, in terms of payroll, the more losses that business is expected to sustain. Actual Losses are the total claims that an insurance company must pay on behalf of an employer. Expected Losses represent the share of the annualized cost of projected losses for the industry in which an employer operates. Experience Modification = Actual Losses/Expected Losses While conceptually an experience modification compares Actual Losses to Expected Losses, in practice, some amount of statistical smoothing is involved. To illustrate this comparison, it is necessary to explain the experience modification calculation in some detail. Statistical Smoothing It is relatively straightforward to predict the frequency and cost of workplace injuries for a large group of employers by examining the losses incurred by those employers in the past. Predicting whether or not a specific company within this large group of employers will experience a workplace accident, however, is more difficult. This is especially true for small employers. The statistical chance of incurring a workers compensation claim for any single small employer within a large group is small and an experience modification based on this loss history is less reliable than it would be for a large employer. or a small employer who incurs a loss, the effect on the experience modification using a simple comparison of Expected Losses to Actual Losses would result in an unreasonably high experience modification for the year. This could result in greatly increased workers compensation insurance costs. In order to improve the statistical credibility of an employer s experience in the experience modification and to restrict the fluctuation of an employer s experience modification from year to year, a number of factors are introduced into the experience rating formula to modify the Expected Losses and Actual Losses for those employers whose experience is not fully credible. These factors are shown in the Experience Rating ormula, Page 6, and are explained in the Experience Rating Worksheet section, Page 7. WCIRB California 7 15

10 Experience Modification. Experience Rating ormula Revisions Experience Modification ( ) ( ) Total Primary Actual Expected = Actual Losses + B Value + W Value x Excess Losses + (1-W) x Excess Total Expected Losses + B Value Certain types of claims, such as joint claims, subrogated claims and death claims impact the experience modification calculation differently from other types of claims. nce issued, the WCIRB is permitted to revise an experience modification under a limited number of circumstances. The WCIRB is not permitted to revise the experience modification simply because a claim changes in value. Typical reasons for a revision to an experience modification include: A claim is officially declared non-compensable An insurer reports a claim as subrogated after receiving a reimbursement There is a change in ownership The WCIRB performs an inspection and determines an insured s operations should be reclassified Exceptions Certain types of claims, such as joint claims, subrogated claims and death claims, impact the experience modification calculation differently from other types of claims. or details concerning these exception cases, see Part 4, Section V, Subsection C of the California Workers Compensation Uniform Statistical Reporting Plan Joint Claims A joint claim is one in which it has been determined by adjudication that a workplace injury is covered by more than one policy. Such claims usually result when the injured worker has co-employers, there is overlapping coverage on the same employer or the injury developed over an extended period. Subrogation Claims A subrogation claim is a claim where an insurer has received monetary reimbursement either in part or in whole under subrogation rights. Death Claims Death claims that are solely related to employment are valued at an average death amount that is listed in Table III of the California Workers Compensation Experience Rating Plan The average death value may be modified if the death is not solely related to employment WCIRB California

11 Experience Rating Worksheet. If a company is experience rated, an experience rating worksheet is provided to its insurer when the policy is written. Typically, copies of a worksheet are available by contacting the insurer or insurance professional. btaining the experience rating worksheet is the best way to see the data that the WCIRB has on file concerning a company. Copies of these reports may be requested from the WCIRB for a nominal fee. An experience rating worksheet provides detailed information about the classifications assigned to the policy by the WCIRB, the payroll reported for each of those classifications, summaries of claims amounts and the experience modification. The worksheet is divided into several sections. Heading Expected Losses Actual Losses Rating Procedure ACME ASTENER C 1234 MAIN ST., MDEST, CA SCREW MACHINE PRDUCTS MG CLASS CDE WRKERS' CMPENSATIN INSURANCE RATING BUREAU CALIRNIA EXPERIENCE RATING RM ISSUED ISSUING ICE PLICY NUMBER BUREAU NUMBER EECTIVE CARRIER EXPECTED YR PAYRLL YR PAYRLL YR PAYRLL YR PAYRLL LSS RATE "D" RATI EXPECTED EXCESS (f) = (d) - (e) (d) EXPECTED LSSES (e) R PLICY INCURRED LSSES R PLICY INCURRED LSSES btaining an experience rating worksheet is the best way for a company to see the data that the WCIRB has on file concerning that company. WCIRB - ERM 93 RATING PRCEDURE TTAL ACTUAL (b) TTAL EXPECTED LSSES (d) "W" VALUE ACTUAL EXCESS (c) = (a) - (b) RATABLE EXCESS LSSES = W x (c) (1-W) x (f) TTAL (g) * INDEMNITY AND MEDICAL CMBINED ENTER TABLE III WITH (d) TTAL (h) ACTUAL INCURRED LSSES (a) ACTUAL LSSES (b) EXPERIENCE MDIICATIN (g) (h) WCIRB California 9 15

12 Heading. ACME ASTENER C 1234 MAIN ST., MDEST, CA SCREW MACHINE PRDUCTS MG CLASS CDE 1 WRKERS' CMPENSATIN INSURANCE RATING BUREAU CALIRNIA EXPERIENCE RATING RM BUREAU NUMBER EECTIVE 2 3 ISSUING ICE PLICY NUMBER CARRIER EXPECTED YR PAYRLL YR PAYRLL YR PAYRLL YR PAYRLL LSS RATE R PLICY INCURRED LSSES EXPECTED EXCESS (f) = (d) - (e) ISSUED (d) R PLICY "D" RATI INCURRED LSSES EXPECTED LSSES (e) This section of the experience rating worksheet contains the information necessary to identify the employer, the insurer and policy and other information pertinent to the application of the experience modification. 1. WCIRB Assigned Classifications Appearing below the company name and address are the classifications (other than 8810, Clerical ffice Employees, and 8742, Salespersons outside) that have been assigned to the company by the WCIRB. 2. Issue Date This is the date that the worksheet was originally released by the WCIRB to the insurance company. 3. Effective Date The effective date of the experience modification will normally correspond with the effective date of the policy. If, however, the policies have not incepted on the same day every year or if a correction to the experience modification has been issued or the operations are covered by more than one policy with different coverage dates, the effective date may differ from the policy inception date. ACTUAL EXCESS (c) = (a) - (b) ACTUAL INCURRED LSSES (a) ACTUAL LSSES (b) RATING PRCEDURE TTAL ACTUAL (b) "W" VALUE RATABLE EXCESS LSSES = W x (c) (1-W) x (f) TTAL (g) WCIRB - ERM 93 TTAL EXPECTED LSSES (d) * INDEMNITY AND MEDICAL CMBINED ENTER TABLE III WITH (d) TTAL (h) EXPERIENCE MDIICATIN (g) (h) WCIRB California

13 Expected Losses. 4. Classification(s) The classification(s) listed on the experience rating worksheet represent the operations of the business during the experience period. 5. Payroll The worksheet shows the payroll by classification, reported for policies beginning within the experience period. Payroll is associated with the year in which the policy began, not necessarily the year in which it was paid. or example, if there is a policy that is in effect from December 31, 2010 to December 31, 2011, the payroll is reported for 2010, even though most of the payroll is earned in Expected Loss Rate The Expected Loss Rate reflects the anticipated average cost of benefits, per $100 of payroll, for a classification during the experience period. Expected Loss Rates are found in the California Workers Compensation Experience Rating Plan 1995 and are subject to change on a yearly basis. or example, the 2010 Expected Loss Rate for Classification 3632, Machine Shops, is $1.78. In other words, for every $100 of payroll, the average cost of benefits resulting from workplace injuries assigned to Classification 3632 during the experience period was $ Expected Losses Expected Losses are determined by multiplying total payroll for each classification by the Expected Loss Rate. Keep in mind that the Expected Loss Rate is based on every $100 of payroll. This amount reflects an estimate of the cost of losses expected to arise in the coming year for the company based on the payroll reported for each classification. Expected Losses for each classification are totaled and this figure is used to determine the Expected Excess amount, as well as the B and W Values. ACME ASTENER C 1234 MAIN ST., MDEST, CA SCREW MACHINE PRDUCTS MG CLASS CDE WRKERS' CMPENSATIN INSURANCE RATING BUREAU CALIRNIA EXPERIENCE RATING RM ISSUING ICE PLICY NUMBER BUREAU NUMBER EECTIVE CARRIER EXPECTED YR PAYRLL YR PAYRLL YR PAYRLL YR PAYRLL LSS RATE R PLICY INCURRED LSSES EXPECTED EXCESS (f) = (d) - (e) ISSUED (d) R PLICY "D" RATI INCURRED LSSES EXPECTED LSSES (e) ACTUAL EXCESS (c) = (a) - (b) ACTUAL INCURRED LSSES (a) ACTUAL LSSES (b) RATING PRCEDURE TTAL ACTUAL (b) "W" VALUE RATABLE EXCESS LSSES = W x (c) (1-W) x (f) TTAL (g) WCIRB - ERM 93 TTAL EXPECTED LSSES (d) * INDEMNITY AND MEDICAL CMBINED ENTER TABLE III WITH (d) TTAL (h) EXPERIENCE MDIICATIN (g) (h) WCIRB California 11 15

14 Expected Losses. ACME ASTENER C 1234 MAIN ST., MDEST, CA SCREW MACHINE PRDUCTS MG CLASS CDE WRKERS' CMPENSATIN INSURANCE RATING BUREAU CALIRNIA EXPERIENCE RATING RM ISSUING ICE PLICY NUMBER BUREAU NUMBER EECTIVE CARRIER EXPECTED YR PAYRLL YR PAYRLL YR PAYRLL YR PAYRLL LSS RATE R PLICY INCURRED LSSES 10 EXPECTED EXCESS (f) = (d) - (e) ISSUED (d) R PLICY "D" RATI INCURRED LSSES 8 9 EXPECTED LSSES (e) 8. D Ratio The Discount Ratio ( D Ratio) is the mechanism used to divide Expected Losses into Primary and Excess amounts. See Primary and Excess Losses on this Page. The difference between the D Ratio for each classification reflects differences in the severity of claims by classification. In other words, the severity of the average claim for some classifications is significantly higher (indicating a more severe injury) than that of the average claim found in other classifications. D Ratios are found in Table II of the California Workers Compensation Experience Rating Plan 1995 and are subject to change yearly. 9. Primary Expected Losses Primary Expected Losses are determined by multiplying the Expected Losses for a classification by the D Ratio for the classification. Primary Expected Losses are totaled for all classifications and the difference between the Total Expected Losses and the Primary Expected Losses is the Expected Excess amount. 10. Expected Excess The Expected Excess is the difference between the Total Expected Losses and the Total Primary Expected Losses. This number represents average excess losses expected for similar-sized employers within the classification. Primary and Excess Losses Claims are modified in the experience rating formula to place greater weight on the frequency of claims, rather than severity of claims. Generally, an employer has some influence over the frequency of claims, but once a workplace injury occurs, an employer has little control over the ultimate cost of the claim. ACTUAL EXCESS (c) = (a) - (b) ACTUAL INCURRED LSSES (a) ACTUAL LSSES (b) Because of this, the experience modification calculation divides claims into two parts a primary amount and an excess amount. Primary losses represent the more controllable portion of a claim, while the excess amount represents the less controllable portion. WCIRB - ERM 93 RATING PRCEDURE TTAL ACTUAL (b) TTAL EXPECTED LSSES (d) "W" VALUE RATABLE EXCESS LSSES = W x (c) (1-W) x (f) TTAL (g) * INDEMNITY AND MEDICAL CMBINED ENTER TABLE III WITH (d) TTAL (h) EXPERIENCE MDIICATIN (g) (h) The first $7,000 of a claim s value is the primary loss amount. Any remaining amount is excess. Claims under $2,001 are grouped and the primary loss amount for these claims is the same as the actual loss amount. The mechanism for dividing Expected Losses into primary and excess amounts is the Discount Ratio ( D Ratio) WCIRB California

15 Actual Losses. 11. Claim Number This column shows the claim number(s) reported by the insurer. Claims under $2,001 are usually grouped together. 12. Type Injury This column shows the injury type codes assigned and reported by the insurer. This detail does not affect the experience modification calculation; it is for informational purposes only. Please see Type Injury Key on this Page. 13. or This symbol indicates whether or not the claim was reported as open () or closed/final () when the claim was last valued. This detail does not affect the calculation. It is for informational purposes only. 14. Policy Year The Policy Year shows the inception year of the policy on which the claim was reported. 15. Actual Incurred Losses Actual Incurred Losses shows the total claims value (medical and indemnity) as of the last valuation date. or information about claim valuation dates, see Unit Statistical Reports, Page 2. Actual Incurred Losses are totaled for all claims. 16. Primary Actual Losses The first $7,000 of a claim s value is the Primary Actual Loss amount. Claims under $2,001 are grouped and the Primary Actual Loss amount for these claims is the same as the Actual Loss amount. See Primary and Excess Losses, Page 11. Primary Actual Losses are totaled and this figure is subtracted from the Actual Incurred Losses to determine the Actual Excess amount. 17. Actual Excess The Actual Excess is the difference between the Total Actual Incurred Losses and the Total Primary Actual Losses. Actual Excess amounts represent the portion of your claims that exceed the Primary Losses. WCIRB - ERM 93 CLASS CDE EXPECTED YR PAYRLL YR PAYRLL YR PAYRLL YR PAYRLL LSS RATE RATING PRCEDURE TTAL ACTUAL (b) TTAL EXPECTED LSSES (d) Type Injury R 13 PLICY INCURRED LSSES "W" VALUE EXPECTED EXCESS (f) = (d) - (e) ACTUAL EXCESS (c) = (a) - (b) (d) R PLICY RATABLE EXCESS LSSES = W x (c) (1-W) x (f) TTAL (g) * INDEMNITY AND MEDICAL CMBINED ENTER TABLE III WITH (d) TTAL (h) "D" RATI INCURRED LSSES ACTUAL INCURRED LSSES (a) EXPECTED LSSES (e) ACTUAL LSSES (b) EXPERIENCE MDIICATIN D Death P Permanent Total Disability M Permanent Partial Disability (Permanent Disability Greater than 25%) N Permanent Partial Disability (Permanent Disability Less than 25%) T Temporary Disability X Medical nly Claim S Compromised Death Claim 17 (g) (h) WCIRB California 13 15

16 Rating Procedure. ACME ASTENER C 1234 MAIN ST., MDEST, CA SCREW MACHINE PRDUCTS MG CLASS CDE WRKERS' CMPENSATIN INSURANCE RATING BUREAU CALIRNIA EXPERIENCE RATING RM ISSUING ICE PLICY NUMBER BUREAU NUMBER EECTIVE CARRIER EXPECTED YR PAYRLL YR PAYRLL YR PAYRLL YR PAYRLL LSS RATE R PLICY INCURRED LSSES EXPECTED EXCESS (f) = (d) - (e) ISSUED (d) R PLICY "D" RATI INCURRED LSSES EXPECTED LSSES (e) 18. B Value The Ballast Value ( B Value) is added to both the numerator and the denominator in the experience rating formula to stabilize the experience modification for smaller employers. The B Value dilutes the impact of Actual Losses on the experience modification. B Values vary depending on the amount of total Expected Losses. As the size of an employer increases, the Expected Losses increase, and the B Value decreases. The maximum B Value is $10,000. B Values are found in the California Workers Compensation Experience Rating Plan 1995 and are subject to change yearly. 19. W Value The Weight Value ( W Value) represents the weight the Actual Excess will have in computing the experience modification. The larger the company, the more statistically credible or predictable the data becomes as an estimate of future losses, so the experience modification will be calculated with more weight placed on the employer s own experience (Actual Excess) as opposed to industry data (Expected Excess). This minimizes the impact of a claim on a small employer s experience modification. In contrast, a large employer feels the impact, up or down, of its own data more strongly. W Values are found in the California Workers Compensation Experience Rating Plan 1995 and are subject to change yearly. ACTUAL EXCESS (c) = (a) - (b) ACTUAL INCURRED LSSES (a) ACTUAL LSSES (b) WCIRB - ERM 93 RATING PRCEDURE TTAL ACTUAL (b) TTAL EXPECTED LSSES (d) "W" VALUE RATABLE EXCESS LSSES = W x (c) (1-W) x (f) TTAL (g) * INDEMNITY AND MEDICAL CMBINED ENTER TABLE III WITH (d) TTAL (h) EXPERIENCE MDIICATIN (g) (h) WCIRB California

17 The Experience Rating System is used to compare a company s loss history to the loss history of other companies within the same industry. or companies that qualify, this comparison results in an experience modification, which may increase or decrease the cost of your company s workers compensation insurance. The Experience Rating System is designed to objectively distribute the cost of workers compensation insurance across employers and provide a financial incentive to reduce workplace injuries. Business ownership, employees and operations all have an impact on the experience modification. To find out more, visit WCIRB California 15 15

18 EXPERIENCE RATING VERVIEW AN EXCERPT RM UNDERSTANDING CALIRNIA S WRKERS CMPENSATIN INSURANCE SYSTEM WCIRBCalifornia 525 Market Street, Suite 800 San rancisco, CA Tel ax CustomerService@wcirbonline.org