A premium rating plan that will consider past loss experience to develop current policy rates. Three to five years past loss information is usually used to generate an experience debit or credit that will be applied to the rating formula.
Experience Rating Plans have been developed by individual rating bureaus or advisory organizations to fine tune an employers workers compensation premium to reflect their actual losses as opposed to those losses developed by the overall group of employers in which the employer can be found. These plans are approved by each participating state and are from time to time modified to bring them up to date.
Also known as Experience Modification Rating, it is important that those qualifying employers have their individual workers compensation premiums modified to reflect the actual losses or claims that they have incurred. Rates are developed for groups of employers. Think about this, all auto repair garages located in one state may have similar work processes and when the overall rate for the auto garage classification code in one state is developed it is done so based on the overall experience of the whole group. So in order to fine tune the rates to an individual auto repair garage you must have in place a mechanism to do so. Experience Rating Plans are the mechanism that accomplishes this by taking the individual employers actual claims or losses, compares them to the experience of the overall group and then modifies the premium to reflect that experience.