Insurance companies adjust workers’ compensation premiums based on a company’s actual losses compared with the “expected” losses of all other similarly sized companies in the same industry. This adjustment, or experience modification, is expressed as a percentage. A company with an experience modification of more than 100% has had a greater-than-expected number of claims (a worse-than-average experience), while a company with an experience modification of less than 100% percent has had a fewer-than-expected number of claims (a better-than-average experience).
An experience modification of more than 100% generally increases premiums, while an experience modification of less than 100% decreases premiums. The experience modification is part of the experience rating system in California.
The WCIRB, the State’s non-profit association of workers’ compensation insurers, calculates and publishes experience ratings for eligible companies as well as classification codes for the type of work a company performs and summaries of claim amounts. Today, more than 120,000 California businesses are experience rated, representing approximately 90% of all California workers’ compensation insurance premiums paid. Whether a company has an experience rating depends on the amount of workers’ compensation premium a company pays. Most small companies do not qualify for this modification because their claims are not predictive of future losses.
The WCIRB collects many types of data from insurance companies as it prepares its experience ratings. For example, each year, insurance companies complete “unit statistical reports,” which provide the information the WCIRB uses to calculate expected losses. When an employee is injured on the job, the insurer estimates the current and future amount of the loss and includes it in the unit statistical report. The WCIRB uses the reports to calculate the experience modification for specific businesses.
The WCIRB may revise an experience modification under certain circumstances. These include:
– where a claim is ultimately determined to be “non-compensable”, meaning the claim was not caused by a workplace injury and/or is not covered by the insurance policy;
– where an insurer reports it has been reimbursed for the claim by another party;
– where there is a material or substantial change in ownership;
– or where the WCIRB inspects the company’s operations and determines the company should be reclassified based on the work it performs.
The WCIRB cannot revise the experience modification simply because a claim’s value changes.
For more information about workers comp policies, contact attorney Drew E. Pomerance today.