WAC 296-17-855. Experience modification

The basis of the experience modification shall be a comparison of the actual losses charged to an employer during the experience period with the expected losses for an average employer reporting the same exposures in each classification. The comparison shall contain actuarial refinements designed to weigh the extent to which the actual experience is credible, due consideration being given to the volume of the employer's experience. Except for those employers who qualify for an adjusted experience modification as specified in WAC 296-17-860 or 296-17-865 , the experience modification factor shall be calculated from the formula: EXPERIENCE MODIFICATION FACTOR = (Credible Actual Primary Loss + Credible Actual Excess Loss)/Expected Loss Where Credible Actual Primary Loss = Actual Primary Loss x Primary Credibility + Expected Primary Loss x (100% - Primary Credibility) Credible Actual Excess Loss = Actual Excess Loss x Excess Credibility + Expected Excess Loss x (100% - Excess Credibility) EXPERIENCE MODIFICATION FACTOR = (Credible Actual Primary Loss + Credible Actual Excess Loss)/Expected Loss Where Credible Actual Primary Loss = Actual Primary Loss x Primary Credibility + Expected Primary Loss x (100% - Primary Credibility) Credible Actual Excess Loss = Actual Excess Loss x Excess Credibility + Expected Excess Loss x (100% - Excess Credibility) The meaning and function of each term in the formula is specified below. For each claim, the actual primary loss is the first dollar portion of the claim costs, which has been shown in actuarial studies, to have the greater credibility in predicting future experience. These amounts are summed over all claims. For each claim in excess of $28,180 the actual primary loss shall be determined from the formula: Primary Loss = 70,460 x Total Loss (Total Loss + 42,280) Primary Loss = 70,460 x Total Loss (Total Loss + 42,280) For each claim, less than $28,180 the full value of the claim shall be considered a primary loss. For each claim, the excess actual loss is the remaining portion of the claim costs, which have been shown in actuarial studies to have less credibility in predicting future experience. The excess actual loss for each claim shall be determined by subtracting the primary loss from the total loss. These amounts are summed over all claims. For any claim without disability benefits (time loss, partial permanent disability, total permanent disability or death) either actually paid or estimated to be paid, the total actual losses for calculating the primary loss and excess loss shall first be reduced by the lesser of $4,100 or the total cost of the claim. Here are some examples for these claims: Total Loss Type of Claim Total Loss (after deduction) Primary Loss Excess Loss 3,000 Medical Only 0 0 0 5,000 Medical Only 900 900 0 5,000 Timeloss 5,000 5,000 0 35,000 Medical Only 30,900 29,751 1,149 35,000 Timeloss 35,000 31,911 3,089 90,000 PPD 90,000 47,939 42,061 150,000 PPD 150,000 54,967 95,033 500,000 TPD Pension 398,730 63,705 335,025 2,000,000 TPD Pension 398,730 63,705 335,025 Total Loss Type of Claim Total Loss (after deduction) Primary Loss Excess Loss 3,000 Medical Only 0 0 0 5,000 Medical Only 900 900 0 5,000 Timeloss 5,000 5,000 0 35,000 Medical Only 30,900 29,751 1,149 35,000 Timeloss 35,000 31,911 3,089 90,000 PPD 90,000 47,939 42,061 150,000 PPD 150,000 54,967 95,033 500,000 TPD Pension 398,730 63,705 335,025 2,000,000 TPD Pension 398,730 63,705 335,025 Note: The deduction, $4,100, is twice the average case incurred cost of these types of claims occurring during the three-year period used for experience rating. On average this results in reducing the average actual loss about 70 percent for these types of claims adjusted. This is done to help make the transition between the two different experience rating methods better by helping make the change in experience factor reasonable for small changes to the actual losses. Note: The deduction, $4,100, is twice the average case incurred cost of these types of claims occurring during the three-year period used for experience rating. On average this results in reducing the average actual loss about 70 percent for these types of claims adjusted. This is done to help make the transition between the two different experience rating methods better by helping make the change in experience factor reasonable for small changes to the actual losses. For each employer, the primary credibility and the excess credibility determines the percentage weight given to the corresponding actual primary losses and the actual excess losses, included in the calculation of the experience modification, based on the volume of expected losses. Primary credibility and excess credibility values are set forth in Table II. An employer's expected losses shall be determined by summing the expected loss for each of the three years of the experience period, which are calculated by multiplying the reported exposure in each classification during the year by the corresponding classification expected loss rate and rounding the result to the nearest cent. Classification expected loss rates by year are set forth in Table III. Expected losses in each classification shall be multiplied by the classification "Primary-Ratio" to obtain "expected primary losses" which shall be rounded to the nearest cent. Expected excess losses shall then be calculated by subtracting expected primary losses from expected total losses rounded to the nearest cent. Primary-Ratios are also set forth in Table III.