Experience Rating: Explaining Experience Modifications

Explanations on how one large loss affects the rating, that the ICRB makes no judgements on losses reported to us by carriers, and that experience continues even if employer changes operations.

Common items that impact experience rating that you may find helpful are below.

Impact of One Claim on Mod

One claim can have a major impact on an employer’s experience rating modification.

The Experience Rating Plan makes no distinction as to the nature of a claim. If a carrier believes a claim is compensable under Indiana law and has made payments or reserves on a claim, then it will be reported and used in the experience rating. The ICRB uses the data reported to us by the insurance companies and we make no judgments on the compensability of a claim or the insurance company reserves on a claim.

If a claim is shown as “open” then a portion of the loss is considered to be in “reserve” or set aside in anticipation of additional payments on the claim. An employer can consult with his/her insurance agent or insurance company claims adjuster on the reserving of the claim. 

Discounting Claims

The Experience Rating Plan makes no distinction as to the nature of a claim. There are numerous catastrophic events that affect Workers Compensation such as: terrorist attacks, explosions, fires, mining accidents, collapsing buildings, and violence in the workplace. In addition to these types of occurrences, the exposures due to natural disasters such as earthquakes, tornadoes and hurricanes have always been present.

These events can create negative after-effects. For employers, these losses are reflected in their experience rating modifications. However, our rules do discount claims in three ways.

First, claims are capped in the experience rating formula. The Indiana claim accident limitation is shown in the table below by year. The current (2020) limitation is $196,000 per individual claim, and $392,000 per accident.

For example, for a rating effective 3/21/2020, claim number 123 from the 3/21/2016 policy period was reported at $250,000. The experience rating rules limit a loss for the 2020 calculation at $196,000. This means that $54,000 portion of the claim was not used in the rating calculation.   Claim 123 would have been limited in each of the three years it was included in the experience period (assuming the incurred loss amount was $250,000 at each valuation) as follows:

Rating Effective DateMax LimitActual LossClaim #Amount not Included
3/21/2020196,000​250,000​123  54,000
3/21/2019192,000250,00012358,000
3/21/2017​188,500250,00012361,500

Second, medical only claims are reduced by 70%; so only 30% of these claims will be used in the rating calculation. The rating worksheet now separately shows injury type 6, which are the claims reduced by 70%.

Third, any debit modification also is limited based on the size of the employer, or more precisely, their expected losses.

Experience Rating Parameters

The Experience Rating Parameters report​ provides the filed experience rating parameters for Indiana from 2000 through the current year and includes the following values by rating effective date:

  • State Accident Limit
  • USL&H Limit
  • Employers Liability Limit
  • State Reference Point
  • G-Value
  • Split Point​​​

Experience Continues

We are frequently asked why the experience of a company continues to be used in its experience rating even though the company’s operations have changed.

Our rules in the Experience Rating Plan are straightforward on the use of an employer’s prior experience in its current rating: the experience continues with the employer. Only in rare instances when all three of the following conditions are met would the experience not be used:

  • change in ownership, and
  • change in governing classification, and
  • change in hazard

Although a business may change owners or operations, the prior experience continues with the business. The current rules pertaining to the continuation of experience (see Experience Rating Plan Manual, Rule 3.E.) were approved for use in Indiana effective July 1, 1990, Item Filing E-1261, and have been consistently upheld when disputes have arisen.

Other Pricing Components of a Policy

Besides the experience rating modification, there are other components to the pricing of workers compensation policies that are significant, such as Schedule Rating Plan, Premium Discount Plan, deductibles, coinsurance, and Retrospective Rating Plan. For instance, the Schedule Rating Plan adjusts premium (up to 50% higher or lower) on an individual employer basis to reflect such characteristics of the employer that are not reflected in its experience. The Basic Manual Appendix D explains Schedule Rating. 

ABCs of Experience Rating

NCCI has a resource titled ABCs of Experience Rating ​that is helpful in explaining the experience rating plan and the worksheet. It is also available on the NCCI website www.ncci.com.

For instance, for claims under $2,000:

  • for unit statistical plan reporting, the number of claims is shown in this column for each class code;
  • on the experience rating worksheet, all claims under $2,000 are summed together on one line for each policy period.

State Rating Point (SRP)

The State Rating Point refers to the State Per Claim Accident Limitation (found in the Experience Rating Plan Manual rate pages). The limitation amount is representative of thousands, but is displayed on the rating worksheet without the ending zeroes. (Similar to how the ELR’s are displayed without decimals.) 

For instance, effective 1/1/20, Indiana’s limitation was raised from 192,000 to 196,000. From last year’s rating to this year’s, the change in the limitation causes the amount of a reported loss to increase by 4,000 (the difference between 192,000 and 196,000).

Disputes

If an insurance company, agent, or insured disagrees with our decision on applying the rules in a specific case, the dispute process starts by writing a letter to the ICRB explaining the situation. From there, an appeal would go to the ICRB Dispute Resolution Committee, then to the Indiana Department of Insurance, then through the Indiana courts.

Experience Rating Worksheet

The ICRB uses the NCCI experience rating system to produce and distribute worksheets. You may obtain Indiana ratings just as you would for other NCCI states.

Experience Rating worksheets are available to:

  • Insured
  • Carrier of Record
  • Agent of Record
  • Others with Letter of Authority from Insured
  • Anyone for Municipalities and Assigned Risk Insureds

Through the NCCI system, the ICRB automatically mails copies of worksheets to the carrier of record.

Experience rating worksheets are also available from the NCCI website, www.ncci.com for a reduced fee. You need an account set up with NCCI. To do that, you can call 800-NCCI-123.

For those who are not the carrier of record, please refer to the NCCI Experience Rating Price List. These fees are paid to NCCI since we use its system. NCCI has cheaper pricing for online purchases.

Per the Indiana Servicing Carrier RFP requirement IV.B. Performance Requirements, “The ICRB expects the servicing carrier to provide a copy of the experience rating worksheet to the policyholder or agent of record upon request at no cost.”

If the owner writes a letter of authority, which is a letter on his or her letterhead stating that you have their permission to have the experience rating modification, then with payment (credit cards accepted), you can receive the experience rating worksheet. If you fax the letter of authority to our office you can have same day fax-back service. NOTE: We do not need an LOA for an assigned risk account, nor for municipalities.

You can call the ICRB to get experience rating mods or worksheets at 317.842.2800.

Contingent Mod

A mod is contingent when:

• The rating organization is unable to obtain some of the payroll and loss data to produce a rating

OR

• A record of coverage is not available for a portion of the experience period

A contingent mod does apply to a policy.  The new Experience Rating Plan Manual-2003 Edition Rule 4.C.3.e., page R20, states: “A contingent modification applies until another experience rating modification is issued by the rating organization with the same effective date, subject to Rule 4-E.”