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WCIRB California’s Workers’ Compensation Program

California provides a worker’s compensation program developed to provide a financial incentive to companies to reduce work-related accidents and thereby lower premiums.  California’s Experience Rating System assigns companies to industry classifications.  Simply put, premiums are determined by a company’s record of claims and loses measured against the aggregate average record of the assigned classifications.  This objective rating system is updated annually and results in a distribution of costs that is both more equitable and more predictable than the costs of individual policies without experience rating.

WCRIB Experience Modification
To calculate a particular business’s Experience Modification score, data on their Actual Losses, both the claim costs paid out as well as those costs that are due to be paid out in the future must be supplied by the insurer to WCRIB.  The average losses for the particular classification multiplied by the payroll will determine the Expected Losses for the business.  In other words, all other conditions being similar, Widget Company A with $1,000,000 in payroll will have higher Expected Losses than Widget Company B with $500,000 in payroll.

Experience Modification = Actual Losses/Expected Losses
While the above formula can work well for large businesses as a whole, applying it to a particular business within the group is more difficult, especially for smaller businesses.  For instance, consider a small business belonging to a group of similar businesses that experienced no losses in the past 3 years while your business happened to pay out one claim in the previous year.  Using the above formula would produce an exceptionally high experience modification resulting in an unwarranted increase in your premium for that year.  An experience modification compares actual losses to expected losses and elements have been added to the formula to prevent extreme changes year to year in the experience modification.

Losses are separated into primary losses and excess losses.  As of the start of 2017, primary losses are based on the size of the employer measured by the total expected losses to determine eligibility for experience rating.  There are approximately ninety distinct primary loss values from $4,500 to $75,000.  Those modifications determined between 2010 and 2016, the first $7,000 in losses for any claim were primary and any remaining amounts above that were considered excess losses.  A portion of those excess losses were used in their Exmod calculation ranging from 0% for small companies up to 78% for the largest.  Since the change in 2017, the formula focuses only on the primary portion, with no excess loss value included in the calculation.

Beginning in 2019, the first $250.00 for every claim has been removed from the calculation as the Experience Rating Formula has been simplified.

Experience Rating Formula 2019 = Ap +Ee / E
Experience Rating Formula prior to 2019 =

[(Ap x Cp) + (Ep x (1-Cp))} + [(Ae x Ce) + (Ee x (1-Ce))] / E

Ap = Actual Primary Losses
Ee = Expected Excess Losses
E = Expected Losses
Cp = Credibility Primary Value
Ep = Expected Primary
Ae = Actual Excess Losses
Ce = Credibility Excess Value

The WCIRB may revise an Exmod under certain circumstances not simply because the value of specific claim changes.

Revision reasons include:

  • A claim in not compensable
  • A claim is subrogated after reimbursement
  • Upon inspection the WCIRB determines there should be a reclassification of operations
  • There is a change in ownership

Certain exception cases such as death claims, joint claims, and subrogated claims impact the experience modification differently.

Details about these exception claims can be found in Part 4, Section 5, subsection C of the 1995- California’s Workers’ Compensation Uniform Statistical Reporting Plan.

Death Claims solely related to employment are valued at an average amount listed in the Credibility Primary and Credibility Excess Values, table III.  This is available in the Filings and Plans section.  This value may be modified if the death was not determined to be solely caused by employment.