The rating is a method used by insurance companies to evaluate their premiums. Based on different rating charts, the insurance companies can adjust their premium high or low.
Experience Rating For Workers’ Comp
Experience rating in the worker’s compensation is typically a representation of preceding loss experience. It means that the risk of losses in the future is directly proportional to the losses incurred previously.
How Does Experience Rating Work?
The experience rating works on the concept that premium charged to the employers should be in accordance with their risks. For this purpose, the comparison is made between employers of the same profession such as painters with other painters in the market.
Based on the comparison, an “experienced modifier” is calculated representing the loss experience of every individual employer.
Credit or Debit?
The premium is multiplied by the experience modifier to generate the final amount. If the employer has a better loss experience than others in the group, he is assigned an experienced modifier of less than 1.0 which would generate credit and low premium cost for him and vice versa is for debit.
Employers receive financial incentives through experience rating for reducing their losses.
Community Rating is a practice of offering insurance policy at the same rates to every individual in the community without making any variations or adjustments.
Pure Community Rating
The pure community rating does not allow any variations in the cost of an insurance policy based on the differentiation of demographic characteristics of individuals such as age or gender, etc.
Modified Community Rating
The modified community rating can include the variations in the insurance rates depending upon certain demographic variables such as the age of the policyholder, etc.