Correction of Certain Deficiencies in the Experience Rating Plan by the

The Experience Rating Plan has been designed to measure the departure of the experience of the individual risk from the average experience of the class. Such measurement is being accomplished by a comparison of the actual losses incurred for the risk during a certain period of time with the expected losses for the class based on the risk payrolls for the corresponding time interval.* In abstract theory, it would be necessary that all losses be paid or that all cases are finally disposed of by awards or court decisions. Since such requirement would bar the use of the most recent experience, in actual practice a substantial number of claims is included in the rating where the loss values are estimated. Such estimate is made on the basis of judgment of the claim expert who takes into consideration all the available facts as well as his experience on cases of similar character in the past.