Workers Compensation Experience Rating: What Every Actuary Should Know

Abstract
The NCCI Workers Compensation Experience Rating Plan is probably the best documented experience rating plan in widespread use. This paper is the current CAS syllabus reading on Experience Rating. Abstract: Workers compensation experience rating affects the distribution of billions of dollars of insurance premium. It is a large-scale application of actuarial science, one which was evolved since the very first days of the Casualty Actuarial Society. A fair amount of material exists on the theory underlying the plan, and some of that material is required reading for actuarial students. This paper tries to bridge the gap between theory and practice. Most of the insureds eligible for experience rating do not think in terms of overall performance of the plan. They may agree individual risk equity is fine-as long as it does not affect them adversely. Actuaries can help relate the theoretical underpinnings of the plan to the bottom-line effect on the individual insured. The exposition begins with a discussion of performance testing. It then puts experience rating into the context of the premium transaction for a policy, then turns to a discussion of overall financial impact. The latter part of the paper details the activity necessary to administer experience rating, including the calculation of plan parameters, the assembly of experience data, and the promulgation of rating forms. The paper is intended to be expository, describing concepts, vocabulary, and details of the plan from an actuarial perspective. Italics are used for emphasis, which may include introduction of a new word. Phrases that demonstrate usage, as well as honest-to-goodness quotations, are shown in quotes. Keywords: Workers Compensation, Credibility, Experience Rating Plans.
Volume
LXXIX
Page
215-254
Year
1992
Categories
Actuarial Applications and Methodologies
Ratemaking
Experience Rating
Financial and Statistical Methods
Credibility
Business Areas
Workers Compensation
Publications
Proceedings of the Casualty Actuarial Society