Three ways to learn how to read your Experience Rating Calculation sheet:

1. Watch the video tutorial.
2. Listen to the video tutorial while scrolling this page.
3. Or follow the instructions below.

Section A is the area of the worksheet that addresses the hours (or board feet for drywall) reported in the preceding three fiscal years impacting the calendar year EMR.

The Total Expected Losses figure drives several things. In addition to being the denominator in the EMR equation, it also determines Credibility Weights and how low a Claim-Free discount can take your experience rate.

The Total Expected Primary Losses figure is computed by actuaries to discount larger claims because they are less credible in predicting future experience.

Every fiscal year, LNI calculates total expected losses by taking all the employee units and multiplying them by the expected loss rate. The expected loss rate is determined by LNI for each risk Class Code.

This results in total expected losses.

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This is a summary of actual losses in a claim that occurred within the experience period.

When you see a capital E, it means that the claim was open with Reserves at that snapshot.

If the claim was open, the claim was charged to you at the reserved amounts versus the lower actual amounts.

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Incurred Losses are total actual claim costs paid by LNI or the total reserve amount for each claim.

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Charged losses  are the total claim cost or reserve cost minus any discount.

Discounts can be third-party claims, occupational disease, and medical-only claims.

The medical-only discount updates annually January 1st.

The 2023 discount for medical-only claims is $3,570. 

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Primary loss is a formula to discount larger claims because they are less credible in predicting future experience.

If the charged claim costs are less than the “primary discount value”, the full amount will be in the primary loss column.

If charged claim costs exceed the “primary discount value”, the charged amount is discounted using LNI’s formula and the primary loss value is used.

Theory of Primary discount: a means of lessening the impact of higher-than-usual claim costs.  WAC 269-17-855

Primary discount formula: (56,670/(incurred losses + 34000)) x incurred losses = Primary losses

*If there is a discount due to medical-only, the medical-only discount is subtracted from incurred losses in the calculation

*If there is a discount due to occupational disease or third-party, it is multiplied by the outcome of the calculation and that is the Primary losses figure.

Maximum Charged Loss figure for 2023 = $382,810 (5-year average of prior fatality claim costs)

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You’ll see where Excess Losses come into the calculation in Section C.

Total Charged Losses – Total Primary Losses = 3 Year Excess

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This is the section that brings all of the hours work and the claim charges together to calculate your EMR.

3-Year Actual Losses: From the totals in Section (B)

3-Year Expected Losses: From the totals in Section (A)

Credibility Weights: From Washington Administrative Code WAC 296-17-880 (Table II)

Credibility weight is an assigned number based on how credible past losses are in predicting future losses. When businesses have more experience, LNI gives more weight to their costs for prior claims when predicting their future claim costs.

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First, you take the primary actual losses and multiply that number by the credibility weight. Then the primary expected losses is multiplied by one minus the credibility weight. The results of the two calculations are then added together and the result of that is the credible estimate figure.

The same is done on the excess line.

(Primary actual losses x Credibility weight) + (Primary expected losses x (1 – Credibility weight)) = Credible estimate

(Excess actual losses x Credibility weight) + (Excess expected losses x (1 – Credibility weight)) = Credible estimate

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To calculate the computed EMR, the total credible estimate figure is divided by the total expected losses figure.

It is important to note that in this example, the 25% rule is applied. This rule states that the EMR cannot increase or decrease by more than 25% from one year to the next (there is one exception to this rule, read more here).

Looking at this example, the company’s prior EMR was 0.6809. When the maximum 25% increase is applied, the resulting EMR is 0.8511.

Credible Estimate total ÷ Expected Losses total = Experience Factor computed

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Section D is the final EMR calculation.