Annually, L&I reviews your company’s claim history and reported hours to calculate your Experience Modification Rate (EMR).
In late September/early October, you’ll receive the Proposed Experience Rating Calculation (PERC) sheet. This gives you a “preview” of your premium and EMR for the upcoming year, for all your active L&I accounts (main account and any applicable sub-accounts). This information is preliminary and is subject to change prior to the final rate notice from L&I in December.
In December, the final Experience Rating Calculation (ERC) is distributed, this is your final rate for the upcoming year. These two sheets are the same in the way that the EMR is calculated, the only difference is the PERC has preliminary rates that aren’t finalized whereas the ERC has the finalized rates.
Approach has assembled the following step-by-step instructions to help you review your Experience Rating Calculation.
Remember, the lower your EMR, the less you pay to L&I each quarter in premium.
The best way to control your company’s EMR is to diligently work with your Approach Claims Analyst. In addition to emphasizing injury prevention through a proactive safety program, light-duty and kept-on-salary are very important tools that can help you maintain or lower your EMR.
Let us know if you have questions.
We know this is a lot of information. If you have specific questions regarding your own proposed ERC worksheets, we encourage you to contact your dedicated Approach Claim Analyst. We hope this tutorial was helpful.
Three ways to learn how to read your Experience Rating Calculation sheet:
- Watch the video tutorial.
- Listen to the video tutorial while scrolling this page.
- Or follow the instructions below.
How to Review the Experience Rating Calculation
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.
(1:55 in Video)
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.
(2:58 in Video)
Incurred Losses are total actual claim costs paid by LNI or the total reserve amount for each claim.
(3:12 in Video)
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.
(3:33 in Video)
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)
(4:16 in Video)
You’ll see where Excess Losses come into the calculation in Section C.
Total Charged Losses – Total Primary Losses = 3 Year Excess
(4:44 in Video)
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.
(5:43 in Video)
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
(7:25 in Video)
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
(8:32 in Video)
Section D is the final EMR calculation.
Washington Administrative Codes (WACs)
WACs mentioned in the images above:
Experience Period: WAC 296-17-850 (2)
Claim-Free Discount: WAC 296-17-890
Common Ownership: WAC 296-17-87306
Change of Business Ownership: WAC 296-17-873
Credibility Weight: WAC 296-17-850 Table II
Primary Discount Formula: WAC 269-17-855
Need a Refresher on Experience Modification Rates?
L&I determines each employers’ Experience Modification Rate (EMR) by taking into account three prior years of claims history.
A snapshot of your claim costs is taken every June 1st to calculate your upcoming premium rate.
The calculated Experience Modification Rate is effective every January 1st.