Experience Period – How It’s Used On An Experience Rated Workers Compensation Policy

The Experience Period, as used for developing an EMR or Experience Modification Rate, is a specific period of time which normally consists of three years but not more than 45 months, in which the payroll and claim data information generated during that time is gathered and used for the Experience Modification Rate calculation. While 45 months is the maximum limit, you’ll find that an Experience Modification Rate can be developed with less than 12 months data!

It’s pretty simple if the employer has had the same policy effective date, has had no gaps in coverage, change in ownership, short term or extended term policies along with a few other things, then the experience period is the past three year block of time excluding the most recent year past.  The rating effective date, the effective date of the experience modification rate, is used to determine the period used to gather experience data from an employers policies.

Confused? Let’s try this timeline example:

  • Rating Effective Date: 1-1-2013
  • Experience Period will be: 1-1-2009——1-1-2010——1-1-2011——1-1-2012

See how you throw out the 2012-2013 policy year? You do this because the experience data for that year is not yet developed so it’s not yet reportable. So with this employer who has an experience rating date, the date his experience modification rate is effective, of 1-1-2013 you will use policies effective during 2009-2010, 2010-2011 and 2011-2012 to generate the data used to calculate their E-Mod. Simple right?

But what about an employer who has had multiple policies? Remember the 45 month limit from above? There’s another rule. Policies with effective dates from 21 to 57 months before the rating effective date are used as long as the 45 month limit for data is not exceeded.  When determining the experience period you have to count the policy periods and months of data for each period:

            Policy Period                 Months of Data

  • 02-01-2009 to 02-01-2010            12
  • 02-01-2010 to 02-01-2011             12
  • 02-01-2011 to 12-01-2011              10
  • 12-01-2011 to 12-01-2012              12

For a 12-01-2013 rating effective date; using this information we have 46 months of data and the oldest policy is more than 57 months before the experience rating date of 12-01-2013. We then remove the 2009-2010 policy period and use 34 months of experience data to calculate the 12-01-2013 experience rate.

A quick method used to determine the maximum experience period is lined out by NCCI and goes like this:

  • Experience Rating Effective Date                  :   1-1-2013
  • Add 3 months                                                   :   4-1-2013
  • Subtract 2 Years                                              :   4-1-2011
  • Subtract 3 Years                                              :   4-1-2009

Your maximum period for a 1-1-2013 will include policies from 4-1-2009 to 4-1-2011.

Ok Ok! Sorry about that! But now we’re getting down into the trenches! I’ve written quite a bit about claims, their effect on experience rating and how all that fits into the premium an employer pays for their workers compensation insurance. Determining the experience period is an important step. We continue to find errors in the data, both claim and payroll, that’s used to calculate employers Experience Modification Rates and I wanted to show you one of the areas that’s just about clear as mud as to how it’s determined.

Lesson Learned: Always have your workers compensation audits, claims and experience rating calculations reviewed by an independent workers compensation consultant! You may be surprised of the kind of errors and mistakes that may be discovered!

Hope this helps you out!