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Overview and Instructions for Experience Modification Calculation

General Overview Instructions
Experience Period Rating Effective Date
Experience Rating Eligibility Medical Only < Split Point
Claim Information Medical Only ≥ Split Point
Payroll Information Medical and Indemnity < Split Point
Calculation of Experience Modification Medical and Indemnity ≥ Split Point
Assigned Risk Adjustment Program (ARAP) Payroll
  Catastrophes


General Overview

This section provides a brief explanation of experience rating and the process of calculating the experience modification. However, it will not address all of the details of the experience modification calculation and associated terminology. For additional information or clarification, please contact the Bureau.

Experience Period
  • The experience rating calculation generally consists of an experience period of three policy years (36 months) of class code, payroll and claim data. The most recent policy year of data used is the policy year that expired one year prior to the rating effective date.
  • The experience rating calculation may include up to 3¾ years of class code, payroll and claim data, provided one of the policy periods is from a policy that was in effect for nine months or less.
  • The experience rating calculation may include less than three years of class code, payroll and claim data, provided the employer meets the minimum premium eligibility requirements.
  • Please note that this application contemplates only rating effective dates of 4/1/2003 and later.
Experience Rating Eligibility
  • Experience rating is mandatory for all employers that meet the minimum premium eligibility threshold.
  • Rating dates prior to January 1, 2007 must use the following eligibility threshold:
    • An insured is eligible for experience rating when the last policy year or the last two policy years of the experience rating period produced a premium of at least $5,000.
    • If more than two years of data is used, an average annual premium of at least $2,500 is required.
  • Rating dates between January 1, 2007 and March 31, 2016 must use the following eligibility threshold:
    • An insured is eligible for experience rating when the last policy year or the last two policy years of the experience rating period produced a premium of at least $8,000.
    • If more than two years of data is used, an average annual premium of at least $4,000 is required.
  • Rating dates between April 1, 2016 and March 31, 2019 must use the following eligibility threshold:
    • An insured is eligible for experience rating when the last policy year or the last two policy years of the experience rating period produced a premium of at least $10,000.
    • If more than two years of data is used, an average annual premium of at least $5,000 is required.
  • Rating dates between April 1, 2019 and March 31, 2021 must use the following eligibility threshold:
    • An insured is eligible for experience rating when the last policy year or the last two policy years of the experience rating period produced a premium of at least $11,000.
    • If more than two years of data is used, an average annual premium of at least $5,500 is required.
  • Rating dates between April 1, 2021 and March 31, 2022 must use the following eligibility threshold:
    • An insured is eligible for experience rating when the last policy year or the last two policy years of the experience rating period produced a premium of at least $11,500.
    • If more than two years of data is used, an average annual premium of at least $5,750 is required.
  • Rating dates effective April 1, 2022 and after must use the following eligibility threshold:
    • An insured is eligible for experience rating when the last policy year or the last two policy years of the experience rating period produced a premium of at least $12,000.
    • If more than two years of data is used, an average annual premium of at least $6,000 is required.
  • The NCRB calculates experience ratings for employers that have operations only in North Carolina. Employers that have multi-state operations may be subject to interstate experience rating. NOTE: Interstate experience ratings are calculated by the National Council on Compensation Insurance Inc (NCCI).
Claim Information
  • The accident date mm/dd/yyyy must be reported for all claims.
  • Claims reported and used in the experience rating calculations are required to be on an incurred (paid plus reserved) basis.
  • Claims are separated between "medical only" and claims with both medical and indemnity values.
  • Medical only claims are reduced by seventy percent when calculating the experience modification.
  • Claims are split into "primary" and "excess" amounts, based on the split point value amount. The split point values are as follows:
Effective DateSplit Point Value
Prior to 04/01/2019$16,500
04/01/2019$17,000
04/01/2020$17,500
04/01/2021$18,000
04/01/2022$18,500

  • The Actual Incurred Losses include all amounts on the claim below the split point value, or the Primary Losses.
  • Losses incurred above the split point value, also called Excess Losses, are reduced such that only a portion of the claim value above the split point enters the Actual Incurred Losses.
  • Once all claim information is entered and calculated, the system computes the Actual Incurred Losses and the Actual Primary Losses to be used in the calculation.
  • Additionally, individual claim values in excess of the State Per Claim and State Multiple Claim loss limits are reduced. Loss Limits are as follows:
Effective DateLoss Limit
(Per Claim)
Loss Limit
(Multiple claims from a single accident)
04/01/2018$300,000$600,000
04/01/2019$293,000$586,000
04/01/2020$285,000$570,000
04/01/2021$283,500$567,000
04/01/2022$288,500$577,000

Payroll Information
  • Payroll is entered by classification code.
  • Expected Losses are calculated by multiplying the payroll by the corresponding class code Expected Loss Rate (ELR) and then dividing by 100.
  • Expected Primary Losses are calculated by multiplying the Expected Losses by the corresponding D-ratio.
Calculation of Experience Modification
After the actual loss and payroll data are used to develop the primary (actual and expected) loss values, they are totaled and put into the final calculation of the experience modification.

(A) Actual Incurred Losses = Total of all Actual Incurred Losses
(B) Actual Primary Losses = Total of all Actual Primary Losses
(C) Expected Losses = Total of all Expected Losses
(D) Expected Primary Losses = Total of all Expected Primary Losses
(E) Actual Excess Losses = (A) – (B)
(F) Expected Excess Losses = (C) – (D)
(W) Weighting Value = Tabular value based on Expected Losses (C)
(H) Ballast Value = Tabular value based on Expected Losses (C)

The formula for calculating the Experience Modification is:

(I) Actual = B + H + (E x W) + (1 - W) x F
(J) Expected = D + H + (F x W) + (1 - W) x F
Experience Modification = (I) / (J)

The experience rating plan formula includes a procedure limit, or cap, the size of an experience modification debit. The cap is a function of Expected Losses (C) and is calculated as follows:

Rating Effective Date Cap on Modification
Prior to 04/01/2013 1 + 0.00005 (C + 2C / G)
04/01/2013 1.10 + (0.0004 * C / G)

In the formula, the G value is as follows:

Rating Effective DateG Value
04/01/201812.00
04/01/201911.70
04/01/202011.40
04/01/202111.35
04/01/202211.55


Assigned Risk Adjustment Program (ARAP)
ARAP was developed to surcharge assigned risk insureds that have a record of losses greater than expected under the current experience rating plan formula. ARAP applies only to employers that are in the assigned risk plan, are subject to experience rating and have an experience modification greater than or equal to 1.01. The ARAP factor is calculated using the same components as the experience rating formula, but the ARAP formula relies more on total losses than primary losses.


Instructions

Rating Effective Date
Description:
The rating effective date is the date that the rating becomes effective. For this application, only a rating effective date on or after 4/1/2003 may be used to calculate an experience modification.
 
Rules:
  • Must be entered as MM/DD/YYYY
  • Rating Effective Date must be on or after 4/1/2003
  • Rating Effective Date must be a valid date
Medical Only – Less than Split Point
4-Digit Year

Description:
The policy year that corresponds with the Actual Incurred Losses within each row.
 
Rules:
  • Must be 4 digits
  • 4-Digit year must be entered if Actual Incurred Losses are entered within the same row

Actual Incurred Losses

Description:
The total actual incurred loss for each claim. Enter the whole dollar amount of the medical claim
 
Rules:
  • Whole dollars only
  • Actual Incurred Losses must be entered if a 4-Digit Year is entered within the same row
Medical Only – Greater than or Equal to Split Point
4-Digit Year

Description:
The policy year that corresponds with the Actual Incurred Losses within each row.
 
Rules:
  • Must be 4 digits
  • 4-Digit year must be entered if the Actual Incurred Losses are entered within the same row

Actual Incurred Losses

Description:
The total Actual Incurred Loss for each claim. Enter the whole dollar amount of the medical claim.
 
Rules:
  • Whole dollars only
  • Actual Incurred Loss must be entered if a 4-Digit Year is entered within the same row
  • Actual Incurred Loss must be a number greater than or equal to the split point
Medical and Indemnity – Less than Split Point
4-Digit Year

Description:
The policy year that corresponds with the Actual Incurred Losses within each row.
 
Rules:
  • Must be 4 digits
  • 4-Digit year must be entered if Actual Incurred Losses are entered within the same row

Actual Incurred Losses

Description:
The total Actual Incurred Loss for each claim. Enter the whole dollar amount of the claim.
 
Rules:
  • Whole dollars only
  • Actual Incurred Losses must be entered if a 4-Digit Year is entered within the same row
Medical and Indemnity - Greater than or Equal to Split Point
4-Digit Year

Description:
The policy year that corresponds with the Actual Incurred Losses within each row.
 
Rules:
  • Must be 4 digits
  • 4-Digit year must be entered if Actual Incurred Losses are entered within the same row

Actual Incurred Losses

Description:
The total Actual Incurred Loss for each claim. Enter the whole dollar amount of the claim. If any of the claims are part of a catastrophe, please refer to the catastrophe section.
 
Rules:
  • Whole dollars only
  • Actual Incurred Loss must be entered if a 4-Digit year is entered within the same row
  • Actual Incurred Loss must be a number greater than or equal to the split point
Payroll

Procedure
At least one year, with class code and payroll data, must be entered in order to calculate an experience modification. Only one 4-digit year, class code and payroll entry may be made per line. After the year, class code and payroll data have been entered click the "Add" button. The ELR, D-Ratio, Expected Losses and Expected Primary Losses will then be calculated. Click the "Results" tab to complete the process and calculate the experience modification.

4-Digit Year

Description:
The policy year that corresponds with the class code and payroll within each row. It is usually the effective date of the policy.
 
Rules:
  • Must be 4 digits
Class Code

Description:
A four-digit classification code that describes the business and its operations.
 
Rules:
  • Code must be a valid North Carolina classification code
Payroll Amount

Description:
The amount of payroll generated per classification code.
 
Rules:
  • Enter whole dollar amounts, with no punctuation

Catastrophes

Description
Accidents that involve injuries to two or more persons are limited to the State Multiple Claim loss limit (see the Claim Information chart in the General Overview section), which is twice the State per claim loss limit. The actual primary loss for multiple claim accidents is limited to twice the normal maximum primary loss value.
 
Catastrophe with Two Claims
If you are entering two claims for a single accident, enter them with the radio button indicator set to Y for catastrophe type claims. Claims that are part of a catastrophe must have an identical accident date.
 
Total Losses Less Than Primary Actual (Multiple) Loss Limit
If the total of all the combined claims for a particular catastrophic accident is less than twice the normal maximum primary loss value, no catastrophe provision applies.
 


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