Experience Rating / SUPPLEMENT AND EXAMPLES

This section of the New York Experience Rating Plan Manual provides supplemental material and examples in areas where this additional information could be beneficial to the users' understanding of the preceding Plan rules.

A risk is eligible for experience rating when its subject premium, developed in its experience period, meets or exceeds the minimum eligibility amount. Refer to Rule 2-A-3 of the Plan for average annual subject premium rules.
 

1. Calculation of Average Annual Subject Premium
   The average annual subject premium is calculated as follows.
   
   

   Example 1: A Risk With 32 Months of Experience
   	Policy Months of Data Subject Premium 2004 12 4,000 2003 12 4,000 2002 8 3,000 Total 32 11,000
   $11,000    x 12 = $4,125 Average Annual Subject Premium 32
   Example 2: A Risk With 45 Months of Experience
   	Policy Months of Data Subject Premium 2004 12 4,000 2003 12 4,000 2002 12 3,000 2001 9 8,000 Total 45 19,000
   $19,000    x 12 = $5,067 Average Annual Subject Premium 45



2. New York Risk Eligible for Experience Rating - Examples for Rule 2-A-4
   A New York risk may be eligible for experience rating under the following conditions when the New York premium eligibility amounts are:

   	24 Month Total Avg. Annual $ 10,000 $ 5,000
   Example 1: Experience Period of 12 Months
   	Policy Months of Data Subject Premium 2004 12 12,000 Total 12 12,000
   Although this risk has only 12 months of experience, the subject premium exceeds $10,000. Therefore, it qualifies for experience rating.
   Example 2: Experience Period of Less Than 24 Months
   	Policy Months of Data Subject Premium 2004 10 14,000 Total 10 14,000
   Although this risk has only 10 months of experience, the subject premium exceeds $10,000. Therefore, it qualifies for experience rating.
   Example 3: Experience Period of Less Than 24 Months
   	Policy Months of Data Subject Premium 2004 12 6,000 2003 2 5,000 Total 14 11,000
   This risk has 14 months of experience and the subject premium exceeds $10,000. Therefore, it qualifies for experience rating.
   Example 4: Experience Period of 24 Months
   	Policy Months of Data Subject Premium 2004 12 6,000 2003 12 4,000 Total 24 10,000
   This risk does not meet the subject premium requirement in its most recent 12 months, but does meet the subject premium of $10,000 when the most recent 24 months are added together. Therefore, it qualifies for experience rating.
   Example 5: Experience Period of More Than 24 Months - Average Annual Subject Premium
   	Policy Months of Data Subject Premium 2004 12 5,500 2003 12 4,000 2002 12 6,500 Total 36 16,000
   $16,000    x 12 = $5,333 Average Annual Subject Premium 36       Because this risk has 36 months of experience, but does not meet or exceed $10,000 during its most recent 12 to 24 months, the average annual subject premium must be calculated. This risk’s average annual subject premium is $5,333. Because it exceeds the average annual subject premium requirement of $5,000, it qualifies for experience rating.
   Example 6: Experience Period of More Than 24 Months - Average Annual Subject Premium
   	Policy Months of Data Subject Premium 2004 12 6,000 2003 12 2,000 2002 12 5,000 2001 9 10,000   Total 45 23,000
   $23,000    x 12 = $6,133 Average Annual Subject Premium 45       Because this risk has 45 months of experience, but does not meet or exceed $10,000 during its most recent 12 or 24 months, the average annual subject premium must be calculated. This risk’s average annual subject premium is $6,133. Because it exceeds the average annual subject premium requirement of $5,000, it qualifies for experience rating.



3. New York Risk Not Eligible for Experience Rating -
   A New York risk is not eligible for experience rating under the following conditions.

   Example 1: Experience Period of 12 Months
   	Policy Months of Data Subject Premium 2004 12 9,000 Total 12 9,000
   This risk has only 12 months of experience, and the subject premium does not meet or exceed $10,000. Therefore, it does not qualify for experience rating.
   Example 2: Experience Period of Less Than 24 Months
   	Policy Months of Data Subject Premium 2004 10 9,500 Total 10 9,500
   This risk has only 10 months of experience, and the subject premium does not meet or exceed $10,000. Therefore, it does not qualify for experience rating. The $9,500 subject premium is not projected to an annual average subject premium because the experience period is less than 24 months.
   Example 3: Experience Period of 24 Months
   	Policy Months of Data Subject Premium 2004 12 3,000 2003 2 4,000 Total 24 7,000
   This risk has $7,000 in subject premium for 24 months of experience, and does not meet or exceed $10,000 subject premium requirement. Therefore, it does not qualify for experience rating.
   Example 4: Experience Period of More Than 24 Months - Average Annual Subject Premium
   	Policy Months of Data Subject Premium 2004 12 5,500 2003 12 4,000 2002 12 3,000 Total 36 12,500
   $12,500    x 12 = $4,167 Average Annual Subject Premium 36       Because this risk has 36 months of experience, but does not meet or exceed $10,000 during its most recent 12 or 24 months, the average annual subject premium must be calculated. This risk’s average annual subject premium is $4,167, which does not meet the $5,000 average annual subject premium. Therefore, this risk does not qualify for experience rating.
   Example 5: Experience Period of More Than 24 Months - Average Annual Subject Premium
   	Policy Months of Data Subject Premium 2004 12 1,000 2003 12 2,000 2002 12 5,000 2001 9 10,000   Total 45 18,000
   $18,000    x 12 = $4,800 Average Annual Subject Premium 45       Because this risk has 45 months of experience, but does not meet or exceed $10,000 during its most recent 12 or 24 months, the average annual subject premium must be calculated. This risk’s average annual subject premium is $4,800, which does not meet the $5,000 average annual subject premium. Although it qualified in previous years, it no longer qualifies for experience rating.

1. Experience Period
   According to Rule 2-E-1, a risk’s rating effective date determines its experience period. The experience period contains policies with effective dates ranging from 21 to 57 months before the rating effective date, not exceeding 45 months of data.
   
   To determine the maximum 45-month time period included in the experience period, refer to the Experience Period Reference Table or apply the following procedure:
   
   

   (a)	List the Experience Rating Modification Effective Date	1/1/07
   (b)	Add 3 months to the date in (a)	4/1/07
   (c)	Subtract 2 years from the date in (b)	4/1/05
   (d)	Subtract 3 years from the date in (c)	4/1/02

   
   The maximum experience period of a 1/1/07 experience rating modification includes policies with effective dates
   on or after 4/1/02, through policies with effective dates on or before 4/1/05.


2. Examples for Rule 2-E-1
   The examples below clarify the experience period used in a rating that has policy periods with varying lengths. 

The rating effective date (RED) is the earliest date that a specific experience modification is applied to a policy. Refer to Rule 2-B-2 of the Plan for rating effective date rules.

Since the next full term policy after the first change in effective date is 04/01/03-04/01/04, experience ratings will be issued with REDs of 01/01/02, 01/01/03 and 01/01/04. Upon expiration of the 04/01/03-04/01/04 policy, a new RED of 04/01/04 will apply. The 04/01 RED will remain until after expiration of the 1/01/05-01/01/06 policy. A new RED will become effective 01/01/06.

1. Loss Limitation for Single Claims-Examples for Rule 2-C-13-a

1. State Per Claim Accident Limitation
   Per claim accident limits vary by state. They are intended to protect the employer from the adverse impact any single large claim could have on the experience rating modification calculation.
   
   Assume New York’s state per claim accident limit is $245,000. A claim of $285,000 is reported at that amount and appears at full value on the experience rating modification worksheet. However, in the summary of all losses used in the calculation, the claim will be limited to $245,000. This limitation applies for all claims that exceed $245,000.


2. State Per Claim Accident Limitation
   Company A has three claims from three separate accidents:
    

   Loss	Actual Incurred	Actual Incurred Limited	Actual Primary
   1	$275,000	$245,000	$10,000
   2	$12,000	$12,000	$10,000
   3	$5,000	$5,000	$5,000
   Total	$292,000	$262,000	$25,000

   
   Because Loss 1 exceeds the limit, it is reduced to that amount. Both Losses 2 and 3 are used at full value. The primary loss for Losses 1 and 2 are $10,000 each and $5,000 for Loss 3.

2. Loss Limitations for Accidents Involving Two or More Persons-Examples for Rule 2-C-13-a
   States also have a multiple claim accident limitation, which is double the per claim accident limitation. If the per claim limit is $245,000, the multiple claim limitation would be $490,000. The multiple claim limitation is another layer of protection that the Plan provides. It ensures that the impact of catastrophic accident (one incident involving two or more claims) is lessened.

1. In this example, assume a warehouse fire occurs, resulting in four injured workers with individual claim amounts of $250,000, $327,000, $85,000 and $60,000, totaling $722,000.
   
   These four claims would be reported in a manner identifying them as individual claims from the same accident. This ensures that the experience rating modification calculation will limit the $722,000 in claims to $490,000. In addition, the actual primary loss is limited to $20,000 for the four claims, rather than the $40,000 ($10,000 each) that would normally apply for each of the four claims.


2. Assume Company B has four claims resulting from a single accident: 
   
   

   Loss	Actual Incurred	Actual Incurred Limited	Actual Primary
   1	$525,000	Multiple Claim Limit	Actual Primary Limit
   2	$221,000
   3	$145,000
   4	$50,000
   Total	$941,000	$490,000	$20,000

   
   The multiple claim limitation reduced the amount of the actual incurred losses used in the experience rating calculation by $451,000 and the actual primary losses by $20,000.


3. As a comparison, if each loss in b. above was a result of four separate accidents, the losses would be limited individually and used in the calculation as follows:
   
   

   Loss	Actual Incurred	Limited Actual Incurred	Actual Primary
   1	$525,000	$245,000	$10,000
   2	$221,000	$221,000	$10,000
   3	$145,000	$145,000	$10,000
   4	$50,000	$50,000	$10,000
   Total	$941,000	$661,000	$40,000

   
   The limitation of just one loss exceeding the single per claim amount of $245,000 results in $661,000 in actual incurred losses and $40,000 in actual primary losses being used in the experience rating calculation.


4. Loss limitations in experience rating also apply when the coverage is provided by the United States Longshore and Harbor Workers’ Act. These limitations are higher than those of New York because the federal benefits under the Act are significantly higher than the workers compensation benefits in New York. The application of the federal loss limitations works in the same manner as those described above.

3. Disease Loss Limitation-Examples for Rule 2-C-13-b
   Assume for the following examples, that under the state act the per claim limit is $100,000 and the multiple claim limit is $200,000. 

a.	Single Loss Example
	ABC Company has:
	•	A disease loss valued at $175,000
	•	Total expected losses is $50,000
	•	Total expected primary losses of $25,000
		(1)	As a first layer of protection, the actual incurred loss is limited to the state act per claim accident limitation of $100,000. The actual primary loss is limited to $10,000.
		(2)	As a second layer of protection, the policy in which the disease loss incurred is also subject to further limitation. The policy’s total actual incurred disease losses are limited as follows:
			•	(3 x State Act Per Claim Limit) + 120% of the risk’s total expected losses =
			•	(3 x $100,000) + ($50,000 x 120%) =
			•	$300,000 + $60,000 = $360,000
			The policy’s total actual primary incurred disease losses are limited as follows:
			•	$20,000 + 40% of the risk’s total expected primary losses =
			•	$20,000 + ($25,000 x 40%)
			•	$20,000 + $10,000 = $30,000
			By the nature of the first layer of protection, ABC Company’s disease loss of $175,000 does not exceed the policy actual incurred loss disease limitation of $360,000. Also, ABC Company’s policy actual primary disease loss limitation of $30,000 is not met because of $10,000 actual primary loss limitation under the first layer of protection. Therefore, the $175,000 disease loss is limited as follows:
			•	$100,000 actual incurred loss
			•	$10,000 actual primary loss
b.	Multiple Loss Example - State Act Limitation
	XYZ Company has:
	•	A single policy with three disease losses resulting from the same accident
	•	Total expected losses of $450,000
	•	Total expected primary losses of $100,000
		(1)	As a first layer of protection, the actual incurred losses are limited to the state act multiple claim accident limitation of $200,000. The actual primary loss is limited to $20,000.
	Loss Actual Incurred Actual Incurred Limited Actual Primary 1 $175,000 Multiple Claim Limit Actual Primary Limit 2 $25,000 3 $40,000 Total $240,000 $200,000 $20,000
		(2)	As a second layer of protection, the policy in which the disease losses incurred is also subject to further limitation.
			The policy’s total actual incurred disease losses are limited as follows:
			•	(3 x State Act Per Claim Limit) + 120% of the risk’s total expected losses =
			•	(3 x $100,000) + ($450,000 x 120%) =
			•	$300,000 + $540,000 = $840,000
			The policy’s total actual primary disease losses are limited as follows:
			•	$20,000 + 40% of the risk’s total expected primary losses =
			•	$20,000 + ($100,000 x 40%) =
			•	$20,000 + $40,000 = $60,000
			By the nature of the first layer of protection, XYZ company’s disease losses of $240,000 do not exceed the policy actual incurred loss disease limitation of $840,000. Also, under XYZ Company’s policy, the actual primary disease loss limitation of $60,000 is not met because of the $20,000 actual primary loss limitation under the first layer of protection. Therefore, the $240,000 disease losses are limited as follows:
			•	$200,000 actual incurred loss
			•	$20,000 actual primary loss
c.	Multiple Loss Example - Losses Not Limited
	In this example, XYZ Company has:
	•	A single policy with three disease losses resulting from the same accident
	•	Total expected losses of $300,000
	•	Total expected primary losses of $45,000
		(1)	In this situation, the total of the three losses does not exceed the state act multiple claim accident limitation, but the first loss does exceed the state act single claim accident limitation. Therefore, as a first layer of protection, the largest loss is limited to $100,000 while the remaining two losses are used in the calculation at full value. As a second layer of protection, the actual primary loss is limited to a total of $20,000. Although the total of the three losses does not exceed the multiple claim limitation, the actual primary losses are not treated as individual losses at $10,000 each. If they were each treated individually, the total actual primary loss would be $25,000.
	Loss Actual Incurred Actual Incurred Limited Actual Primary Limited 1 $175,000 $100,000   2 $10,000 $10,000 3 $5,000 $5,000 Total $190,000 $115,000 $20,000
		(2)	As an additional layer of protection, the policy in which the disease losses incurred is also subject to further limitation.
			The policy’s total actual incurred disease losses are limited as follows:
			•	(3 x State Act Per Claim Limit) + 120% of the risk’s total expected losses =
			•	(3 x $100,000) + ($300,000 x 120%) =
			•	$300,000 + $360,000 = $660,000
			The policy’s total actual primary disease losses are limited as follows:
			•	$20,000 + 40% of the risk’s total expected primary losses =
			•	$20,000 + ($45,000 x 40%) =
			•	$20,000 + $18,000 = $38,000
			XYZ Company’s disease losses of $190,000 do not exceed the policy actual incurred loss disease limitation of $660,000. Also, XYZ Company’s policy actual primary disease loss limitation of $38,000 is not met because of the $20,000 actual primary loss limitation under the first layer of protection. Therefore, the $190,000 disease losses are limited as follows:
			•	$115,000 actual incurred loss
			•	$20,000 actual primary loss

Example 1:

Entities (1) and (2) are combinable since A owns a majority in both.

Example 2:

Entities (1), and (2), and (3) are all combinable since, as a group, A and B own more than 50% of each.

Example 3:
Six entities are combinable based on common majority ownership. A new entity becomes combinable with one or more, but not all entities in the existing combination. Since none of the original six entities had undergone a change in ownership, they would continue to be rated together. The new entity is rated separately.

Example 4:
Six entities, based on their respective ownership, are split into two sets of three combinable entities each. A new entity’s ownership structure is such that it could be combinable with either of the existing three entity combinations. In this situation, assuming each entity has a separate policy, the combination that produces the largest amount of premium would be made.

Example 5:
In this example, based on the ownership interest of six entities, two different sets of three entity combinations are possible. For example, the combinations could involve entities 1, 2, 3 and 4, 5, 6, or entities 1, 3, 5 and 2, 4, 6. The Plan rules provide that the combination involving the most entities be made. In this case, based on the ownership structure, a four-entity combination is not possible. As such, the combination that produces the largest amount of premium would be made, assuming each entity has a separate policy.

Example 6:
On 3/1/07, Entity A, with a 1/1/07 mod of 1.26, purchases Entity B with a 10/1/06 modification of 0.86. Assuming the change is reported on a timely basis, the 1/1/07 mod of Entity A is revised as of 3/1/07 (the date of combination) and applies from that date until the expiration date of the 1/1/07 rating. In this example, the inclusion of Entity B’s experience results in a mod of 1.14, a decrease from the 1.26 original mod. Entity B’s original 0.86 modification applies from 10/1/06 until its acquisition of 3/1/07.

Example 7:
Entities C and D have been combined for many years based on the following ownership:
? Entity C–John Doe 50%, Jane Doe 30%, John Smith 20%
? Entity D–John Doe 30%, Jane Doe 10%, John Smith 60%

As a group, the three individuals own 100% of both entities. The rating for the combined entities is effective 1/1/07. On 5/15/07, John Smith sells his 20% interest in Entity C to Sam Jones. The ownership of the two entities now appears as follows:
? Entity C–John Doe 50%, Jane Doe 30%, Sam Jones 20%
? Entity D–John Doe 30%, Jane Doe 10%, John Smith 60%

As a result, the entities are no longer combinable. Assuming the change is reported on a timely basis, Entities C and D are separately rated as of 5/15/07.

If the entities are written on separate policies, separate experience rating modifications will be produced for each entity effective the date of the change.

If the entities are written on a single policy, an attempt is made by the carrier(s) to separate the data by entity. If this can be done, each entity will receive a separate experience rating modification effective the date of the change. If the data cannot be separated by entity, Entity C will receive a unity factor (1.00). Entity D will continue to be experience rated based on all experience developed prior to the sale.

Example 8:
In this example, two separate, non-rated entities, Y and Z, are purchased by John Doe on 5/1/07. A policy is obtained to cover the operations of the newly combined entities. In determining the experience rating modifications for the 5/1/07 policy, the combined premium history is used to determine premium eligibility. Entity Y has developed policy premiums of $2,000, $2,300, and $3,000 in the most recent 36 months in a state (New York) that requires an annual average subject premium of $5,000, or $10,000 during the most recent 12 to 24 months.

Entity Z has developed policy premiums of $3,200, $3,800, and $4,700 in the most recent 36 months.

The risk will qualify for a 5/1/07 modification based on the combined premiums of $5,200, $6,100, and $7,700 over the 36 months in the experience period.