California's workers' compensation experience rating system is a merit rating system intended to provide employers a direct financial incentive to reduce work-related accidents. The experience rating system objectively distributes the cost of workers' compensation insurance more equitably among employers assigned to particular industry classifications.
The regulations governing the experience rating system are contained in the California Workers' Compensation Experience Rating Plan - 1995. This plan is part of the California Code of Regulations and is approved by the Insurance Commissioner. Not all employers are eligible for experience rating. See Determining Eligibility.
Experience rating begins with a projection of the future cost of benefits that must be paid by an insurer based on a company's history of payroll and claims (collectively referred to as "experience"). The WCIRB compares the experience of one company to the experience of other companies within the same classification. This comparison results in an experience modification.
Experience modifications, which are expressed as a percentage, compare the loss or claims history of one company to all other companies in the same industry. Generally, an experience modification of less than 100% reflects a better-than-average experience, while an experience modification of more than 100% reflects a worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of your workers' compensation premiums, while an experience modification that is less than 100% usually decreases the cost of your workers' compensation premiums.
For those employers who qualify, experience rating is mandatory. Today, more than 120,000 California employers are experience rated, representing approximately 80% of all the workers' compensation insurance premiums paid. Using information submitted by insurers, the WCIRB calculates and publishes experience modifications for each qualified employer. Regardless of which insurer provides you with your workers' compensation insurance policy, if you are experience rated, your experience modification must be applied to your policy.