Experience Rating

Experience rating is when an insurer sets a group's premium based on that group's own claims history. Larger employer groups, generally 51 or more employees, are experience rated: a bad claims year raises next year's premium, and a good one can hold it flat.

The carrier's underwriter blends the group's actual claims with its expected claims, giving more weight to the actual figures the larger the group. A 500-life group's rate might be 80 percent its own experience; a 60-life group's might be 30 percent. This is why a single $900,000 cancer claim at a 75-person company can produce a 25 percent renewal increase, while the same claim at a 5,000-person company barely moves the rate. Experience rating is also the reason claims data matters to a fully-insured employer even though the carrier is paying the bills: the claims come back around as premium. Carriers must share the large-claim and utilization reports that drive the renewal; they don't always volunteer them.

The takeaway: if you're experience rated, ask for the renewal workup, not just the renewal number. Which claims drove it, and were any of them one-time events the underwriter should be discounting?