Expected losses

Expected losses are the baseline your actual claims get measured against when your EMR (experience modification rate) is calculated. For each class code you carry, the rating bureau has an expected loss rate, what a typical contractor in that class, with that payroll, is expected to lose to claims in a given year. Multiply your payroll in each class by its expected rate, and you get your expected losses. Your mod compares your actual losses to this number: above 1.00 means your actual losses ran higher than expected, below 1.00 means lower. Because expected losses are calculated from your payroll and class codes, getting either one wrong changes your mod even if nothing about your actual claims changes. A framing crew's payroll coded as general carpentry, for instance, gets measured against the wrong expected loss baseline entirely, and correcting the code changes the comparison without touching a single claim. Since expected losses set the denominator in the mod calculation, an error here can move your rating just as much as an error in your actual claims, even though it's easier to overlook since no single claim looks wrong on its own.

See also

• Class code
• Experience modification rate

Source

• NCCI, The ABCs of Experience Rating