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📊 '''Experience rating''' is a [[Definition:Rating | rating]] methodology that adjusts an individual insured's [[Definition:Premium | premium]] based on that insured's own historical [[Definition:Loss experience | loss experience]], rather than relying solely on broad class-based rates. It is one of the most widely used pricing refinements in [[Definition:Commercial insurance | commercial insurance]], grounded in the actuarial insight that past claims behavior — when backed by sufficient data — is a meaningful predictor of future results. The technique is a staple in [[Definition:Workers' compensation insurance | workers' compensation]], [[Definition:General liability insurance | general liability]], and [[Definition:Commercial auto insurance | commercial auto]], and it plays a growing role in other lines as data availability improves.

⚙️ At its core, the process compares an insured's actual losses over a defined period (usually three to five years, excluding the most recent policy year to allow claims to mature) against the expected losses for risks of the same size and class. The output is typically an [[Definition:Experience modification factor | experience modification factor]] — a multiplier applied to the manual [[Definition:Premium rate | premium rate]]. A factor below 1.0 produces a premium decrease (an [[Definition:Experience credit | experience credit]]), while a factor above 1.0 results in a surcharge. The calculation weights actual losses and expected losses according to a credibility formula: larger insureds with more [[Definition:Exposure | exposure]] units receive greater weight on their own data, because it is statistically more reliable. In [[Definition:Workers' compensation insurance | workers' compensation]], rating bureaus such as the [[Definition:National Council on Compensation Insurance (NCCI) | NCCI]] administer the process; in other lines, individual [[Definition:Underwriter | underwriters]] or proprietary [[Definition:Actuarial analysis | actuarial models]] perform analogous adjustments.

🎯 The value of experience rating extends well beyond pricing accuracy. It aligns incentives: businesses that invest in [[Definition:Loss control | loss control]], workplace safety, and effective [[Definition:Claims management | claims management]] see their premiums decline, while those with poor results pay more. This feedback loop encourages proactive [[Definition:Risk management | risk management]] across the economy. For [[Definition:Insurer | insurers]], the technique sharpens [[Definition:Risk selection | risk selection]] and portfolio profitability by ensuring that pricing reflects individual risk quality rather than subsidizing high-loss accounts with premiums collected from safer ones. As [[Definition:Insurtech | insurtech]] platforms make granular loss data more accessible and analytics more sophisticated, experience rating principles are being extended into lines — such as [[Definition:Cyber insurance | cyber]] and [[Definition:Professional liability insurance | professional liability]] — where they were previously impractical.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Experience modification factor]]
* [[Definition:Experience credit]]
* [[Definition:Retrospective rating]]
* [[Definition:Schedule rating]]
* [[Definition:Credibility theory]]
* [[Definition:Manual rate]]
{{Div col end}}

Definition:Experience rating - Revision history

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