Experience Modification for Workers Comp

Professional Actuarial Topics Property/Casualty
1

Hi all, For experience modification in Workers Comp, do the losses include ALAE?

2

Not an SME here. But intuitively it would be weird to include ALAE. The customer shouldn’t be held accountable for the expenses the insurer willingly incurs, not to mention the customer wouldn’t have control over this amount, thus shouldn’t affect the exp mod.

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3

I agree. Thanks! Also each company may have it’s own definition of ALAE.

4

WC has pretty low ALAE, anyway. It’s not like GL.

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5

I’m embarrassed not to know this for sure. I used to be a SME. But I haven’t worked in WC in more than a decade now. I feel like if it did include ALAE, I would remember needing to deal with that, but I can’t swear to it.

6

I believe the answer is no for WC.

7

I’ve no idea the answer to WC, but the customer is paying for a risk transfer and ALAE is certainly part of dealing with that risk transfer. If customers in FL have higher ALAE to loss because they sue everyone and customers in ME have low ALAE to loss then it’s cheaper for me to accept that risk transfer on a ME location and I think it’s reasonable for that to be reflective in an experience-based rate.