Schedule Rating and Individual Risk Modification

Schedule Rating

Schedule rating allows underwriters to apply credits or debits to the manual premium based on qualitative characteristics of an individual risk. Factors evaluated include premises condition, safety programs, management quality, employee training, and loss control measures. Credits and debits typically range from negative 25% to positive 25%, though some states allow wider ranges. The process introduces subjective judgment, so regulatory oversight and documentation requirements apply.

Experience Modification

Experience rating uses an insured's historical loss experience to modify future premiums. The experience modification factor (mod) compares actual losses to expected losses for risks of similar size and classification. A mod below 1.00 indicates better-than-average experience, while above 1.00 indicates worse. The calculation splits losses into primary (first dollar) and excess components, giving more weight to claim frequency than severity. Workers compensation experience mods calculated by NCCI are the most widely recognized example of this approach.