what is an experience rating 
an experience rating is the amount of loss that an insured party experiences compared to the amount of loss that similar insured parties have experience rating is most commonly associated with workers compensation insurance it is used to calculate the experience modification factor 1understanding experience ratingsinsurance companies closely monitor the claims and losses that come from the policies that they underwrite this evaluation includes determining whether certain classes of policyholders are more prone to claims and are thus more risky for the company to insure the experience rating helps an insurance company determine the likelihood that a particular policyholder will file a claim in this sense the past loss experience of a policyholder is used to determine future changes to the premium charged for the policy in general it is easier for an insurance company to determine the risk associated with an entire class of policyholders but harder to determine how risky an individual policyholder is for example an insurance company will look at whether a large sized construction services company has produced more workers compensation claims than similar sized companies if the claims occur more often than expected the insurance company may increase premiums in order to cover the increased expectation of payouts by charging higher premiums for more risky policyholders an insurance company can incentivize its policyholders to improve its risk management practices for example a business that is considered high risk for a workers compensation claim will have to pay more than a low risk policyholder however the high risk policyholder can improve its safety procedures and workplace conditions to lower its premium experience rating is typically based on the three years prior to the most recent expired policy period 