Workers' Compensation and Workplace Safety

The Nature of Employer Financial Incentives

by Richard A. Victor

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This report provides, for the first time in convenient form, data and methods needed to examine the nature, size, and adequacy of Workers' Compensation (WC) financial incentives for prevention, and hence to evaluate the conventional wisdom about WC and safety. The report examines the WC financial incentives facing employers, under different insurance arrangements. The findings of the study demonstrate the sensitivity of incentives to the characteristics of each state's WC system, firm size, interest rates, and insurance arrangements. Other conclusions reached include: The conventional wisdom is that self-insured incentives exceed experience-rated insured incentives, but the reverse is often true; retrospective-rated incentives will typically exceed both self-insured and experience-rated incentives; and generalizations about the size of WC financial incentives should be made with great care.

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