The Impact of Experience Rating on Small Employers

Would Lowering the Threshold for Experience Rating Improve Safety?

by Frank W. Neuhauser, Seth A. Seabury, John Mendeloff

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Workers' compensation insurers typically adjust the premium they charge employers to reflect the loss experience of the firm, a practice referred to as experience rating. The practice should enhance the financial incentives for firms to prevent injuries and illnesses. However, small firms whose premiums fall below a threshold are not experience-rated because the predictive value of their experience is viewed as too low. This paper examines what happens to injury and illness losses when small firms do become subject to experience rating. If their injury experience improves, more consideration might be given to lowering the threshold premium in order to subject more firms to experience rating.

This work was prepared for the California Commission on Health and Safety and Workers' Compensation and conducted by the RAND Center for Health and Safety in the Workplace.

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