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Workers compensation insurance is an important part of running a business with employees, and business owners should know that there are upcoming changes to the way costs are calculated starting in 2024. The Pennsylvania Compensation Rating Bureau, the organization who sets the rates, is making the following changes:
One of the primary changes is coming to the experience modification, which is the factor that rewards or penalizes the account history. The raw premium is multiplied by the experience modification to reflect the loss history of an account. A flat experience modification of 1 will not change the premium. A positive loss history of less than one will reduce the premium. And a negative loss history of more than 1 will increase the premium. As of now, accounts of $10,000 or more are eligible for experience modification, but that threshold will decrease to $5,000 as of April 1, 2024. The year over year change threshold to your experience modification factor is also increasing, from 25% currently to a +/- 40% swing.
Another change is coming for the credibility factor. The credibility factor is an actuarial factor which helps the insurance companies determine frequency and severity of claims across a given industry. At this time, the range is .283 – .938, but that is increasing to .690 – .974. This increase will change how losses are factored, and will result in a stabilization of premiums across industries.
Finally, there is a change coming to the way serious account losses are factored into the experience modification. Experience modifications are calculated by adding all of the losses on the account in a given term and dividing by the amount of premium paid to the carrier. At this time, serious losses are capped at $42,500, no matter how much money has been paid on the loss. This has the effect of limiting the impact of a serious loss in the factoring of premium. Under the upcoming revision, the PCRB will, over the next two years, introduce a variable change of $10,000 to $300,000, depending on the industry.
What effect will this have on your premium? Business owners across different industries should expect to see the changes, but these changes will vary from industry to industry. Premiums may increase or decrease, but what is sure is that the new methods of calculation reflect a more accurate representation of the data.
We at Gearhart Herr & Co., Inc. view insurance as a service you purchase rather than a bill you pay. We have extensive experience in the workers compensation industry on both the agency and carrier side, and have developed an extensive process for proactive risk management. If you would like further discussion, please feel free to call us at 570-748-8011.
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Wilson Riccardo, Producer, Gearhart, Herr & Co., Inc. Insurance Agency