By Timothy Koenig, Assistant Vice President, Training and Development for Property & Casualty
Beginning with policies effective April 1, 2024, the Pennsylvania Compensation Rating Bureau (PCRB) implemented a new Experience Rating Plan which included several changes to how Experience Modification Factors are to be calculated. The changes were made to improve statistical credibility and for past lost experience to more accurately predict future loss experience.
What are the Workers’ Compensation Experience Modification Factors?
Workers’ Compensation Experience Modification Factors represent a statistical comparison of a company’s Workers’ Compensation loss experience to other companies with similar classifications and exposures. Simplistically, an Experience Modification Factor of less than 1.00 indicates a company’s loss experience is better than expected and an Experience Modification of greater than 1.00 indicates experience is less favorable than expected.
In addition to being a key rating component of a company’s Workers’ Compensation premium, Experience Modification Factors may be used by insurers to identify which companies may be eligible to receive their most favorable premium rate structure. And for contractors, a company’s Experience Modification Factor is often used by owners and general contractors to qualify a subcontractor’s ability to perform work for them. Many owners and GCs prohibit contractors with Experience Modification Factors over 1.00 from bidding on and/or performing work.
How does the new Plan methodology work?
The primary result of the new Plan methodology will be to reward companies which have taken steps to reduce and manage their Workers’ Compensation claims with lower Experience Modification Factors. Companies with less favorable experience will most likely see their Experience Modification Factors increase.
As a result, construction companies should focus on improving workplace safety and claims management procedures. This will be more important than ever in achieving and maintaining a favorable Experience Modification Factor.
Doing so will require access to safety and claims experts. EHD’s Construction Practice Group Risk Control and Claim Specialists helps clients identify key workplace safety exposures. We also assist in the development of policies and procedures to reduce hazards and manage claims if and when they happen. With this expertise, construction companies can make measurable improvements that will ensure their Experience Modification Factor remains as low as possible amid these new rule changes.
