Upcoming Impactful Changes to the PCRB Experience Rating Plan

WHAT IS WORKERS’ COMPENSATION EXPERIENCE RATING?

• Experience Rating is a procedure which uses past Workers’ Compensation loss experience of a business to predict future loss experience and to modify Workers’ Compensation premiums by comparing that actual loss experience of the company with the average, expected loss experience of a company with similar risk classifications, during the qualifying experience period – typically the three past policy periods.  Each qualifying business risk is assigned an Experience Modification Factor, which becomes a component of the risk’s Workers’ Compensation premium calculation.

• Simplistically, under Experience Rating, a business which maintains favorable loss levels during the experience rating period will achieve a credit Experience Modification Factor of less than 1.00, while a business with lees favorable loss experience will achieve a debit Experience Modification Factor of greater than 1.00.  A business’s Experience Modification Factor is applied against its Standard Premium, to adjust the final premium to reflect the past loss experience.

• Pennsylvania is an independent rating bureau state and only claims made by qualified Pennsylvania employees are included in a business’s Pennsylvania Experience Modification Factor calculation.  Claims made by a business’s non-Pennsylvania employees may be included in another state’s Experience Rating Plan formula.

CHANGES TO THE PENNSYLVANIA COMPENSATION RATING BUREAU’S (PCRB) EXPERIENCE RATING PLAN TO BECOME EFFECTIVE APRIL 1, 2024

• On August 22, 2023, the Pennsylvania Insurance Commissioner approved the PCRB’s requested revisions to the Pennsylvania Experience Rating Plan.  These are the first major changes in the Experience Rating Plan’s calculation methodology since 2004 and will take effect for all policies which renew on or after April 1, 2024.

• The PCRB’s goal with these Plan revisions is to improve the Experience Rating Plan’s credibility performance and to more accurately predict an individual business’s future loss experience based on past loss history and to provide an increased incentive for a business to improve workplace safety.

WHAT ARE THE KEY CHANGES TO THE EXPERIENCE RATING PLAN?

• Premium eligibility for Experience Rating and an Experience Modification Factor is being reduced from $10,000 to $5,000, so many smaller business risks will now qualify for Experience Rating.

• The maximum primary loss valuation cap for a single claim will vary from $10,000 for the smallest risks to $300,000 for the largest risks, with an individual business’s cap to be determined by it’s Expected Loss values, as calculated by the PCRB’s Expected Loss formula.  Under current past Experience Rating Plan, the maximum primary loss valuation was a fixed at $42,500, regardless of a business risk’s size and loss potential.

• The Experience Rating Plan’s internal credibility factors are being increased to reflect the anticipated increase in statistical credibility resulting from the new variable loss caps. 

• Under the current Experience Rating Plan, annual changes to Experience Modification Factors are limited to + or – 25% of the prior year’s Factor.  The new Plan will allow for an upward increase of 40%, with no downward swing cap.  However, these changes will not become effective until April 1, 2026, allowing a business to prepare for potential significant changes in their Experience Modification Factor resulting from these Plan changes.

WHAT IS THE ANTICIPATED NET RESULT OF THESE CHANGES?

• While the net result of the new Experience Rating Plan changes will vary from business to business, simplistically, a business with favorable loss experience could see a reduction to their Experience Modification Factor and a business with poor loss experience may see an increase to their Experience Modification Factor.

• Again, the goal of the PCRB is cause individual Workers’ Compensation premiums to be more reflective of a business risk’s actual loss experience vs expected loss experience and consequently, to cause improvements in workplace safety efforts.

HOW CAN EHD HELP?

• Since Experience Modification Factors are a component of the Workers’ Compensation premium calculation and may also be used by third parties to assess the safety efforts of a company for the purpose of qualifying to perform services, it is vitally important for a business to take steps to reduce and manage claims, maintaining a favorable Experience Modification Factor.

• EHD’s in-house Risk Control and Claim Management services are available to help clients identify and reduce workplace risk exposures and to manage claims for best possible results.