TITLE
"Workers’ Compensation Insurance Experience Rating
and Subsequent Employer Claims: The Wisconsin Experience,"
Michael M. Barth, Robert W. Klein, and Gregory Krohm, Spring 2008, Volume 31, pp 16-42
ABSTRACT
This paper examines the effect of changes in employers’ experience rating
modifications on their subsequent lost-time claims for workers’ compensation insurance.
Our research is motivated by significant interest in the impact of experience
rating on employers’ incentives and efforts to make workplace safety improvements
to reduce worker injuries and workers’ compensation claims. Previous research related
to this topic tends to support the hypothesis that pricing incentives improve safety and
reduce injuries, but there are number of limitations to this research and most workers’
compensation experts believe that more empirical evidence is needed. Our study uses
data on individual employer claims experience—the first time that data at this disaggregated,
micro level has been examined—to further explore this research question.
Our examination of individual firms’ workers’ compensation lost-time claim experience
provides further support for the contention that experience rating has the intended
effect of improving safety and reducing worker injuries and claims. More
specifically, our analysis yields supporting evidence of an ex post pricing effect—
increases in employers’ experience modifications are associated with decreases in the
number of their lost-time claims in subsequent years. We also find that the number of
claims tends to increase with employer size as measured by its covered payroll, but
the rate of increase declines as an employer’s payroll grows. This is consistent with the
proposition that there are economies of scale associated with the returns from employer
investments in safety. [Key words: experience modification factor, workers’ compensation,
workplace safety.]
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