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Study finds experience rating an effective safety incentive

workers compensation

Experience rating that scores companies based on accident history serves as an effective incentive for California employers to provide safe workplaces, according to a study by the Workers’ Compensation Insurance Rating Bureau.

“Newly rated employers tend to have a larger decline in claim frequency over three years after their first X-mods than employers of similar size in the same industry that do not become experience-rated,” the WCIRB said. “The results indicate an impact of the initial qualification for experience rating that is directionally consistent with the intended incentive of experience rating to improve workplace safety.”

The WCIRB also said it found a statistically significant decrease in future claim frequency when an employer’s experience modification, or X-mod, changes from a credit to a debit. 

Experience rating is a merit-based system that primarily aims to create a financial incentive for safe workplaces, the WCIRB said. Experience modifications compare the claims history of an employer to the average expected claims history of similarly sized businesses in the same industry. An X-mod lower than 100% — a credit — indicates better-than-average experience, while a mod greater than 100%, or debit, denotes worse-than-average experience. A credit mod typically reduces premiums an employer is charged while a debit tends to increase the cost of work comp coverage.

WorkCompCentral is a sister publication of Business Insurance. More stories here.