By: Kurt Gehman, CPCU | Vice President/Principal, McConkey Insurance & Benefits
PA employers will soon see a change to the factors that are used to calculate their workers’ compensation experience rating (mod). The Pennsylvania Compensation Rating Bureau (PCRB) recently discussed the proposed changes at the PA Annual Workers’ Compensation Conference that will impact employers across the commonwealth beginning 4/1/24.
For years the current experience rating plan, which saw it’s last major change in 2004, has not fully captured the true impact of an employer’s experience. Risks with favorable claim history have been assigned higher mods, while risks with poor claim history have received lower mods than they should have. The PCRB has conducted a comprehensive review of the current experience rating plan formula and is recommending several changes to more accurately capture an employer’s loss experience within their respective experience rating.
While the current formula is not changing, there will be several significant changes to the elements used within the formula to calculate your experience rating.
Eligibility: An employer is currently eligible for experience rating if the premium developed by the audited payrolls or other exposures included in the experience period, extended at current Bureau Loss Costs, is $10,000 or more. This will change to $5,000, meaning more PA employers will now qualify for experience rating as opposed to the merit rating program that applies to smaller sized PA employers.
Credibility: the range of credibility factors used in the experience rating formula will move from the current range of 28.3%-93.8% to 69%-97.4%. This increase in credibility will place greater emphasis on the employer’s actual losses within the experience rating formula.
Loss Limitation: Currently, the first $42,500 of any one accident is included 100% in the experience rating calculation. Anything over $42,500 is not included in the experience rating calculation. The new plan will move to a variable model that will use a schedule of 88 points to determine the loss limit. This loss limitation has is designed to shelter the impact of severity driven losses within the rating formula.
Swing Limits: Currently, the greatest an experience modification can change in any one year is +/-25%. Under the new plan, the swing limit will move to +/-40%. This change will increase the volatility of the experience mod as higher frequency and severity experience will both have a greater impact on the mod calculation. In an effort to preserve the mod stability as the PCRB transitions to their new plan, there will be a two-year transition period. During this two-year transition period the current +/- 25% swing limits will be preserved. The +/-40% swing limit will be in place effective 4/1/26.
Through the PCRB’s comprehensive review, these proposed changes are anticipated to greatly improve the accurate representation of a PA employer’s actual loss experience within their workers’ compensation experience rating. With the experience mod playing a critical role in workers’ compensation premium calculations, as well as being a common qualification factor for those in the contracting realm, it is important to understand how these changes will affect your individual rating as well as your overall business operations. Contact your local independent insurance agent or any member of the McConkey team to learn more.
About McConkey Insurance & Benefits
Since 1890, McConkey Insurance & Benefits has provided financial security for individuals and businesses. Serving clients nationally and with a client presence in more than 20 countries, McConkey prides itself in being one of the Mid-Atlantic’s largest privately held and most respected insurance brokerage firms. In addition to our traditional insurance portfolio, McConkey specializes in alternative markets offering compliance, administration, brokerage, and actuarial services to businesses, groups, and associations in the form of captive programs, consortiums, self-insurance, and other unique products.
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