Employers in Washington have two options for workers’ compensation insurance—they can either be self-insured or purchase their insurance from the Department of Labor and Industries (L&I). Most employers purchase their insurance from the state, paying their insurance premiums quarterly to L&I. Insurance rates are reviewed and set annually, with rates going into effect on January 1. While employers do have some ability to control their insurance premium costs, Washington’s base insurance rates are determined each year by L&I.
For 2023, L&I has announced an average 4.8% increase to base insurance rates. On average, this increase represents an additional $61 per year in insurance for each full-time employee. While wage inflation and ever-increasing medical costs are the biggest factors contributing to this increase, it is also important to note that rate adjustments differ by risk classification. Risk classification is a method used by L&I to group work with similar characteristics, setting insurance rates for an entire industry. Each risk class is assigned a base insurance rate determined by how hazardous the work is. For instance, office work has a lower rate than forestry work. L&I then adjusts the base rates up or down for each risk class annually after reviewing historical costs associated with each class in the state fund. For example, effective January 1, 2023, risk class 3405 (Precision Machined Parts and Products) will have a 1% rate reduction, while risk class 3404 (Metal Goods Manufacturing) will increase by 14%. The changes to all risk classes state-wide represent the overall 4.8% increase.
To put context into the workers’ compensation rate change, L&I’s Director, Joel Sacks, stated in a press release, “Even with the increase, the average hourly rate businesses will pay will be about the same as what they were paying in 2016.” Joel went on to add, "After keeping rates steady to help businesses that were struggling during the pandemic, we're now proposing a modest rate increase that's in line with our goal of stable and predictable rates for businesses to ensure the long-term health of the workers' compensation fund."
Even though Washington provides some of the country's least expensive workers’ compensation coverage, insurance increases are never a welcome sight. This makes each employer’s Experience Rating that much more important to their bottom line. Experience Rating is a personalized insurance rate multiplier that is L&I’s prediction of how an individual business’s future claims costs will compare to their assigned risk classifications. An average Experience Rate is 1.0. If an employer’s claim costs are likely to be higher than other businesses with the same risk classifications, L&I will assign the employer an Experience Rate greater than 1.0.
You may be wondering how all these rating systems work together for an individual employer. Most employers have at least a few risk classes, and each risk class has its base insurance rate. Each risk class’s base rate will be multiplied by the Experience Rate to determine the employer’s personalized insurance rates.
Although rate calculations can be confusing, there are straightforward methods to help control costs. First and foremost, employers must establish effective safety programs to help prevent workplace injuries. When injuries do occur, proactive claims management is critical. Implementing light-duty return-to-work programs can reduce costs significantly. Retrospective Rating Programs, which are safety incentive programs, are another way for employers to recoup insurance costs.
Employers are encouraged to contact email@example.com if interested in learning more about Archbright’s Retrospective Rating Programs or ways that Archbright can support employers with their safety or claims management efforts.