Summary: In response to a congressional request, GAO provided information on the experiences of states that have recently introduced competitive rating methods for establishing workers' compensation premiums, specifically: (1) changes in the cost and availability of workers' compensation insurance after the states instituted competitive rating; and (2) a comparison of the changes with those that occurred in states that maintained prior-approval rate regulation.
GAO found that: (1) several states introduced competitive rating with the expectation that it would lead to lower initial premiums which would more accurately reflect eventual employer costs, attracting prospective employers looking for new locations; (2) the average cost of workers' compensation insurance and the size of the assigned risk pools declined more between 1982 and 1984 in states that instituted competitive rating laws; (3) workers' compensation costs declined and increased more rapidly in competitive-rating states than in prior-approval states; (4) a Michigan study showed that most small businesses experienced greater-than-average declines in the cost of coverage between 1983 and 1984; and (5) it was too early to determine the long-term effects of competitive rating since average costs in workers' compensation tend to rise and fall according to an underwriting cycle that spans a number of years.
