Some Principles of Compensation Merit Rating

Merit rating, as applied to workmen's compensation insurance, is designed both to secure a closer approximation of rates to the hazard of the individual establishment than is afforded by the class rate, and to stimulate accident prevention. These objects are trite enough ; what has been less generally recognized is that the two are not wholly compatible. Both, indeed, have to do with hazard measurement; the difference lies in the premium value attached to specific hazards or hazard indicia. From the standpoint of accurate rate adjustment, hazard should evidently be measured in terms of accident cost and the resultant charge imposed without regard to preventability. For the purpose of accident prevention, on the contrary, the penalties should be confined to accident causes within the employer's control and should be sufficient in amount to induce the elimination of the hazards in question.