How is the premium for Workers' Compensation Insurance calculated?

The premium for Workers' Compensation Insurance is calculated using a formula that takes into account several factors. The specific method and the factors involved can vary by job classification and annual payroll.

The general principles are as follows:

Classification Codes:

Each type of work or occupation is assigned a classification code based on the associated risk. The National Council on Compensation Insurance (NCCI) in the United States provides standardized classification codes for various industries and occupations.

Payroll:

The primary factor in determining the premium is the total payroll of the business. The insurance carrier multiplies the payroll for each classification code by a specific rate. The rate is expressed as a percentage of payroll and is specific to the classification code.

Experience Modification Rate (EMR):

The EMR, also known as the experience modifier, is a factor that adjusts the premium based on the business's historical loss experience. An EMR below 1.00 results in a credit, reducing the premium, while an EMR above 1.00 results in a debit, increasing the premium.

Location:

The location of the business can also influence the premium. Rates can vary by state, and some states have state-specific rating bureaus or set their own rates.

Size of the Workforce:

The total number of employees and their classification codes can affect the premium.

Claims History:

The business's claims history, including the frequency and severity of previous Workers' Compensation claims, can influence the premium.

Safety Programs and Practices:

Employers with strong safety programs and practices in place may qualify for discounts or lower rates.

Deductible or Self-Insured Options:

Some businesses may choose to have a deductible or self-insured option, which can affect the premium. With a deductible, the employer pays a portion of the claims costs before insurance coverage kicks in.