All workers compensation insurance carriers charge premiums based upon your payroll, what kind of work your employees do, your loss history, safety program, whether you offer your employees health benefits, and other factors. They estimate a premium at the beginning of each policy period. You pay a deposit and the remaining balance within 30 days unless you arrange for premium payment options.
If you have fluctuating payrolls you may chooses to pay a premium deposit, then send monthly or quarterly payroll reports, along with a check for each period. This may not be available with all carriers.
Audits to Determine the Correct Premium
At the end of the policy period that carrier will conduct a premium audit to make sure you were charged the right amount for coverage provided. The premium audit double checks your payroll records and makes sure your employees are classified correctly. An adjustment might be necessary – you may owe more money or you may get some back.
Sometimes, carriers will conduct mid-term audits if there are questions about payroll estimates or classification. Mid-term audits also may be done if the nature of your business changes drastically.
Factors That Influence the Amount of Premium
Several factors influence your workers’ compensation premium: classification codes, coverage or exclusion of executive officers and experience modifiers.
Some kinds of work naturally have a higher exposure to risk for workplace injuries. Your premiums are based in part on the risk associated with your type of risk. To ensure that you pay a fair price for the level of risk, the carriers are required by law to use a classification code system. This system groups you into a classification code that reflects the exposure of employers with similar operations.
Each classification code has a corresponding premium rate based on each $100 of payroll. To estimate your annual premium, they apply the rate to the payroll of all employees assigned to that classification.
They will use the appropriate classification for your business. If we’re unsure about a classification they might conduct a site visit or pre audit survey and ask the Workers Compensation Insurance Rating Bureau to confirm the classification.
Experience modifiers are designed to give businesses a financial incentive for maintaining safer workplaces. Modifiers predict an employer’s future losses by looking at their past loss experience. Ex mods, as they are sometimes called, are a standard industry calculation used by all carriers to adjust a premium. Employers with better than average losses are rewarded and employers with worse than average losses are penalized.
Experience modifiers are calculated by the National Council on Compensation Insurance. The calculation is based upon payroll and claim information for the three past policy years, not including the most recent past policy period. Your actual losses are compared with the expected losses for other businesses with similar classifications and payrolls to give you a credit (reduces your premium) if your losses are less than expected, or a debit (increases your premium) if losses are higher than expected. A credit modifier is expressed as a number less than 1.0 and a debit modifier is greater than 1.0
You can improve your experience modifier by maintaining a safer workplace. Developing safety measures that prevent many small to medium-sized claims can also help, since frequent claims have a worse effect on modifiers that just one high-cost claim does.
Prevention of Premium Fraud
Premium fraud is the knowing or intentional misrepresentation or omission of any information necessary to determine an accurate premium. Premium fraud, like claim fraud. contributes workers’ compensation insurance rates. Carriers are now stepping up their fight premium fraud to help make the system fair for everyone.