Workers’ Compensation Rating System


As a business owner, you may feel that your workers’ compensation premiums are too expensive and are continuing to increase.  You’ve never had a worker’s compensation claim and don’t understand why your premium either stays the same or increases each year.  Your instinct is to shop your premium each year for better pricing.  However, this doesn’t really save your company money.  You may get a lower premium one year only to see it increase the following year.  All major insurance companies use the same system to rate a workers’ compensation policy. 

What is a benchmark rate? 

The benchmark rate is a rate set by each state’s department of insurance.  Insurance companies have to file their rates (“filed” rate) with the department of insurance for each state to get approval to charge the rate.  Each company must use the benchmark rate as their guiding point for rate adjustments. 

What is the rating system used by major insurance companies?

The rate charged for each class code varies by insurance carrier.  Insurance carriers all give discounts (policy credits) for low-risk classes of business and they apply a surcharge (policy debits) for high-risk classes of business.  Companies charge the “filed” rate per $100.00 of payroll for each class code.  Then they apply credits or debits to the policy premium. 

What is an experience modifier? 

The National Counsel of Compensation Insurance (NCCI) is the organization that calculates a company’s experience modification (experience modifier).  Historically, the metric used to measure your experience modifier was claims frequency.  Today, claims frequency and severity are used to calculate your experience modifier.  All insurance companies use your experience modifier to adjust premiums accordingly.  Experience modifiers are applied as a credit or debit towards the policy premium.  Not all businesses have an experience modifier.  Your annual workers’ compensation premium has to be over a certain amount in order for you to have an NCCI rating. 

What does customer loyalty have to do with insurance premiums?  

Insurance companies agree to insure a company based on loyalty in addition to being a safe risk.  When you’re shopping your insurance premiums, insurance companies will request loss history for each year of workers’ compensation coverage (loss runs) for three to five years prior and your insurance company is listed on each one.  The NCCI report will also reflect your insurance company for each year.  Major insurance companies will decline quoting your coverage if you’ve changed insurance companies every year.  They want loyal customers on their books. 

All major insurance companies rate workers’ compensation policies the same way.  The major rating factors of a workers’ compensation policy are the “filed” rate, experience modifier, and debits or credits.  Each insurance carrier bases the amount of credit or debit they apply by the severity of the risk.  Before you shop your insurance policy, ask your agent to request a credit from your insurance company.  To retain an account, insurance companies generally give credits to “clean” risks (risks with no losses). 

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