Real Experts- Trusted Advice
Rates for Workers Comp Differ in Every
State workers compensation rates are designed to reflect the cost of claims and
losses for each scope of work or classification code. Class
codes with greater
losses will have a higher rates based on the statistical data of any given state.
However, the loss data for similar class codes can be significantly different by
state. These calculations consider factors such as the number of claims, cost of
medical services, and the cost of replacing lost wages in the state. Since states
will have varying results in terms of frequency and severity, rates will also vary
based on actual claims.
As an example, lets do a hypothetical comparison between Missouri and California.
Since the average wage and the average cost of medical care is lower in Missouri, it
follows that the overall cost of losses in similar class codes should amount to a
lesser rate required to recoup the costs associated with claims of a similar nature
in California. Therefore rates will generally be lower in Missouri unless an anomaly
exists within a particular class code. Anomalies can exist when certain states have
a disproportionate quantity of certain industries to classes of business.
While all monopolistic states and a few other states such as Florida, and Wisconsin
set the base manual rates all insurance companies must use for each classification
code, most states allow private insurance companies to file their own rates within
the established guidelines for each state. New Jersey also sets workers comp rates,
but carriers are permitted to offer a limited range of policy credits and debits.
New York allows carriers to set their own
rates, but does not allow additional
policy credits and debits.
Many of the larger insurance carriers typically own additional subsidiary insurance
companies with different sets of filed rates for the same states (this is also known
as the writing paper for insurance coverage). This strategy enables the insurance
company to file more competitive or less competitive rates depending on their
desirability of a particular risk or class code.
By utilizing multiple writing papers, insurance companies can file and use multiple
rating tiers of rates within most states. Underwriters from the insurance company
can then determine which writing paper to use based on loss history, management
experience, premium size, and other underwriting factors. Knowledgeable insurance
agents may be able to help influence which rates are used by insurance companies by
better understanding and marketing your business.
The basis of determining premiums for workers compensation is payroll. The
classification code rate is based on each $100.00 of payroll by applicable
classification code. A 2.5% rate equates to $2.50 per hundred dollars of payroll as
applied to a specific class code
Most states require insurance carriers to apply a premium discount to premiums over
a certain dollar amount. This discount directly affects employers' rates and it is
based on the theory that there are fixed costs associated with servicing a workers
compensation policy. Larger premiums receive these credits because the relative
expense of these fixed costs should be lower as premium increases. Most states issue
a Premium Discount Table for insurance companies to use in rating insurance.
discounts generally run between 4% and 10% depending on the total premium size.
An Experience Modifier (also known as EMR,
MOD, or E-MOD) may be the single most
significant and controllable factor in determining workers' compensation rates for
each employer. It is the numerical representation of how your claims experience
compares to other similar businesses within your state. Employers essentially start
our with a MOD of 1.00. This means they pay 100% of the rate assigned to the
classification code by the insurance carrier.
Once an employer reaches a certain number of years with coverage and/or premium
size, the state begins issuing an Experience Modification Factor to the insured.
This factor generally coincides with the annual policy renewal period and may change
each year. Insurance companies must apply the MOD to their rates.
There are two types of MOD's: Debit Mod's and Credit Mod's. A Credit MOD is a factor
less than 1.00 and a Debit Mod is greater than 1.00. The Modification factor is
applied to the base rates per class code in order to reduce or increase the rates
based on the loss history of an employer. For example, if the base rate for the
appropriate class code is $1.00 per hundred, a credit MOD of .80 would reduce the
$1.00 rate to $0.80 cents per $100 of payroll. Conversely, a debit MOD of 1.20 would
increase the rate to $1.20 per $100 of payroll.
Most states permit insurance companies to apply scheduled credits and debits to
workers' compensation rates in order to adjust an employers' premium up or down
within a predetermined percentage limit. This scheduled rating is very subjective
and affectively allows an insurance carrier to offer additional credits or debits
based on unique conditions of an employer such as years of experience, safety staff,
hazardous equipment, work environment, etc.
State insurance departments generally require that the insurance companies document
the reason for any scheduled credits and debits, but they are commonly used tools
for underwriting and adjusting premiums and rates. Generally speaking, states either
allow scheduled debits and credits up to 15% or 25% of premium. These adjustments
can have a big impact on an employers' overall workers comp rates.
Several states require insurance companies to offer automatic credits to employers
who take specific steps aimed at reducing the frequency or severity of workers comp
related injuries and claims. The two most common types of credits are for formal
safety programs and drug programs. These credits generally require an employer to
create and submit a formal drug policy and/or Safety program to the state or
insurance company in order to receive additional credits between 3% and 5% of their
Available state credits vary by state and percentage amount. Employers often do not
know these credits even exist as many insurance agents and carriers do little to
help employers qualify for these programs.
When you consider all the factors used to determine a business owners' workers' comp
rates, it's easy to appreciate just how much the final rates can vary between two
similar classes of business within the same state. Scheduled credits or debits,
experience modifiers, premium discounts, and state credits can amount to twice the
cost or half the cost of an insurance policy.
Employers have to be diligent in preventing claims to protect their MOD over time.
They need to be selective in what agents and agencies they choose to represent their
workers' compensation interests. They need to understand how underwriters view their
business and if they qualify for additional underwriting credits or state credits
available to them.
Knowledgeable workers' comp agents understand that the true value-proposition for
employers is based on their ability to negotiate lower insurance rates with carriers
as well as providing additional services to help manage experience modification
factors and other available policy credits. At Workers Compensation Shop.com, we're
committed to helping employers achieve the lowest rates possible for their coverage.
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Workers Compensation Shop.com monitors and tracks workers comp rates with
our insurance companies for select classification codes and business types.
Our goal is to help employers find the lowest rates for coverage based on
their state, class codes, and unique aspects of their business.
If you have questions about your insurance rates or think you should qualify
for lower rates, contact one of our Workers' Comp Specialist for a free
no-obligation policy review. We will shop your coverage for the best workers
compensation insurance quotes available.