When employee injuries occur on the job, employers are required by law to pay for medical expenses and a portion of the employee’s wages while they recover. This compensation is referred to as worker’s compensation, and it’s provided to incentivize employees to report accidents in the workplace. It also protects businesses from liability that could arise from negligence in the event of an injury.
Workers compensation insurance premiums are calculated based on several factors that we shall discuss below. So, before you begin shopping for insurance quotes, it’s important to understand how these premiums are calculated so you can find the best deal possible.
Read on to learn more about how worker’s compensation premiums are calculated so you can make informed decisions when buying coverage.
The insurance company will consider your company’s size when calculating your premium. The industry standard for calculating premiums based on company size is based on your company’s “schedule rating.” This is a three-digit number that represents your business’s size. For example, a company with a schedule rating of “51” has between 51 and 100 employees.
When determining which schedule rating will be applied to your business, insurance companies also take into account your company’s full-time equivalents (FTEs). An FTE is the equivalent number of full-time employees you have, based on the number of hours your part-time employees work each year. When you factor in FTEs, smaller companies that employ a lot of part-time employees may have a higher risk than larger companies with most people being full-time employees.
The type of business you operate will play a role in how your workers compensation premiums are calculated. Industry-specific data is used when calculating the premium rates for businesses in certain industries, including construction, agriculture, and manufacturing.
Industry-specific data relies on information collected by insurance companies regarding claim frequency, severity, and costs. One advantage to this type of pricing is that it can provide lower premiums for industries with better claims data. For example, manufacturing insurance is often priced based on industry-specific data, which generally has fewer claims than other industries.
The Industry Involved
As we mentioned, industry-specific data is used to calculate premium rates for certain industries, including construction, agriculture, and manufacturing. Certain industries are considered “high-risk” for injuries in the workplace, and premiums for businesses in these industries often reflect the higher risk associated with insuring them.
Similarly, certain industries are considered “low-risk,” which means that companies in those industries are less likely to experience workplace injuries. This can result in lower premiums for businesses in low-risk industries.
Worker’s Comp History
Your company’s workers comp history will also affect how premiums are calculated. Companies with a history of high claims pay higher premiums, as they are viewed as being riskier to insure. A clean record is worth more when calculating premiums, which may result in lower rates.
Your workers comp history is often reflected in your workers comp rating, which is determined by your insurance company. Ratings are assigned using a scale that takes into account factors like claim frequency, severity, and cost, among other things. The higher the rating, the more expensive your premiums will be.
Find the Best Deal for Worker’s Compensation Insurance
As you can see, there are many factors that go into calculating workers compensation premiums, including company size, industry, and workers comp history. When shopping for coverage, it’s important to shop around and compare rates from various insurance companies. By understanding how premiums are calculated, you can better understand which factors may be affecting the rates you’re quoted.