Workers’ compensation premium is calculated differently from other types of insurance. Your cost depends on the type of business you operate, your payroll size, and other factors. You make premium payments throughout the policy term, but your exact final premium is configured after the policy term ends. Let’s look at the components that go into determining your premium.
- Classification system.
The California workers’ comp system groups occupations and industries into about 500 distinct classifications. Insurance providers charge a rate for each classification based on the projected claims costs for that industry. The higher the expected claims are for classification, the higher its rate. Rates are charged per every $100 of payroll.
- Payroll.
For the most part, payroll includes gross wages and other remuneration paid to employees. For premium calculation, your qualifying payroll in each of your classifications is multiplied by the applicable rates. So if you have $100,000 of payroll in one classification, and the classification’s rate is $1.36, your base premium is $1,360. It’s called a “base” premium because it’s calculated before any applicable credits or debits are factored in.
- Experience modification (ex-mod) rating.
An exmod is a premium-adjustment factor that compares your safety record to that of your industry. If you qualify for an ex-mod, the rating may reduce or increase your premium. Let’s say your ex-mod is 90%. That means your claims history is better than average for your industry, and your insurance provider will charge you a premium that is 10% lower than if you had an industry-average ex-mod (100%) or no ex-mod at all.
- Other premium adjustments.
Insurance companies may also use additional pricing modifications. For example, State Fund offers a 6% premium discount if you belong to a group insurance program and a 10% Claims-Free Credit for smaller employers with qualifying safety records. For larger employers, we may use premium adjustment factors to recognize things such as safety programs, employee health benefits, and return-to-work programs.
- Paying your premium.
Employers typically pay premiums during the policy term. Some insurance companies allow you to report your actual payroll and submit interim premium payments. After your policy expires, insurers often conduct a routine premium audit to verify your classifications and payroll. Whether or not an audit takes place, you will receive a final premium statement with a bill for any premium due or a refund of the excess premium paid.