An Investment In Your Employees, Your Company, Your Future

Why is my Work Comp premium so high?

Many factors go into determining the cost of workers' compensation premiums. Some you have some control over, and others you don't.

Experience Modification Factor (MOD rate)
A company's MOD rate is determined by the actual injuries or illnesses experienced as compared to those experienced in similar companies in the same state. A rate of 1.0 is considered the norm. Anything above that may raise your premium.

Setting the MOD rate begins with a review of a policyholder's past loss experience. The losses are averaged over a period of three years. Both frequency and severity of losses are considered. This information is then used to predict future losses. An employer's rate may be increased or decreased based on its relation to the average or norm.

Manual Rating or Base
The manual rating groups company employees according to types of business classifications and charges a rate per $100 of payroll. The cost per $100 of payroll varies dramatically depending on the likelihood of an injury in a particular classification.

Examples of classifications and ranges are:

  • Office/Clerical - $.25/$100
  • Machinery manufacturing - $3.75/$100
  • Unskilled laborer - $18.00/$100

Rate Classifications
Rates are set by your state for each classification. States use classifications to group employers into industry occupations to determine insurance rates to cover the expected losses for each class. Hazardous occupations are more likely to result in substantial and costly claims and, therefore, usually have a higher premium. If a company has an overall bad experience rating and is in a hazardous classification, the cost of coverage will escalate.

Underwriting Cycle
Another factor affecting the cost of premiums is the underwriting cycle. This is a factor you have no control over. It is a cyclic period of time showing a predictable pattern of profit and loss for insurance companies. Competition drives insurers to keep repeating the pattern. Insurance rates are adjusted based on the:

  • Underwriting cycle,
  • Most recent premiums,
  • Investment income, and
  • Claim losses.

You may have no control over the way declining investment income and rising medical costs are forcing your premiums up. However, you can make sure your company is getting the best rates available by doing what you can to reduce injuries and keep your MOD at or below one.