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
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
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.