Workers’ compensation rates are a key piece of how much a work comp insurance policy costs. In short, workers’ comp cost follows this formula:
(Payroll* x Workers’ Comp Rate) +/- Credits or Debits = Insurance Quote
The rate is set by your state’s rating agency or bureau and based on several factors. Read on for everything you need to know.
*Payroll in hundreds of dollars. $60,000 annual payroll = 600 would be used in the formula above.
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Workers’ Compensation Rating Bureaus
Workers’ compensation is regulated at the state level, which means each U.S. state has its own laws and regulatory bodies. Check your state to find out what ruling body sets workers’ compensation rates. For most states, rates are set by one of the following:
- The National Council on Compensation Insurance (NCCI).
- A rating bureau within the state’s regulatory body.
- A state rating bureau independent of the regulatory body.
From there, you may be able to look up or contact the rating bureau for your classification code.
How Rates Are Set
The rating bureau’s responsibilities are to set the rate or baseline cost of workers’ compensation insurance for all businesses operating within the state. It does so by collecting and analyzing loss data, or workers’ compensation claims for workplace injuries and illnesses. This data can show patterns, like increases or decreases in the number of and types of claims being filed and cost of claims being paid out.
The data is also evaluated based on classification code. Classification codes are assigned to businesses by industry. By grouping businesses that do similar work, the rating agency determines the relative risk of that industry. Typically, the rating agency assigns rates to each class code annually.
While rates are specific to each class code, statewide rates are often raised and lowered at the same time and proportionally, based on a percentage. Some recent examples of this:
- “Washington state proposes drop in workers comp rate for 2019.”
- “Florida Approves 13.8% Workers’ Comp Rate Decrease.”
- “Nevada insurance commissioner OKs comp rate cut.”
These rate adjustments are made to reflect changes in performance of the state’s workers’ compensation system as a whole, such as lower healthcare costs or improved workplace safety, resulting in fewer claims. Court decisions can also influence rate adjustments.
Base Rate States
Base rate states require all insurers to use the workers’ compensation rates set by the state rating agency. That said, in most base rate states, other credits and debits may be applied by the insurer to calculate the final workers’ compensation quote.
Outside of base rate states, rates are used as a benchmark but are not mandated. Instead, insurance carriers submit their rates to the state’s regulatory body for approval, and rates may vary based on their individual history of losses.
Workers’ Compensation Cost
Looking for more on workers’ compensation cost? You might also like:
- How Much Workers’ Compensation Costs
- How to Get a Workers’ Comp Quote
- How to Save Money on Small Business Insurance
- How to Choose the Right Limits of Liability
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