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16.10 Part Five – Premium

Our Manuals​

All policy premiums are calculated using the insurer’s manuals of rules, rates, rating plans, and classifications. These manuals may be updated, and any authorized changes may be applied to the policy in accordance with state law.

Classifications​

The Information Page lists the rate and premium basis for each work classification, which are assigned using the insured’s estimated exposures during the policy period. If the insured’s actual exposures differ from the estimates, the insurer may revise the classifications, rates, and premium basis by endorsement.

Remuneration​

The premium for each work classification is calculated by multiplying the applicable rate by the premium basis. The most common premium basis is remuneration, which includes payroll and other compensation paid or payable during the policy period to employees covered by Workers’ Compensation.

Example

If the manual rate for a work classification is applied to each $100 of remuneration, an employer with higher payroll for that classification will pay a higher Workers’ Compensation premium.

Premium Payments​

The named insured is responsible for paying the entire premium when it becomes due.

Final Premium​

The premium shown on the policy is an estimated deposit premium based on projected payroll. After the policy period ends, the insurer calculates the final premium using the insured’s actual payroll, correct work classifications, and applicable rates. The insurer will either refund any overpayment or bill the insured for any additional premium owed.

Experience Modification Factor​

The premium is also affected by the insured’s experience modification factor, which reflects the employer’s claims history. This factor compares the cost of the insured’s actual claims with the expected claim costs for similar employers in the same industry.

Example

An experience modification factor of 1.0 means the employer’s premium is based on the standard manual rate. A factor of 0.90 reduces the premium by 10%, while a factor of 1.25 increases the premium by 25% over the manual rate.

The National Council on Compensation Insurance (NCCI) typically collects employer payroll and loss data to calculate the experience modification factor and provides that information to the insurer.

Premium Discount​

Some states apply a premium discount when calculating the final premium. This discount reflects that certain insurer expenses, such as administrative costs, are fixed and do not increase as the size of the insured risk grows. As a result, larger employers may receive a premium credit because these fixed expenses do not increase proportionately with the risk.

Premium Refunds for Policy Cancellation​

If the insurer cancels the policy, the final premium is calculated pro rata based on the length of time the policy was in effect. If a minimum premium applies, the final premium cannot be less than the pro rata portion of that minimum premium.

If the insured cancels the policy, the final premium is calculated using the insurer’s short-rate cancellation table, which may include a cancellation penalty. The final premium cannot be less than the policy’s minimum premium.

Records​

The insured must maintain the records needed to calculate the premium and provide them to the insurer upon request.

Audit​

The insurer may audit the insured’s records at any time during the policy period and for up to 3 years after it ends. The audit is conducted to determine the final premium.

Records used for premium calculations may include ledgers, journals, registers, vouchers, contracts, tax reports, payroll records, and electronic data storage programs.