<\/p>\n
Workers Comp starts out as a\u00a0fairly simple formula. \u00a0Your payroll times the rates equals your premium.<\/p>\n
First, let’s look at\u00a0the rates, those things that always seem to go up. \u00a0Where do rates come from? \u00a0They come from the Workers Comp Insurance Rating Bureau (www.wcirb.com<\/a>), \u00a0a private non-profit association that collects data on workers comp claims and determines what it should cost, as a percentage of payroll, to pay for said claims. \u00a0Every year (and sometimes mid-year) they publish the “Pure Premium” rate for each classification of employee for every industry (there are about 700 different classes) – which the Insurance Commissioner<\/a> must approve of – \u00a0that\u00a0the insurance companies use to determine how they will establish their rates. \u00a0Kind of like how the prime rate is to lenders, so is the Pure Premium rate to insurance companies. \u00a0Rates are the biggest driver in the cost of your workers comp insurance. \u00a0The more injuries employees in your class of business get, the higher your Pure Premium rate will be. \u00a0As you can expect, the riskier businesses like construction and agriculture tend to have higher rates than the low-risk ones like office workers and sales people. \u00a0Also, rates tend to trend upwards because employee injuries tend to get more expensive to treat every year. \u00a0California is an expensive state, although recent reforms have actually caused a slight decline in rates.<\/p>\n Once you have a rate, based on your classification of business and the duties of your employees, you multiply it by your payroll. \u00a0If you are a restaurant (class code 9079) and your rate is 5% and you have $1,000,000 in annual payroll, your annual premium would be $50,000.<\/p>\n But it doesn’t stop there; this is just beginning. \u00a0The first thing that will happen to your premium is it will become subject to your Experience Modification (Xmod for short), if you have one. \u00a0Whether you have one is determined by how big you are. \u00a0Simply put, the Xmod determination goes like this:\u00a0the WCIRB has a threshold\u00a0that you have to meet in order to qualify for\u00a0an Xmod. \u00a0They take three years of your historical payroll, multiply it by the Pure Premium rate for your class of business, and if it’s greater than the threshold, you qualify. \u00a0If not, you don’t. \u00a0If you qualify for\u00a0an Xmod, the WCIRB will apply another formula to determine what it is. \u00a0They again take three years of your historical payroll as well as data on any claims paid to your injured workers. \u00a0It’s a long complicated formula, but in the end your Xmod will be a credit\u00a0or surcharge that applies to any workers comp policy you get. \u00a0Let’s say you’re that restaurant above with a $50,000 base premium. \u00a0And let’s say your Xmod is 90%. \u00a0Your modified premium would be $45,000. \u00a0($50,000 x .9 = $45,000). \u00a0This is perhaps the second biggest influence on your premium after rates. \u00a0 I’ve seen Xmods as high as 200%.<\/p>\n Next are company credits and surcharges. \u00a0This is always\u00a0interesting. \u00a0You will often have insurance companies apply both\u00a0credits and surcharges at the same time. \u00a0Why do they do this? \u00a0Why don’t they just apply one credit or surcharge? \u00a0Or why don’t they just lower or raise the rate? \u00a0This is because insurance companies are bound by the rates they file with the state of California. \u00a0If they say they’re going to offer a 5%\u00a0rate\u00a0for restaurants, that’s what they have to offer. \u00a0But subjectively they can credit and\/or surcharge the rates after the fact. \u00a0For example, because a business is located in a region that has lots of claims, the business may\u00a0get a surcharge, but then because that same business has no claims itself, the insurance company may\u00a0apply a credit\u00a0to the surcharged rate. \u00a0To continue with our restaurant example with a $45,000 modified premium, say they get a 15% surcharge because they’re in LA (sorry LA, you have lots of claims) but then they’ll get a 5% discount because they themselves have had no claims. \u00a0It looks something like this: $45,000 x 1.15 x .95 = $49,162.50<\/p>\n Last\u00a0come the assessments. \u00a0These are the taxes and fees the state of California makes everyone pay. \u00a0It’s kind of like sales tax. \u00a0There’s a long list of them and they end up being about 3% (as of the time of writing this) on top of the premium. \u00a0They look a little like this:[\/vc_column_text][vc_single_image image=”2582″ img_size=”full” alignment=”center”][vc_column_text]In continuing our restaurant example, once the assessments are added to that policy, the premium of $49,162.50 will now be $50,637.38.<\/p>\n There are a few other little fees that can show up, like Expense Constants, monthly reporting fees, and broker fees, but for the sake of focusing on\u00a0the important parts that make up the majority of your premium, and keeping this post fairly succinct, I’m not going to spend any time on them.<\/p>\n So there you have it. \u00a0That is my attempt to explain why your workers comp is so expensive. \u00a0I hope it helps.<\/p>\n \n","protected":false},"excerpt":{"rendered":" Why is my workers comp so expensive? \u00a0This is […]<\/p>\n","protected":false},"author":3,"featured_media":3212,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,7,13],"tags":[18,14],"class_list":["post-2578","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-insurance","category-liability-insurance","category-workers-compensation","tag-liability-insurance","tag-workers-compensation"],"_links":{"self":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2578","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/comments?post=2578"}],"version-history":[{"count":1,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2578\/revisions"}],"predecessor-version":[{"id":44647,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2578\/revisions\/44647"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media\/3212"}],"wp:attachment":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media?parent=2578"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/categories?post=2578"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/tags?post=2578"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}