Question: How is workers’ compensation premium calculated?

The premium paid for a workers’ compensation policy is based off of the employee payroll of the insured’s business. As discussed on the workers’ compensation policy page, there are a few steps in calculating the final premium:

1. First, the manual premium is calculated by multiplying the total remuneration (in $100 units) in each classification code by the current rate established by the state government for that class code. Any policy endorsements, such as waivers of subrogation, will be added to the manual premium. If there is a change in policy limits, then this effect in the premium is also added.

2. After the manual premium is computated, it is then mulitiplied by the experience modification rate. This has a tremendous effect on the overall workers’ compensation premium and it is important for business owners to understand their experience modifier and keep it as low as possible.

3. There are then three premium credits available to Florida businesses that are deducted from the current premium to get the modified premium for the policy. These three credits are the Safety Credit, the Drug Free Credit, and the FCCPAP.

4. There are three other adjustments made to the premium. These are the Premium Discount, Expense Constant ($200 in Florida), and the fee for terrorism. After these three adjustments have been made to the premium, the remaining figure is known as the “Total Estimated Annual Premium”. This is the premium amount that is actually billed to the employer throughout the policy year.

5. Each workers’ compensation insurance policy will be audited to determine the actual payroll during the policy period and the final adjustments will be made to the premium. If the employer has a higher remuneration than anticipated at the beginning of the year, then there will be an increase in the premium during the audit. It is important as a business to keep track of any payroll changes during the policy year to avoid this situation.

6. Some insurance carriers offer incentives to attract larger employers and keep claims down during the policy year, such as dividend plans, retrospective plans, and retention dividend plans. These are designed to return premium to employers that have controlled their losses during the policy period.

Question: What is a waiver of subrogation?

Subrogation is your right (and therefore your insurance carrier’s right) to recover the cost of a paid claim if the loss was caused by that third party. Many workers’ compensation claims occur due to negligence of somebody outside of your business and your insurance carrier could choose to sue that person or entity to recover the cost of the loss. The claim cost will also be adjusted on your experience mod calculations if money is recovered from the third party.

Some contractual agreements, mostly in the construction industry, require you to waive your right of subrogation (and therefore your insurance carrier’s rights) against them in the event of a claim. Before you can waive these rights, you need to complete a form that lets your insurance company know what is happening and thay may request a copy of the contract as well. The insurance companies generally will have an extra charge associated with this endorsement to your workers compensation policy. Once approved, you can then send an updated copy of your certificate of insurance to the party requesting the waiver of subrogation through the contractual agreement. Some insurance carriers will not approve waivers of subrogation and it all depends on the details of the contract and job for which the rights are being waived. Before you decide to waive your rights of subrogation for any contract, you should understand what is at stake.

Often when an employee is injured at work there is some person or party, other than the employer or co-employee, who bears some responsibility for causing the employee’s injury. When someone from outside the employment relationship causes all or part of an employee’s work-related accident or injury, then the claim is able to be subrogated. For workers’ compensation purposes, that individual or entity is known as a third party. The presence of a third party does not excuse the employer from its obligation to pay workers’ compensation benefits if the injury occurred in the course and scope of the employee’s work related duties.

The presence of a third party does, however, change who bears ultimate responsibility for compensating the employee for his or her injury-related losses. Subrogation allows an employer paying workers’ compensation benefits to either step into the employee’s place or participate with the employee in any such lawsuit that the employee might have against the third party. The employer is allowed to participate in an attempt to get back from the third party the workers’ compensation benefits it paid to the employee. Such repayment is allowed because it is the third party who really caused the employee to suffer the loss. The employer’s recovery will be limited to the benefits it has already paid and, in some instances, to benefits it might have to pay. Any portion of an award in a lawsuit that includes amounts for losses paid by workers’ compensation is refunded to the employer or their insurance carrier asserting the subrogation claim.

Usually, employers purchase workers’ compensation insurance to cover their obligations under the workers’ compensation laws and generally the employer’s workers’ compensation insurer, who actually pays the employee benefits, asserts the subrogation claim on the employer’s behalf. Employers should co-operate with their insurer’s efforts to bring a subrogation claim as it directly affects their experience mod and therefore their future insurance premiums. Waiving your right and your insurance carrier’s right to subrogate a claim can have a tremendous effect on your future cost of insurance if a claim occurs that could have had its costs recovered through subrogation.

Question: What data goes into the experience mod calculation?

The experience mod uses your loss data and your payrolls. The loss data is reported to the National Council on Compensation Insurance (NCCI) in the middle of your policy year. Losses include both amounts paid and claim reserves. Your payroll data comes from the audits performed by your insurance company at the end of every policy period. The experience mod calculations look back at your last four workers’ compensation policy periods and only use information on the oldest three policies. They do this because claims on your most recent policy may not have been closed and because they have not been reported yet to NCCI. Click here for more information on Workers’ Compensation Insurance Mods.

Question: Who calculates the workers compensation experience modification factor?

 The National Council on Compensation Insurance (NCCI) is a not-for-profit rating, statistical and data management services organization. They are funded by a variety of workers’ compensation insurance organizations and companies to act as a central source of workers’ compensation data. Part of their responsibility is the calculation of experience modification data. They receive claim and audit information on your business from your insurance company and calculate your experience mod. Please select this link for more information on Florida Workers’ Compensation Experience Mods.