Workers Compensation Policy

The Workers’ Compensation Policy

There are six parts of a workers’ compensation insurance policy:

  1. The first part defines the workers’ compensation coverage that is offered in the policy.

  2. The second part defines the employers liability coverage offered in the policy, which provides liability coverage to protect the insured for the possibility of a lawsuit that results from an employee injury.

  3. The third part of of the policy defines the coverage provided in other states where business was not conducted at the policy period, but develops during the policy year.

  4. The last three parts specify the insured’s duties in the event of an injury,

  5. the rating procedure,

  6. and the conditions that apply to the policy.

Calculating Workers’ Compensation Premium

The premium paid for a workers’ compensation policy is based off of your business’ employee payroll. 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.