One truth about Worker's Compensation (WC) insurance premiums is that it is an expense that affects your profitability. Every business does its best to limit these expenses and there are three simple things to do to lower your worker's compensation premiums.
1. Shop Around
Like everything your business buys, comparison shopping helps to keep premiums lower. Certainly, much of your premium is determined by the number of employees you have, your claims experience and your business' risk exposure. But, associations you belong to often offer cheaper worker's comp insurance than the open market. So shop around creatively, get quotes from more than one insurance company - but make sure they are financially sound.
2. Prevent Workplace Injuries and
3. Manage Injuries in the Workplace When They Happen
Why do tips number two and three go together? To understand, you first have to know how injury claims affect your worker's comp insurance premiums. Worker's Compensation employment classifications and base rates are determined by an organization known as the National Commission on Compensation Insurance (NCCI).
Your annual premium comes from the NCCI calculation and your estimated payroll annual payroll expense. Of course, if you have been in business awhile, debits and credits adjust your rates based on your business's injury history and claims costs.
Experience Modification Factor
Insurance professionals refer to this as the E-mod. The NCCI calculates the modifier if your premium payments exceed a certain threshold for the most recent two years. The calculation compares your claims (costs) and injury history for the past three years to the expected injury rates for your employer classification. For example, your 2015 premium uses 2012, 2013, and 2014 injury history and losses to calculate the modifier. If your history is better than average your E-mod is lower 1.0, companies with worse than average losses have an E-mod that is more than 1.0. The higher your E-mod is over 1.0 the more expensive your WC premiums are.
How much you pay for an injured worker's claim is another part of the calculation. By managing workplace injuries the intent is to return the employee to work as soon as possible, to avoid disability costs. For instance, an employee who works in a warehouse hurts his back and cannot do his or her job for six months. Physical therapy costs are unavoidable, but reassigning the employee to a desk job avoids paying disability. Providing quality contracted care for employee work related illness or injury also helps to manage an illness or injury. Your carrier can help you with these programs.
Since worker's compensation is a cost that is risk related, institute safety programs and supply correct safety equipment to your workers as part of a total effort to control WC premium premiums.