Top 10 Things You Can Do to Lower Your Work Comp Insurance Costs — Part 1

There are a lot of factors that determine your workers’ compensation insurance costs.

Insurance companies file rates, state-by-state, that have been mathematically calculated by actuaries — the nerdiest of the accounting world nerds. They base their calculations on both the insurance company’s own state specific claims experience, as well as the experience of all the other insurance companies in that state. Then their rates must be approved by the state Department of Insurance, and filed.

These filed rates also include various discounts and surcharges which the insurance company may apply to your policy based on the individual characteristics of your business. And there’s also your own experience modifier — which happens to be the only part of the premium calculation that you can control (more about this later).

And finally, there are fees, assessments and taxes that apply. There are federal fees for terrorism and catastrophe reinsurance, and state assessments and taxes that vary from one state to the next.

Each job function is assigned to a classification code, and each code has a rate that’s specific to each insurance company. In many cases, these rates can be quite a bit different from one insurer to the next. For example, insurer A can have a rate for class code 8018 of $12.19 while insurer B’s rate is $7.71. That’s a huge difference!

These are called the “manual rates” and they’re the starting point for the calculation of the premium.

What this means it there are basically two categories of things you can you do to lower your premium. You can shop around for the best rates, and you can control your claims (so your experience modifier is as low as possible).

Of course, you want to do both, but the savings from controlling your claims will take longer to realize because of the way the experience modifier is calculated. You can learn all about that in Module 4 of my soon-to-be-released master class called The Art of Workers’ Compensation War.

For now, I just want you to understand that the 10 things you can do to lower your premium are divided into these two categories.

Part 2, coming soon, where I’ll go through the 10 things (maybe more).