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How to calculate workers' comp

Workers’ compensation insurance is a type of coverage that is required for most businesses, as it provides support and resources to injured workers when accidents happen on the job.

The cost of carrying workers’ insurance is not the same for everyone. Prices vary depending on a few factors:

These three factors are all critical in calculating workers’ comp premiums. The job type, or class code, is a number assigned to every employee based on the amount of risk associated with the type of work they do. This number provides a quantitative measure of the kind of work an employee performs, which helps to group together rates for people who work similar jobs in similar industries.

The employee payroll is the total amount the company pays its employees. Most workers’ compensation insurance premiums are based on a “per $100” rate of employee payroll. This number changes depending on the class code of the employees. For instance, a low-risk job might have a rate of $.40 per $100, but a high-risk job could be as high as $30.00 per $100 of payroll. The cost for insurance coverage increases with a higher employee count.

The experience modification rate, or mod rate, is one of the more complex measures that insurance companies use to calculate workers’ comp. When insurance companies calculate the mod rate for workers’ comp, the workers’ comp claims history for a particular company or business is evaluated.

What is Workers' Comp

Discover why it’s important for businesses to obtain workers’ comp to protect workers in the case of a work-related injury or illness.

Understanding mod rates

The experience modification rating measures the number of claims and the types of claims a particular company has filed with workers’ insurance. This rating accounts for the frequency and severity of actual claims from previous years, and workers’ compensation rates, or premiums, are adjusted accordingly.

Mod rates account for both the frequency and severity of past incidents. A company might have one severe claim totaling $10,000 (e.g., a workplace fatality) in a year, while another company might have five more minor claims (e.g., broken bones), totaling $10,000. While these claims might cost the insurer the same amount, they reveal a pattern of the company’s operations and safety practices. When workplace accidents happen more frequently, it’s possible that the business’s industry is inherently higher risk or that its workplace practices are less safe. A company with a history of more frequent claims might end up with a higher mod rate, or a “debit.” This means that its premium will be higher.

A company with a history of decreased or infrequent claims can receive a “credit,” a mod rate that can lower its premium. This incentivizes safer workplace practices and accident prevention efforts, which can benefit both employers and employees. In addition, a financial motivation to create safer workplace practices fosters a culture of mindfulness.

To calculate a workers’ comp mod rate, the insurance company accounts for the company’s history over time. A new company that doesn’t have a history of workers’ comp claims may receive a “neutral” mod rate of 1, which doesn’t affect a premium either way. Once that company has a policy with an insurance carrier for about a year, its claims history will be reassessed, and a debit or credit will be applied.

Incentivizing safety

The concept of workers’ compensation modification rates is fairly simple: companies with safer workplaces and fewer workers’ insurance claims typically have lower premiums. This helps create an excellent incentive for workplace health and safety.

This can also have long-term positive effects. Companies that invest in workplace safety may subsequently receive lower mod rates. Of course, accidents can happen, even in the safest of workplaces. Mod rates also account for the severity of workers’ comp claims into account. Claim frequency is typically given more weight than claim severity, meaning that a company with one big “out of the blue” accident may not pay as high a penalty as a company with many more minor incidents throughout the year. When companies have frequent accidents, it can indicate unsafe workplace practices, which can result in mod rate debits.

Why CompSource Mutual

CompSource Mutual can help you navigate the ins and outs of workers’ compensation insurance. We are skilled at calculating workers’ comp because we’ve been doing it for more than 85 years. Our team can get you the coverage you need at a fair price. Ready to get protected? Get a quote

CompSource Mutual specializes in covering Oklahoma businesses, so our team is uniquely qualified to guide you in selecting workers’ comp coverage. Learn more about how we calculate your workers’ comp rates in the auditing process.

Injured Worker Coverage

Check out our coverage details and benefits for CompSource Mutual policy holders and injured workers.

A company can get an accurate quote from an insurance carrier. Business owners will likely be asked to provide their company’s payroll records, details on the type of work that is performed, and prior workers’ compensation claims history. With this information, the insurance carrier can assign a class code, which is the classification of a business based on its industry’s risks, and a mod rate to help calculate the workers’ comp total premium amount.

This depends on the type and severity of the injury or illness. More severe injuries may take longer to heal. However, more minor injuries may only require missing work for a short period. If a workplace injury or illness results in a permanent partial or total disability status, disability payments may be made to the worker for many years.

Yes, they should. If an employee is injured, the employer is responsible for ensuring that an incident report is completed and forwarded to the workers’ compensation insurance carrier.

Are you a CompSource Mutual policyholder? Learn more about the claims process here.

A certificate of insurance, or COI, is a document provided by the workers’ comp insurance carrier that details the validity of the policyholder’s insurance policy. Each business owner should keep a copy of this document on hand. Insurance companies can provide businesses with copies of their COIs upon request.

Are you a CompSource Mutual policyholder? Get a copy of your certificate of insurance here.

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