Workers' Compensation Insurance

The purpose of worker's compensation insurance is to provide employees with proper compensation for job-related injuries or illnesses. Although specific laws differ in various states, workers' compensation insurance is generally required with W-2 employees. Techinsurance.com provides information for each state's workers' compensation insurance rules.

Many states use the standards of the NCCI (The National Council of Compensation Insurance) to determine the rates of their workers' compensation insurance. The NCCI, a non-governmental, private organization, uses classifications in order to determine the risk factor involved in particular jobs. The risk factor will obviously be greater with occupations such as mining and construction, and generally low for clerical workers. Even though exceptions can be made, most companies generally carry workers' compensation insurance for only one risk factor classification.

Premiums of worker's compensation insurance are usually determined through a rudimentary process called remuneration which usually involves determining the amount of employees. Factors such as salary, benefits, and other variables are used to determine this remuneration number, but this process varies from state to state. Eventually, this amount is multiplied by the risk factor classification of the job, and, depending on the insurance company, discounts of the final premium amount can be taken into account.

These premiums can also be adjusted by experience modification factors that are also standards by the NCCI and other organizations for reducing premiums based on the reputation of the company. It is, of course, difficult to justly determine these rates, which is why insurance companies often re-evaluate the actual costs of claims versus premiums at the termination of the policy period. The insurance company can reduce or increase the workers' compensation insurance premium if the company wishes to renew. Of course, many companies complain of overcharges by workers' compensation insurance companies, and it is suggested to keep options open when shopping for a workers' compensation insurance program.