Workers Compensation Insurance

The purpose of workers compensation insurance is to provide employees with proper compensation for job-related injuries or illnesses. Although specific laws vary by state, workers compensation insurance is generally required of companies with W-2 employees. TechInsurance provides information for each state's workers compensation insurance rules.

Many states use the standards of the National Council of Compensation Insurance to determine the rates of their workers' compensation insurance. The NCCI, a non-governmental, private organization, uses classifications 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 for workers compensation insurance are usually determined through a rudimentary process called remuneration, which usually involves determining the number 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 off the final premium amount can be taken into account.

These premiums can also be adjusted by experience modification factors, which are standards set by the NCCI and other organizations for reducing premiums based on a company’s reputation. It is, of course, difficult to justly determine these rates, which is why insurance companies often re-evaluate the actual costs of claims vs. 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, so companies should keep their options open when shopping for a workers compensation insurance program.