Keeping your workers compensation insurance premiums in line involves having a strong safety culture throughout the company and a program that eliminates hazards and prevents injuries. It’s also critical to report claims immediately when they occur so employees receive the medical treatment they need and are able to get back on the job as soon as possible. While business owners typically understand the requirements of carrying workers compensation for their operation, employees and financial stability, it is also very important to be familiar with the ins and outs of this coverage (or benefits program as a whole). 

How Workers Comp Insurance Premiums are Determined

Workers compensation is essential to your business and, in most cases, required. Without it, organizations risk incurring crippling financial liabilities associated with on-the-job employee injuries. And while it’s important to understand why your business needs a workers comp policy, it’s equally important to understand how your insurance premiums are calculated. There are three primary factors that determine a business’ workers compensation (WC) premium rate which are classification code, rates, and experience modification factor. For the most part, these factors are fixed by each state, and an insurers discretion is strictly limited.

Classification Code

The National Council on Compensation Insurance (NCC), determines the classification codes for every occupation / type of work. These codes are used by insurance companies to identify the business type and estimated cost of a workers compensation rate. If a business reports losses above or below the average industry rate for their type of work, their rate will adjust accordingly.

Misclassification of your business can be costly, as some classification codes / types of work cost less to cover. If your business is currently assigned to a less costly classification, be forewarned that a sharp auditor can reclassify you and charge for the increased premiums you “should have” been paying.

You are allowed to separate out all of your clerical, sales, foot messenger, and executive payrolls into cheaper classifications. Speak with your insurer about your business, classification code and WC program. If adjustments should be made to re-classify your organization, they’ll assist in correcting the issue.


Each WC classification has an assigned rate, which varies from state to state. This is solely dependent on employee classification. For example, rates for drivers will differ from office and sales rates. Speak with your agent regarding your specific business and employee roles. 

Experience Modification

To reward businesses with superior loss records and provide an incentive for others to reduce losses and associated claims, a percentage modifier is applied to the basic premiums of all but the smallest businesses. Modifiers are calculated by the NCC and follow you wherever you are for coverage.  The formulas used are complex, but the basic idea is to compare your business with the “expected” losses of a comparable business in your classification. 

There is some protection against one nasty loss sending your mod sky-high; but every loss does impact your mod for a full three years. And, once it’s on your record, it isn’t easy to escape your mod and start over

About Thayer Innes and Freeman Bunting Insurance Agencies
At Thayer-Innes Insurance Agency and Freeman Bunting Insurance Agency, we strive to provide comprehensive insurance solutions to support Ann Arbor homeowners. Our homeowners’ policies can be tailored to meet your specific risk exposures and provides much more coverage than a traditional policy, giving you the peace of mind you deserve. For more information about our products, contact us today at (855) 395-6316.