Computing Workers Compensation Premiums
A common question we hear from employers these days is "Just how are my workers compensation premiums figured?" Our purpose for this article is to try and simplify the process and just hit the high points. Here is a short lesson on how WC premiums are developed in Montana.
This equation shows the main calculations making up your workers compensation premium:
(LC x LCM x EM x SR) (Payroll/100) = Your Estimated Premium.
- LC: Every insurance company's pricing starts with the National Council on Compensation Insurance commonly referred as the NCCI. The NCCI controls a huge data base on workers compensation costs and claims. Your premium starts with NCCI's filing rate recommendations with the department of insurance. This is called the Loss Cost, (LC) filing and is used by all carriers as a starting place.
- LCM: The next step in the process comes from the carriers. They apply a Loss Cost Multiplier, (LCM) to the rates. This multiplier factor is made up by totaling an insurance company's operating expenses with what they'd like to earn in profit. It is individual for each carrier and is one of the two places in the rating process where a carrier can differentiate its' pricing to you.
- EM: The Experience Modification, (EM) is then factored in. NCCI calculates your specific EM. It is a computation which measures and compares your expected losses with other businesses in your industry. It is based on your own loss history. Every insurance company uses the same EM factor.
- SR: Finally, a Scheduled Rating, (SR) factor is applied. It can be either a debit or credit factor. It is applied to reflect such things as the condition of your work place, employee training programs, early return to work plans and safety management programs. This is the second place in the rating process where a carrier can differentiate their pricing.
There are other factors and assessments, beyond the scope of this article, which may go into setting your final premium. Please don't hesitate to call or email us. Remember:
Payne Financial Group is available to answer any questions you may have.
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