Worker's Compensation Insurance

17 Rates must be adequate to maintain the solvency of an insurance company. Adequate rates also act to secure the proper surplus monies insurance companies are required to have in order to meet potential and continuing claim obligations. The Insurance Commissioner will not approve rates if they are inadequate to cover an insurer’s losses and expenses, are unfairly discriminatory, or if they tend to create a monopoly in the marketplace. The Commissioner does not have the authority under law to disapprove rates that may be considered excessive only. PremiumModification The classification code with its corresponding rate is the first part of premium calculation. The rate itself is expressed in dollars and cents and is multiplied by each $100 of payroll per classification. The payroll for each classification is estimated and then multiplied (per each $100 of payroll) by the applicable rate. The sum of the equation is referred to as the “base” premium. The base premium continues to be modified (increased or decreased) using rating plans (usually schedule or judgment rating) and by experience modification. (Please see the “Glossary” section for definitions of schedule and judgment rating.) Experience Modification An employer’s experience modification is calculated from payroll and loss information that insurance companies are required to submit to theWCIRB on an annual basis. TheWCIRB uses a mathematical formula approved by the CDI to calculate an experience modification for each qualifying employer. The formula takes into account the employer’s payroll and losses (paid losses and loss reserves) for an experience period. The experience modification compares the loss (or claims) history of the employer to all other employers in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects better-than-average experience, and an experience modification of more than 100% reflects worse- than-average experience. When the experience modification is applied to the base premium, along with any other modifications (schedule or judgment), the estimated premium is established.