Are you a Rhode Island employer looking to understand how workers’ compensation premiums are calculated? If so, you’ve come to the right place! This article will explore key factors used in calculating the cost of your workers' comp insurance premiums as well as ways to minimize your cost.

How Are Workers' Comp Premiums Calculated In Rhode Island?

At Beacon Mutual, we understand how important it is for employers to protect your business and your most valuable asset, your employees. Workers’ compensation insurance protects employers and their employees by covering an injured worker’s wages, medical expenses, and in worst-case scenarios, death benefits while helping injured workers to recover and return to work.

Workers’ compensation insurance premiums are calculated based on the type of work performed by employees, their payroll, and the employer’s premium and loss history.

The National Council on Compensation Insurance (NCCI) classifies industries by class codes and assigns a loss cost to each class code based on the degree of risk associated with the work performed by employees. Such loss costs are filed by NCCI for approval by the Rhode Island Department of Business Regulation. A loss cost multiplier, representing a workers’ compensation insurer’s business expenses, is applied to the NCCI loss costs to determine the insurer’s rate for each class code. The NCCI also produces an experience modification factor for qualifying employers which may be used in the calculation of the workers’ compensation premiums. The experience modification factor distinguishes employers based on their associated level of risk, loss of experience, and safety programs. It shows how your organization's workers' compensation claims experience compares to other businesses similar in size and types of jobs. Employers who pose a greater risk have higher rates.

For example, someone who works in a potentially more dangerous occupation where injuries are more likely to happen may have a higher risk than occupations that are less injury-prone, such as someone who works full-time in an office setting. Therefore, the more dangerous occupation would be assigned a higher risk class code, loss cost, and experience modification factor, and thus have a higher premium.

If two employers perform the same type of work, they would both be assigned the same class code. NCCI compares the experience of each employer to the expected experience of their peers with a similar amount of payroll. If the employer has fewer losses than expected, a favorable experience modification factor is assigned. If the employer has more losses than expected, NCCI assigns an unfavorable experience modification factor resulting in a higher premium.

Here's a breakdown of the key factors used in calculating workers' compensation premiums:

Workers’ Class Code Rate X (Payroll/$100) X Experience Modification Factor = Premium

• Payroll: Your payroll is the total amount of wages paid to an employee in a given policy year. This includes wages, salaries, commissions, bonuses, and tips. Payroll is typically the largest factor in determining your premium.
• Job Duty: Job duty determines the NCCI classification code assigned to an employee’s specific job based on the type of work the employee is performing.
• Class Code: The NCCI assigns a class code to a specific job, which is used to determine the loss cost for that job. The NCCI computes loss costs that represent the average results for over 350 classes of business in Rhode Island.
• Loss Cost:  The NCCI determines loss costs on an annual basis. Loss costs represent the total amount an insurer must pay to cover claims, including costs to administer and investigate such claims, and are based on historic data.
• Loss Cost Multiplier: A factor based on an insurer’s business expenses that is applied by the insurer to determine the rate for each class code.
• Location Risk: Your location risk is based on the type of business you're in and the area in which you operate.
• Experience Modification Factor (EMod): This modifier is also determined by NCCI and is an additional factor that is used to adjust the premium calculation. It is based on any additional risks posed by the employer’s business, such as the type of work being done, past losses, location, safety, and more. See more about EMod below under the ways to minimize your insurance cost..

There are ways to minimize your workers' comp insurance costs:

As mentioned above, your experience modification factor is determined by the NCCI and reflects your claims history compared to other businesses in your classification. Workers' comp premiums may be lower if your 3-year claims history is better than average compared to your peers or higher if your claims history is worse than average.

Reducing the frequency and severity of your claims, preventing on-the-job injuries, and getting employees back to work as soon as medically possible all help reduce your experience modification factor.

We understand that not everyone is an insurance expert, but we are. So, if you’re ever unsure about how your premium is being calculated, your agent or our underwriting team is here to answer any questions you may have.

Workers’ compensation insurance provides benefits to your employees for work-related injuries including medical care and wages for time out of work. Your independent agent can assist with a quote and a policy that is right for your business. Start a quote today!