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About Workers' Comp

How premium is determined


Workers’ compensation premium is determined by the type of work performed and the amount of that work as measured by worker payroll. Depending upon the size of your organization, your premium may also be influenced by your organization’s past experience, known as an experience modification rating.


Job classifications
First, your agent will help MEMIC to determine the proper job classifications for your organization. Most states use a standard set of classifications determined by an independent organization called the National Council on Compensation Insurance (NCCI). There are about 700 unique classes within this system.


Insurance rates are often set or approved by a state regulatory authority, with advice from actuaries such as those who work for NCCI. These rates are based upon costs of injuries within the various job classifications in past years. Rates are expressed as a percentage of payroll. So, a rate that is $3.25 would be $3.25 per $100 of payroll.


Calculating premium
At the beginning of your policy term, you offer an estimate of the payroll dollars you expect to pay within that job classification for the year. To arrive a premium estimate, simply divide that payroll estimate by $100 and then multiply by the rate. If you are not large enough or have not been in business long enough to have attained your own experience modification rating (often known as your “experience mod” or “e-mod”), then this number is your premium. In summary:


Payroll/$100 x Rate = Premium


Experience Modification Rating
If you do have an experience modification rating, you must multiply the result of the calculation above by your experience modifier. You’ll note that an experience modifier of less than 1.0 will reduce the rate you would pay while an e-mod above 1.0 will increase your cost. This is another reason why it is important to try to establish as clean a record as possible when it comes to workers’ compensation injury claims at your organization. In summary, if you have an experience modifier the calculation is:


Payroll/$100 x Rate x Experience Modification Rating = Premium


Other Influences on Cost
Your overall cost may also be impacted by items such as additional assessments which are required by state governments, often to fund administration of state oversight of workers’ compensation laws.


Your final cost may be determined by a premium audit, which may be completed once your policy term is up. During an audit, MEMIC would review your records to determine whether your estimated payroll matches the actual payroll for that term.