How Are Workers Compensation Rates Determined?

NJ workers compensation insurance is a necessity for any New Jersey company concerned with operating within the law. Since workers compensation insurance represents an unavoidable expense, it is critical that owners or managers understand how to control that expense. Knowing which factors affect premiums can help owners and managers anticipate expenses and even lower insurance costs.


The Industry Insurance Rate


First, insurance companies start with a set rate based on the policyholder’s industry. State agencies categorize industries and evaluate industry risk every year. Companies may save money by reviewing their classification to make sure it is correct or by classifying employees individually, since some employees perform lower-risk duties. For instance, secretaries at a construction firm should not be insured as construction industry workers.


The Experience Modifier


The Experience Modifier is a number that represents past losses and claims. Values below 1 represent a history with few claims or losses, while values above 1 indicate past problems. The rate and modifier are multiplied to determine whether a business deserves a rate above or below the industry average, based on its history.


Qualifying for Favorable Rates


Companies may qualify for lower NJ workers compensation insurance rates by implementing approved safety programs to lower the likelihood of future losses. A review of payroll figures may also lead to savings; company rates are multiplied per $100 of payroll to determine the final premium, so payroll errors may lead to overly high premiums.


Above all, owners or managers should work closely with their insurers. The best insurance companies can provide risk management advice and explanations of available discounts to help a company reduce claims and up-front expenses.