Dirty Little Secret of Workers Compensation Insurance

Workers Compensation Insurance agents are paid commission based on the size of your company premium. The bigger the premium you pay the bigger your agent's commission. Your agent may never cause your premium to go up unnecessarily but has he done everything he can to reduce it and reduce his commission?
The first workers compensation law was enacted in the United States in 1911 by the State of Wisconsin. By 1948, every state had some form of "workman's comp." Basically this is a government mandated social insurance pact between employers and employees. Employers are forced to cover medical care and provide wage replacement for employees hurt on the job: in return workers compensation benefits becomes the only remedy available for workers. Even though courts have upheld this concept for almost one hundred years occasionally in cases of bad faith courts have over ridden this exclusive remedy.
Workers compensation is compulsory insurance in every state but Texas. With some few exceptions, all employers are mandated by law to carry workers compensation insurance.
Workers Compensation Insurance premium is calculated by how employees are classified by their specific work and the rate assigned to each employee classification.
Workers Compensation insurers attach a premium rate to each employee classification code. These rates must normally be approved by the state insurance regulatory agency in the state the policy is in effect in. Agency approval of the rate is based on numerous items. One of the items taken into account is adequacy of the rate. Rates must be adequate to maintain the financial condition of an insurance company. Adequate rates allow the insurance company to maintain surplus to meet current and future claims..
The classification code and its corresponding premium rate are part of the formula. The premium rate itself is expressed as dollars and cents per $100 dollars of payroll. The payroll for each classification code is estimated and then each $100 is multiplied by the rate. The calculated amount is the base premium. The base premium is then modified (change up or down) using rating plans and experience modification.
The experience modification is calculated from losses that the company has reported in the past.
The insurance company used a government-approved formula to calculate an experience modification for each employer. The formula looks at paid losses, reserves necessary for claim made and payroll amounts for the past three years (usually). The experience modification shows average loss experience of employers with similar classified employees and works as a way to compare employers. The experience modification is added to the class rate, along with any other modifications and an estimated premium rate is created. This is called prospective rating and is the most commonly utilized rate plan.
The total premium for a workers compensation insurance policy is not certain until the policy period is complete and all payroll has been reported.