Q.How are premiums calculated?
A.First, the WCIRB groups all business
and industrial operations into various occupational classifications.
In 1995, over five hundred classifications existed, from
advertising companies to YMCA institutions. The WCRIB calculates
the rate for each classification. based on the premium and
loss experience of all employers in each occupational classification.
The rate is expressed in the form of dollars and cents for
each $100 of payroll per classification. The basic premium
is calculated by multiplying the rate (for each $100 of
payroll) and the amount per class. All classifications,
rates and rules are specified in the California Workers’
Compensation Insurance Manual published annually by the
WCIRB.
A carrier may start with a rate for a classification and
then apply credits and/or debits based on individual risk
characteristics. A policy is usually issued for a term of
one year or less and may also indicate the method of payment:
monthly, quarterly, semi-annually or prepaid with premium
due on the effective date of coverage. At the policy expiration,
the insurance company may examine your payroll and the rates
that have been used to determine the final audited premium.
This usually results in an additional premium due the company
or a return premium to be refunded or applied to the renewal
policy.
Q.What is experience modification?
A.Based on reported paid losses, loss
reserves and the premium of the policyholder for an experience
period, the WCRIB uses a standard mathematical formula that
has been approved by the Insurance Commissioner to generate
an experience modification for each employer. An employer
is subject to experience rating when the premium for a three-year
period reaches a specific amount set by the WCRIB. (Effective
January 1, 1995, this amount is $14,100 in pure premium;
however, this figure changes periodically.) Therefore, the
employer’s loss experience will affect his or her premium
in the form of an experience modification.
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