Work comp pricing & calculating net rates from C3 insurance academy: For small to medium-sized companies it may seem like work comp companies are trying to just gouge you for as much money as they can get and well they are (I’m just kidding).

It really comes down to some simple math using payroll and rate so let’s take a look at the math and see how work comp policies are priced we first start with class codes every industry has its own unique set of class codes that are defined by the Department of Insurance and the WCIRB.

So for restaurants nine zero seven nine is a primary class code that is assigned to that industry once we know our class codes we can then take a look at the base rates that the insurance company is used for that particular class code for each class code the insurance companies report the total amount of loss that was incurred.

For every company in the state of California that loss information is put together in a report that insurance companies use to understand what the expected loss is per 0 of payroll for each industry that they underwrite the insurance companies take that lost data and they add their overhead and expense to it to create a base rate by industry or class code all right step 1 using class code nine zero seven nine for restaurants we are going to take our estimated annual payroll of five hundred thousand dollars for that class and divide it by 100 and then multiply it against the base rate that the insurer is using which in this example will be four dollars and fifty cents four point five zero to come up with an initial premium of twenty two thousand five hundred dollars.

Before we go to the next step we’re going to explain what an experienced modification is this is a factor that is used to compare your loss experience to that of everyone else that’s in your industry and class code the median value for an X mod is a one point zero which I effectively just leave your rates the same however if your experience is better than the rest of the industry your modification factor will be less than one point zero or it will modify your rates in your premium downward if your losses are worse than the rest of the industry then your experience modification will be greater than 1.0 which will create a debit or a surcharge against that of your rate in your premium.

So for this example we’ll take twenty two thousand five hundred dollars and multiply it by point seven five or seventy five percent to come up with a modified premium of sixteen thousand eight hundred and seventy five dollars alright for step three insurance

companies may file to apply discounts or surcharges for a variety of other reasons such as your premium size or your safety programs or your owner involvement those factors we are going

to just summarize in one modifier here.

So we will take our new premium of sixteen thousand eight hundred and seventy five dollars and we are going to apply a discount for this example of 0.9 or ninety percent and that will give us a new modified premium of fifteen thousand one hundred and eighty eight dollars that summarizes the steps to get to your final premium of fifteen thousand one hundred and eighty eight dollars as an insurance company may underwrite a policy there is however

another way to get there and so what we can do is look at taking the base rate of four point five zero and then applying the experience modification of 0.75 and then also modifying that with a point nine zero multiplier.

If we combine all those rates by multiplication that gives us a final net rate of three point zero four once we know our net rate we

can go back to our payroll amount of 0,000 and again divide it by 100 and then multiply it by the net rate of three point zero four this will also give us a final premium calculation of fifteen thousand one hundred and eighty dollars.

That’s your quick and easy summary of how work comp policies are priced.