What a company does can bring risk to an insurance carrier. For instance, many construction company employees work with and around heavy equipment. But an accounting firm’s employees work in an office. Each industry carries its own risk class and that is reflected in its class code.
So, underwriters look at a company's class code(s) (what type of work they do) and their claim history in the form of the experience modification rate – or MOD (a calculation used to determine whether a company has high or low claim losses) to determine a workers’ comp premium.
Three years’ of a company’s claim history is weighed to come up with the insurer’s risk. Some companies make a common mistake – under reporting workers’ compensation injuries for fear of increased premiums.
But claim frequency causes less damage to a company’s MOD than high-dollar claims. Besides, all WC incidents must be reported or the cost will be much bigger when the unreported claims are discovered and penalties are assessed or lawsuits are filed.
The company’s payroll, the carrier’s manual rates and the carrier’s application of scheduled credit/debit and the states’ taxes and fees are other contributing factors.
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