What to Expect from Workers’ Comp Rates in the Construction Industry
December 5, 2022
It’s impossible to predict exactly what workers’ comp rates you’ll pay in the construction industry. However, there are a handful of key factors that insurers rely on to determine pricing. When deciding whether to offer coverage and at what rate, insurers must consider how much of a risk it is for their business to take on a potential customer. The factors listed in this blog help insurance providers determine how risky it is to insure your construction company. Reviewing these factors in the context of your business can help you to estimate how much your workers’ compensation coverage will cost.
Your payroll plays a large role in determining the cost of your workers’ comp insurance. The number of employees and the amount each of them earns all added together is what equals your payroll amounts. This includes full-time employees, part-time employees, minor employees, employees who aren’t citizens, and paid labor from incarcerated individuals. The higher your payroll, the higher you can expect your workers’ comp rates to be. This is because more employees mean more potential risks and higher salaries mean the insurer would need to pay out more money in the event of an injury.
The state your business operates in plays a surprisingly significant role in determining the cost of your workers’ compensation insurance coverage. Each state sets its own pure premium rates based on how many claims each industry has filed in the past. Some states specify one rate for the construction industry as a whole while others differentiate by trade, rating some subcontractors as riskier and more expensive than others. States that have seen a greater number of high-cost claims tend to set higher base rates. Insurers use these base rates to create their own pricing schedules which must then be approved by the appropriate state agency.
Class Code Rates
Working in the construction industry, regardless of role, comes with certain risks. Some workers face comparably low levels of risk while others, such as employees who use heavy machinery or work at elevated heights, are at much greater risk. Each job is assigned a class code rate. This is a variable designed to indicate a specific job’s risk factor. The National Council on Insurance Compensation (NCCI) is considered the standard for this and most states follow their guidance when determining class code rates.
One of the most critical factors in determining the cost of workers’ compensation insurance is a company’s experience modification rating, often referred to as a MOD rate or an EMR. The purpose of a MOD rate is to indicate your claims history and how it should impact your insurance premiums. This accounts for the volume of past claims, the severity of those claims (such as if any were catastrophic), and the length of time it took for those claims to be resolved. If you have a high number of claims, a history of catastrophic claims, or a record of claims that take a long time to close, you’re likely to face higher workers’ compensation costs.
How to Access Affordable Workers’ Compensation Insurance
Partnering with a PEO like SPLI is a great way to access low-cost workers’ compensation programs and supporting services. SPLI’s insurance partner is willing to provide competitive workers’ comp rates on policies that have received an A rating from AM Best to high-risk clients. We also provide claims management, safety & risk management consultancy, post-accident drug testing, and other supplementary services that can help construction business owners to protect their employees while minimizing liability. To learn more, contact us today.