For most employers, workers compensation insurance coverage is a fact of business life. That is, since on-the-job injuries can be costly for both the company and the injured employee, organizations simply must purchase a policy. The type of workers comp insurance that companies utilize often changes over time. For example, before switching to large-deductible workers comp plans, many businesses utilize a guaranteed-cost workers comp plan. Here are some things you should know about guaranteed-cost workers comp plans.
Understanding the Plan
With a guaranteed-cost workers comp policy, employers pay prospective premiums during the policy period without adjustment for loss. As such, policyholders often better budget for insurance costs, as they don’t have to worry about premiums increasing during the policy period if an employee sustains a job-related injury.
Calculating the Premium
At the beginning of the policy period, the insurer figures the guaranteed rate. Often, the formula an insurer uses to calculate the rate includes the following components:
- The company’s payroll
- Any loss modifier
- Experience modification
After establishing a rate, insurers usually only adjust premiums at the expiration of the policy, following an audit. For many businesses, large-deductible workers comp plans often follow enrollment in guaranteed cost workers comp plans. By understanding guaranteed-cost coverage, you can likely better plan for company growth and insurance changes.