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The primary components in determining workers’ compensation premium are classification code and remuneration. While these items are the basis of premium, there are a number of additional components used to determine workers’ compensation premium. These additional components enable NYSIF to tailor the workers’ compensation premium to suit the individual character of each employer.
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The first step in determining proper premium for any business is to identify the correct classification code. Classification codes group together businesses of similar types to ensure that business types with a low potential for loss do not pay the same rate as those with a high potential for loss. The classification system designates which types of work pose more risk to the employees performing the tasks. Businesses are classified according to the operations they perform. The main classification, called the governing code, is assigned to the business as a whole. Employers should remember that it is the company's line of business that determines the workers' compensation classification, not the various jobs within that company.
In New York State, the New York Compensation Insurance Rating Board (NYCIRB), an independent, non-governmental rating authority, promulgates new manual rates each year after an actuarial review of losses and payrolls for each of more than 600 existing classifications. There is a different rate for each of the 600 different classifications. NYCIRB determines the rate to generate sufficient premium to provide sufficient funds to pay benefits and provide sufficient funds to operate the system that will deliver these benefits. Premiums from policies written during a given year are intended to meet all future claim payments made under these policies.
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The New York Compensation Insurance Rating Board (NYCIRB), an independent, non-governmental rating authority, promulgates new manual rates each year after an actuarial review of losses and payrolls for each of more than 600 existing classifications. The New York State Insurance Department must approve these rates before they become official. In general, the rate applies to each $100 of payroll exposure (in a few cases, other unit bases are used to determine premium, such as per capita, per building location, etc.) NYCIRB determines the rate to generate sufficient premium to provide sufficient funds to pay benefits and provide sufficient funds to operate the system that will deliver these benefits. Premiums from policies written during a given year are intended to meet all future claim payments made under these policies. Since rates are mathematically based, they produce an objective pricing system.
Remuneration is the basis upon which most workers’ compensation premiums are based. Remuneration consists of gross wages, or other compensation, before withholding taxes or other deductions including:
Where the rate for a given classification is based on payroll exposure, the manual premium is computed by multiplying the estimated annual payroll by the manual rate (expressed in dollars and cents per $100 per payroll) and dividing the result by 100.
The most significant adjustment program in workers’ compensation insurance is the Experience Rating Plan. The Experience Rating Plan recognizes that similar employers may not be similar with respect to safety and losses. The Experience Rating Plan adjusts for those differences by modifying the overall premium paid by the employer. The Experience Rating Plan is administered by the New York Compensation Insurance Rating Board (NYCIRB), which promulgates an experience modification for all qualified employers.
Generally, all employers with premiums in excess of $5,000 become “experience rated” by NYCIRB. The experience modification is determined by comparing an employer’s actual losses to the expected losses for an employer of similar size in the same industry. This statistical comparison results in the calculation of the experience modification, which is a percentage credit or debit applied to the employer's manual premium.
NYSIF may apply its own modification of rates by means of a surcharge (differential) or credit (discount), in an attempt to tailor the workers’ compensation premium to suit the individual character of each employer. NYSIF’s modification of rates may be based upon criteria such as:
The New York Compensation Insurance Rating Board (NYCIRB) determines the assessment percentage and may change each time there is a general rate revision. This charge covers the costs of operating the Workers’ Compensation Board and special funds such as the Reopened Case Fund, Special Disability Fund and the Special Funds Conservation Committee, as prescribed by law. Effective October 1, 2005, the assessment charge is 17.5%.
The New York Compensation Insurance Rating Board's Rates Committee has adopted, with the approval of the New York State Insurance Department, a change to the manner in which the premium for domestic terrorism and other catastrophes is charged. Effective October 1, 2005 for new and renewal policies, the domestic terrorism and catastrophe element was removed from the manual rates and replaced by a stand alone charge that is similar in operation to the TRIA charge for foreign terrorism.
This mandatory separate charge is not subject to experience rating or any other pricing factors. However, like the TRIA charge for foreign terrorism premium, it is subject to the assessment charge. The new premium charge is stated as a rate per $100 of total policy payroll and is promulgated by NYCIRB.
Minimum premium is the lowest premium for which an annual policy may be written.