Workers Comp: Consider Your Company’s Options

Every state in the nation requires a business of a certain size to carry workers comp insurance. Most states require such a plan for even a single employee, others set the limit at anywhere from two to five workers.

Whatever the size of the workforce, however, the cost of carrying workers comp insurance can be one big, expensive headache. That’s why some employers choose the option of retrospective rating workers comp plans.

What Is a Retro Rating Plan?

Fixed premiums for workers compensation plans are extremely expensive. The concept of a retrospective rating workers comp plan is to gamble on the hope that claims will not be as high as the standard premiums would warrant.

A retro rating plan is an endorsement, rather than a policy, and includes a formula for determining a retro premium. Here’s how it works:

  • The insured pays a standard premium at the beginning of the policy period.
  • At the end of 18 months, the insurer totals up the claims paid and plugs them into the retro premium formula.
  • If the standard premium is greater than the retro premium, the insurer reimburses the insured with the difference.
  • Conversely, if the retro premium is greater, the business pays the insurance provider the difference.

Retrospective rating workers comp plans usually include a maximum premium provision that limits the amount of retro premium the insured would have to pay. After the initial adjustment, the formula is recalculated every 12 months.