Learning that a business of roughly the same size and in the same industry as yours pays significantly less for workers’ compensation insurance is something any business owner will want to look into. The mistake some make is assuming the other business may have negotiated a better deal or found a less expensive carrier. In many cases, the rate difference has nothing to do with either. Rather, it reflects two variables built into every workers’ compensation insurance premium in Connecticut, even before a carrier prices the account.
Why Comparing Your Rate to a Competitor Often Leads to the Wrong Conclusion
A peer’s lower premium only tells you they are paying less. But unless you know the reason for their low rate, you cannot know whether you are overpaying. For example, two Connecticut businesses of identical size can pay dramatically different rates based entirely on how their employees are classified.
A landscaping company with administrative staff who never work in the field can split payroll between an office employee code (8810) and a grounds maintenance code (9102). A competitor of the same size who carries all employees under a single code may pay more, but that may also be the correct rate for their workforce. The same pattern appears in construction, food service, manufacturing, and most industries where job functions vary within a single business.
A competitor’s lower rate might also be attributable to a better experience modification rate (experience mod) based on fewer or smaller claims, or to a more thorough safety program and return-to-work policies.
The Two Variables That Explain Most Rate Differences Between Similar Businesses
Classification codes set the base rate for each job type. The National Council on Compensation Insurance (NCCI) assigns a code to every type of work, and each code carries a specific rate per $100 of payroll. Two businesses coded differently pay different rates even if their overall payroll is identical. A company classified under a commercial roofing code, for example, pays a different base rate than one classified under a general carpentry code, even if both would describe themselves as contractors.
The experience modification rate then multiplies that base rate upward or downward based on three years of claims history relative to other businesses in the same classification. For example, a business with a 0.80 mod pays 20% less than the base rate. One with a 1.20 mod pays 20% more. Two businesses in the same classification can vary greatly in effective rates based solely on their respective claims records, and that gap applies across the full payroll.
How To Find and Read Your Own Classification Code
Class codes appear on the declarations page of your workers’ comp policy, listed alongside each payroll category and its corresponding rate per $100 of wages. Most policies list multiple codes when the business employs people in different roles.
Cross-referencing those codes against what your employees actually do is the practical starting point for any rate review. If a code does not match the work being performed, the rate applied to that payroll is wrong. Businesses with employees classified under a higher-risk code than the work warrants pay more than the correct premium. Those with employees classified under a lower-risk code could trigger an audit and possibly pay a retroactive adjustment.
Employees who perform multiple job functions may qualify for a payroll split that routes administrative or non-field wages to a lower-risk code. That split requires documentation of the separate time allocations. Still, it is a legitimate classification practice and one of the most common sources of correctable premium overcharges for businesses with mixed-role employees.
What a Rate Gap Between Your Business and a Peer Actually Signals
Most meaningful rate differences among Connecticut businesses of similar size stem from one of three causes:
- A different experience mod
- A different classification code
- A different payroll allocation across job functions
If your rate is higher than your peer’s for no apparent reason, misclassification is the most common and most correctable cause.
Classification codes are applied at the start of a policy, sometimes based on a general business description rather than a careful review of actual job functions, and they frequently go unexamined at each subsequent renewal. Reviewing the declarations page against current employee roles is the first step in determining whether the base rate being applied is appropriate for the business as it currently operates, and it can also help confirm compliance with workers’ compensation law in Connecticut.
Get a Rate Review Built Around Your Actual Business
If you feel you’re paying too much for your workers’ compensation insurance, an independent broker can help. They will review class codes and the experience mod against NCCI benchmarks to determine whether your current premium accurately reflects your workforce and operations. That review is most useful before renewal, when corrections can be applied to the coming policy period rather than addressed after the fact.
Since 1916, individuals, families, and businesses have trusted JMG to help them protect what matters most. With several conveniently located offices, we offer the personalized service of a local agency while providing the strength and market access of a national brokerage.
Contact JMG Insurance Corp today to find out whether your workers’ compensation insurance rate reflects your actual workforce, your correct classifications, and your real claims history.
