| Workers’ compensation premiums are generally set using a standard class-code rate that is applied to payroll, modified according to a company’s accident history and a carrier’s expenses. Learn how premiums are calculated and steps you can take to reduce your costs. |
In Connecticut, workers’ compensation premiums are largely based on the classification of the work being done and the payroll in each classification, adjusted by the carrier’s loss cost multiplier, and finally modified by the employer’s experience rating.
A roofing company and an accounting firm of the same size, located on the same block in Connecticut, with roughly the same total payroll, likely pay significantly different workers’ comp rates. This is because roofing is more accident-prone than accounting, and the cost of those accidents tends to be relatively high.
The Rate Your Business Pays Is Not Wholly the Carrier’s Decision
To determine a company’s rate, an insurance carrier will review the company’s payroll records and separate employee wages into distinct codes. These codes are set by the National Council on Compensation Insurance (NCCI) and apply across the state of Connecticut. Work classified as low-risk, such as a clerical office worker (code 8810), is typically less expensive to insure than work classified as high-risk, such as a roofer (code 5551).
The rate reported by NCCI does not account for a carrier’s expenses or profits, or its own view of the risk. To adjust for this, each carrier files its own loss cost multiplier (LCM) with the Connecticut Insurance Department. Finally, insurers can apply schedule rating credits and debits of up to ±25% based on their judgment about an individual account.
Businesses in different industries, or even in the same industry but with different business models, cannot meaningfully compare their insurance rates based on premiums alone. Two roofing agencies with equal payroll will have different premiums if one has dedicated office staff who never do roofing work, and the other does not, because the base rate to insure office workers is lower.
How the NCCI Classification System Assigns a Rate to Every Job Type
NCCI assigns a four-digit class code to every type of work, and each code carries a base rate built on two main factors. The first is the frequency of injuries in the industry, and the second is the typical cost of a claim in that industry.
Simply put, a code with a history of frequent claims, severe injuries, or high medical costs carries a higher rate. A code with low historical frequency and modest average claim costs carries a lower one.
There are hundreds of codes, and each rate reflects actual actuarial outcomes based on data pulled from many years. The rate for a roofing code is high because falls from height are common in the industry and cause serious injuries. The rate for a clerical code is low because office workers file fewer claims, and those claims typically cost less. The system distributes premiums proportionally to the risk each classification has actually produced over time.
What the Rate Gap Between Industries Actually Looks Like in Connecticut
After the NCCI submits proposed loss cost figures and assigned risk policy rates to Connecticut’s Insurance Department (CID), the figures and rates are reviewed and approved. Insurance carriers then submit their own rates to the CID for approval. This approval process means that different insurers will be able to provide different rates and to specialize in certain areas of workers’ comp.
A clerical employee in Connecticut typically carries a rate of about $0.42 per $100 of payroll. A roofer at the same Connecticut business might run $30.00 per $100 of payroll, depending on the specific code and current filed rates.
A business with $100,000 in annual payroll allocated to roofing work will probably pay something like $30,000 in base premium for that portion of the payroll. The same $100,000 in clerical payroll likely produces around $420.
Construction, structural work, landscaping, and manufacturing consistently rank among the highest-rate tiers across Connecticut workers’ comp classifications. Professional services, administrative functions, and office-based roles sit at the lowest end. By properly classifying employees, a company can lower its rate if it is paying too much or avoid penalties if it is paying too little.
What Happens When Your Workforce Spans More Than One Classification
Connecticut businesses with employees in different roles must allocate payroll across each applicable class code. A construction company employing project managers, office staff, and field crews may not pay a single blended rate. Each payroll category is assigned the code that matches the actual work performed and is rated accordingly.
Any payroll that cannot be assigned to a documented code defaults to the highest-rated code on the policy, creating an often expensive and very avoidable problem. For a construction company with office staff whose wages were never separated from field labor payroll, that default generates a premium adjustment that accurate recordkeeping from the start of the policy period would have prevented.
Why Your Classification Might Be Wrong and What It Is Costing You
A business that has assigned workers to a higher-risk code than the actual work warrants overpays at every renewal by inflating the business’s risk profile when the insurance rates are set. This problem may not be clear until someone reviews the classification codes against the current job functions. That review may not occur at every renewal.
Misclassification in the other direction carries a different consequence. A business that has under-classified its employees relative to the actual work being done often experiences a retroactive audit adjustment when the carrier reviews payroll records and finds the codes do not match the operations.
While the insurance carrier is ultimately responsible for verifying worker codes, a broker can also review the codes against the work being performed. They can then submit this review to the carrier so that jobs are appropriately classed. This is the most direct way to confirm that the premium in the quote reflects how the business operates today, rather than how it was described when the policy was first written.
Know What You Are Paying and Whether You Should Be
The NCCI classification system sets rates based on what an employee role has historically cost. Insurers in Connecticut then apply their own adjustment to account for their expenses and to earn a profit. Employers can work to manage their workers’ compensation premiums by making sure, before each renewal, that the correct rate is being applied to the right payroll categories.
For over 100 years, JMG Insurance Corp has been helping businesses with their risk management strategies. Contact us today for a classification review and confirm that your workers’ compensation insurance premium in Connecticut reflects what your business actually does.
