How to Complete the Premium Section of the ACORD 130 Workers Compensation Application
Before you get too worked up about this section, I advise this section is for the underwriter to complete. They are giving you the quote. Let them do their job.
If you are generating this form from a rating software product, all this information will be in the rating software. At worst you will be cutting and pasting.
It is to your benefit to understand how the premiums are created. The more you understand the details of how to create the premiums, the more you can keep your customer's premiums at the correct level. Fewer surprises at audit are always a good thing.
STATE: The state abbreviation for the locations this worksheet is covering.
COLUMNS in the WORKSHEET
FACTOR: There may be factors - numeric values which you will use to modify the premium up or down.
FACTORED PREMIUM: This will be the mathematical result of multiplying the Estimated Total Premium from the worksheet above this section by the Factor in the same row of the column labeled FACTOR.
EXAMPLE:
The first Row is TOTAL: This is the sum total of all the estimated annual manual premiums from the worksheet on this page.
The second row is increased limits. If you recall under the Policy Information Section on page one of the ACORD 130 form, Part 2 - Employer's Liability allowed you to have higher than basic limits of coverage. If you chose higher limits, there will an increase limits factor.
Let's say we have a Total Premium of $2,000. and an increased limits factor of 1.1.
You enter the $2,000 in the first row / third column.
You enter the increased limits factor of 1.10 in the second row, second column.
You multiply the premium in the first row by the factor in the second row to get the Factored Premium you put in the third column of the second row.
$2,000 times 1.1 = $2,200.
You repeat this process adjusted for the previous numbers throughout this section.
Now on to the terms used in this section.
INCREASED LIMITS: As described above, this is a factor that applies if you increase limits for Part 2 - Employer's Liability. This will increase the premium.
DEDUCTIBLE: If a state deductible is available and you chose to use it, enter the deductible factor here. This will reduce the premium.
EXPERIENCE OR MERIT MODIFICATION: If this business has had workers comp insurance for at least two years under the same ownership, and the business has had a workers comp premium both years that meets the state minimum for creating an experience or merit modification, you will enter that modification here. These modifications are based on losses versus premiums. It can result in either an increase or a decrease of the premium. It depends on loss history.
ASSIGNED RISK SURCHARGE: If this risk is being placed in a state Assigned Risk program, there will usually be a surcharge that applies. It will always increase the premium.
ARAP: This is the Assigned Risk Adjustment Program. If your state has this, enter that factor here.
SCHEDULE RATING: Scheduled rating is generally a factor that an individual carrier will develop on its own to more properly price a risk. Normally these are credits and reduce the premium.
CCPAP: Contracting Class Premium Adjustment Program. This provides a credit for construction industry employers who pay high hourly wages. It applies only to the construction class codes and not to the premium developed by other class codes on the same policy. For instance, it would not be applied to office workers.
You would normally expect these to apply only in major metropolitan ares, but I would ask about this if I were insuring a business in an area that was recovering from a significant natural disaster. Think New Orleans after Katrina or Staten Island after Sandy.
STANDARD PREMIUM: The unmodified premium. The premium from the Estimated Annual Manual Premium from the worksheet above.
PREMIUM DISCOUNT: Large premium levels may create a premium discount. Sort of like a volume discount at a retail store.
EXPENSE CONSTANT: Generally there is a standard Expense Constant for most class codes in each state's workers compensation manual. Some class codes have a higher Expense Constant. These will be shown next to the rates when you look up the class codes and the rates. While each state will have rules about how you apply the Expense Constant if there is more than one, I believe I recall you only apply the one highest Expense Constant instead of adding them all together.
This is not a factor but a hard dollar amount. It will increase the premium. All workers comp policy have an Expense Constant.
TAXES AND ASSESSMENTS: If you are writing this risk with a non-admitted carrier, you will need to add the premium taxes and other appropriate fees here.
TOTAL ESTIMATED ANNUAL PREMIUM: This is the total after applying all the adjustments in this section to the estimated annual premium.
MINIMUM PREMIUM: Each class code will show a minimum premium next to the rates. If the Total Estimated Annual Premium is not higher than the Minimum Premium, you will charge the minimum premium.
If there is more than one class code, usually only the highest minimum premium applies.
DEPOSIT PREMIUM: The amount the insured must pay on or before the policy goes into effect.
Well, that is a lot. I hope it helps you understand workers compensation rating a little better.
Please feel free to share.
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