New businesses normally pay the "base" premium rate, which is set at 1.0. The base rate reflects the risk workplace injury or disease in specific industries as a whole, for each risk classification. After a business established it's own accident experience record, the premium will be "experience-rated." This that your premium may be increased or decreased from the current base rate based on your actual accident history. The higher your claims costs, the higher your experience factor will, and the more money you will pay in industrial insurance premiums You can manage your experience rating by having a good accident history through an effective accident prevention program.

Each year you receive a rate notice that includes the experience factor rating for your business and how much you'll pay for your business ("Your Rate). Your premium rate (per hour), or "composite rate," is determined by multiplying your experience factor (EF) by the sum of the accident fund and medical aid base rates, then adding in the supplemental pension assessment:

• The premium or composite rate is calculated as: Experience (Accident Fund Rate + Medical Fund Rate) + Supplemental Pension Assessment.
• The Accident Fund rate and Medical Fund rate are based on the risk classification; the Supplemental Pension Assessment rate is the same for all risk classifications.
• Employees may share in part of the premium costs, deducted by the Employer.
• The Premium Cost is calculated as: Hourly Premium or Composite Rate Total Worker Hours.
• The total industrial insurance premium cost for your business is the sum of all the risk class premium costs.
• Employees are also rewarded by a lower experience factor rating.

Remember from the previous section that share in part of the premium costs, usually deducted by the employer from their paychecks. The employees' contribution to the premium costs is calculated as follows:

The Bottom Line is this: Employers with claims costs lower than expected, have premium rates reduced from base rates. The lower the experience factor, the more you save.

The following example shows how three different companies in the same business can have significantly different premiums, based on their experience factors:

• A new company (ABC Co.) has no experience with on-the-job injuries. So it automatically gets an experience factor of 1.0. That means a new company, or one with average claims costs, pays the base rate for the industry.

• Another company (DEF Co.) with a better-than-average accident record is rewarded with a lower experience factor, say 0.5, for example. When this experience factor is multiplied into the equation, it brings down the premium by about 50 percent, or only half of the basic rate. Thus, companies with good safety records and sound claims management programs are rewarded with lower industrial insurance premiums.

• A third company (XYZ Co.) has had a history of incidents. Because of its high claims costs, it has a high experience factor, perhaps as high as 2.0 or more. This company's injuries and illnesses and medical fund premiums will be two times higher than those of a company at base rate.

Your company's current experience factor is calculated at the beginning of each year on the basis of your claims track record during a rolling three-year window. For example:

Claims with a date-of-injury between 7/1/98 - 6/30/99 impacts an employer's rates for the calendar years of 2001, 2001, and 2003.

Because your industrial insurance premiums are based on your accident history, you can work to control them. It makes the most sense to focus your efforts on preventing future injuries and industrial insurance claims.

What you do or don't do about injury prevention will affect your company's premiums and profits years to come.

When it comes time to select from among a pool of bidders for a major project, the business with the lowest experience factor has an edge in winning the contract. Why? It presents the lowest risk.

• No one wants to hire an "incident prone" company where work stoppage delays due to injuries are more likely to occur, and

• with a lower experience factor, your workers' compensation premium will be less – this gives you more flexibility on your bid.

Source: Washington State Department of Labor and Industries