Pricing Components of WC Policy

Several rating and pricing programs (e.g. schedule rating, premium discount, dividends) offer significant premium swings.


Carriers compete voluntarily to attract the better employers and to retain their book of business through the use of various pricing tools including 1) company rate departures, 2) schedule rating plans, 3) policyholder dividends plans and 4) retrospective rating plans. In summary, the competitive insurance market determines the final premiums charged to policyholders.


A carrier goes through several layers, or steps, in pricing a workers compensation policy. In Indiana, a carrier may consider up to 9 components in determining the final dollar amount. The classification rate or “manual” rate is just the first step. The classification rate is “advisory” for standard business, so carriers can deviate from the advisory rate. There are other components to the pricing of a workers compensation policy that are significant, such as Experience Rating, Schedule Rating, Premium Discount Plan, deductibles, coinsurance, dividends, large deductibles, and the Retrospective Rating Plan. For instance, the Schedule Rating Plan adjusts premium (up to 50% higher or lower in Indiana) on an individual employer basis to reflect such characteristics of the employer that are not reflected in its experience.

So, all of these components make up the workers compensation pricing system. The actual dollars paid in premium by an individual employer will depend upon the pricing components applied to the policy. The classification rate and experience rating (if an employer reaches an average premium of $2,750 or more in 2 or 3 years, or one year of $5,500) are mandatory in Indiana. The other components are optional. The insurance company underwriter determines which of the other components could apply.

The table below summarizes the components that could apply in the pricing of a policy. Only one component, experience rating, is required with no deviation allowed. This means that carriers can compete on 8 of the 9 items listed by choosing to deviate or offering an optional plan to the insured.

Pricing Components of Workers Compensation Policy

Class Advisory RateRYYopen (carrier filing)
Experience RatingRNNopen (based on payroll & losses)
Schedule RatingONY0 – 50%
DeductibleONY5 – 25%
CoinsuranceONY5 – 25%
Premium DiscountOYY5 – 12% >$10k
DividendOYYopen (agreement w/ carrier & insured)
Large DeductibleOYYopen (carrier filing)
Retrospective RatingOYYopen (negotiate with insured)

Notes to table: R = required; O = optionalSchedule rating is used extensively in Indiana. Deductible and coinsurance options as provided by Indiana statute are occasionally used. Large deductible policies are generally defined as those with deductible amounts of $100,000 or more.