Is the Likelihood of Injury Correlated to the Cost of Workers’ Compensation Insurance?
Workers’ Compensation coverage varies significantly from state to state, but does the likelihood of injury in a job have anything to do with the cost of this coverage? We look at data from some of the states with the highest number of workers’ compensation cases to uncover the answer.
A recent study from OSHA revealed North Dakota has the highest number of severe workplace injuries coming in at 134.8 injuries per 100k people. This is 42.8 cases higher than the next ranked state, Arkansas. According to Insurance Journal, these injuries include broken bones, burns, amputations, and traumatic injuries and disorders.
In terms of the specific injuries in North Dakota the current data are the following:
- 41.2 fractures per 100k people.
- 38.4 amputations per 100k people.
- 9.0 burns per 100k people.
- 3.8 traumatic injuries/disorders per 100k people.
These numbers are concerning and the main question is inevitable: Why does North Dakota have so many jobs that result in injury?
To understand this, we need to look at what jobs in the state entail. According to the Workplace Injuries Report and Benefits Resource Guide by HelpAdvisor, “North Dakota has the highest concentration of transportation and material moving jobs in the U.S., with a concentration of oil well pumpers nearly 30 times the national average.”
These are dangerous jobs, so it is likely the makeup of the job market helps North Dakota be the leader in workplace injury. So, does this scenario increase the cost of Worker’s Compensation Insurance for employers?
What does this mean for Workers’ Compensation Insurance?
Most states require Workers’ Compensation Insurance, but coverage requirements vary by state. In North Dakota, the sole provider of this coverage is North Dakota Workforce Safety & Insurance. Employers finance this organization and it covers workplace injuries, illnesses, and death. Private insurers are not allowed to provide workers’ compensation insurance in the state. Employers in North Dakota are required to cover all their employees and are forbidden from deducting any of the coverage premium from employees’ salaries or wages. There is also no option in the state for employees to opt out of this coverage.
In North Dakota, determining the price of workers’ compensation insurance comes from the remuneration paid during the policy period. This includes:
- Commissions & Bonuses.
- Overtime pay.
- Reported tips.
- Holiday, vacation, or sick pay.
- 401ks, retirement plans, and other similar accounts.
- Gratuities given to employees.
As stated before, employers cannot take money out of employees’ wages or salaries to pay the premium for Workers’ Compensation Insurance. Since Workers’ Compensation premiums in North Dakota are determined by employee pay, the high number of risky jobs in the state does not affect the cost of a premium for employers. In fact, in a study run by Insurance Journal, North Dakota ranked the lowest in the nation on a per-employee cost basis coming in at an average of 88 cents per employee.
But this is not the case in every state. To get a true estimate on the cost of Workers’ Compensation Insurance, employers need to understand Classification Codes and what they mean for this insurance coverage.
About the Likelihood of Injury Correlated to the Costs
Before, workers’ compensation was based on English common law and was quite restrictive. During the Industrial Revolution, only specific injuries were covered and they had to meet criteria so severe it was called “the unholy trinity of defenses.”
Answering our initial question, today Workers’ Compensation Insurance costs are calculated based on a “classification code.” This code refers to what a specific business does. In addition to this initial item, the cost is also analyzed by the total payroll, the history of workers’ compensation claims, and the unique regulated laws in each state.
Finally, it is important to understand the “classification code.” one of the most important details to get right if you want an accurate workers’ compensation quote. Class codes are four-digit numbers that are assigned to businesses based on industry. By grouping together similar businesses, data can be collected on workplace injuries and workers’ compensation claims. This data is then used by the rating agency to assess the relative risk associated with the type of work, and assign a rate based on recent losses (claims that have been filed and paid out).
What are the Workers’ Compensation Laws in my state?
Rules and regulations for Workers’ Compensation Insurance vary significantly by state. As an employer, you need to understand the required coverage. Here is a list of coverage requirement laws by state from FindLaw’s team.
To learn more about Workers’ Compensation Insurance check out our article where we answer seven of the most common questions employers have about this coverage.