Why Workers Compensation Premiums Increase

by ABILITY GROUP | Jul 24, 2023 | Premium, Workers Compensation

Australian States & Territories have different workers’ compensation legislation & consequently, the method (or formula) used to calculate a workers’ compensation premium. Workers’ compensation insurance premiums are typically based on the business industry, annual wages & a range of other factors that could include claims frequency/costs, underwriting decisions, and various adjustments. The reason why a workers’ compensation premium increases, therefore depends on a variety of factors.

Workers’ compensation premiums in Australia can increase for various reasons. Workers’ compensation premium increases are often influenced by factors related to both the individual business & the broader workers’ compensation system.

Common reasons for premium increases include:

• Wage Increases: Premiums are often calculated based on the total wages paid to employees. If an employer’s payroll increases significantly, their workers’ compensation premiums will also rise accordingly

• Industry Risk: The nature of the industry in which the business operates plays a role in determining premiums. High-risk industries, such as formworking, scaffolding, construction or manufacturing, tend to have higher premiums due to the increased likelihood of workplace injuries

• Claim Frequency: If a business has a higher frequency of workers’ compensation claims, in some states/territories this can lead to increased premiums. A higher number of claims may indicate Work Health & Safety (WHS) issues in the workplace or insufficient safety measures, leading to more frequent injuries or illnesses among employees

• Claim Severity: The severity of the workers’ compensation claims can also impact premium costs. If a business experiences costly claims, such as serious injuries, long-term injuries/disabilities or fatalities, it can lead to higher workers’ compensation premiums

• Changes in Legislation: Changes in workers’ compensation laws, or regulations, can impact premiums, rates & formulae. Changes that increase/decrease benefits or expand/restrict coverage may lead to higher/lower workers’ compensation premiums

• Experience: In some Australian states/territories, workers’ compensation premiums are adjusted based on an experience modification factor. This experience modification factors can be influenced by an employer’s claims history & safety record. If a business’ claims experience is worse than the industry average, their premiums may increase.

• Insurer’s Pricing Decisions: Insurance companies periodically reassess their risk exposure and adjust premium rates accordingly. If an insurer faces higher overall claim costs, they might increase premiums across the board.

• Inflation and Medical Costs: General inflation and rising medical expenses can impact the cost of workers’ compensation claims, which may lead to premium increases for employers.

To successfully manage & control workers’ compensation premiums, businesses can focus on:

1. improving workplace safety
2. implementing risk management strategies
3. promoting a culture of WHS among employees

Proactive measures to prevent workplace injuries & illnesses can help reduce the frequency (number) and severity of claims, ultimately leading to more stable or reduced premium costs over time.

ABILITY GROUP specialises in actively working with clients to identify workers’ compensation premium reduction strategies as well as their implementation to achieve sustainable workers’ compensation premiums.

Contact our workers’ compensation specialists for help in reducing your workers’ compensation premiums or for further information, please refer to below

Source: icare

Title: Calculating the cost of your workers insurance premium

Read Time: 5 minutes

Source: WorkCover Queensland

Title: Premium calculation

Read Time: 5 minutes

Source: ReturntoWorkSA

Title: Premium calculations

Read Time: 5 minutes

Source: WorkSafe Victoria

Title: Calculation your premium

Read Time: 5 minutes