What generally determines the premium for a workers’ compensation insurance policy?

The premium for a workers’ compensation insurance policy is predominantly determined by the payroll amount and the type of industry. This is because the amount of payroll reflects the size and scale of the business, which directly impacts the risk exposure for the insurer.

Higher payroll typically indicates more employees, leading to increased risks of workplace injuries or illnesses. Additionally, the type of industry plays a critical role since different industries have varying levels of risk. For instance, construction or manufacturing may present a higher risk compared to a standard office or retail environment. Insurance companies assess these factors to estimate the potential costs associated with claims and to set premiums accordingly.

By relating payroll and industry type, insurers can establish a more tailored and accurate premium that reflects the unique risk profile of a business, which is essential for maintaining the financial viability of the workers' compensation system.