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Workers’ comp payroll exposure may overstate losses for higher wages

NCCI research found loss ratios fall at higher wage tiers, largely due to reduced claim frequency, while indemnity severity plateaus above 150% of the state average weekly wage.

Reported · Written up by our desk · Industry & Deals

Workers’ compensation premiums based on “unlimited payroll” may not track expected losses evenly across wage levels, according to new research from the National Council on Compensation Insurance, which analyzed indemnity and medical claim data.

The NCCI found that loss ratios decline as worker wages rise, driven primarily by lower claim frequency in higher wage tiers. The research suggests some employers with higher-paid workforces could be paying premiums that exceed what their expected losses would justify.

NCCI also reported that total claim severity, combining indemnity and medical costs, generally increases with injured worker wages but at a slower pace than wages themselves. On average, moving up one 25-percentage-point wage tier corresponded to roughly a 15% increase in combined severity.

For indemnity specifically, NCCI said severity rises with wages at lower tiers but begins to plateau for workers earning more than 150% of the state average weekly wage. The council cited statutory benefit maximums as one reason, noting that only 7% of injured worker wages it reviewed were above the 150% threshold, which limited data at those higher tiers.

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