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Pricing guides: how insurers set commercial premiums

A commercial premium is a rate multiplied by an exposure base such as payroll, sales or insured value, then adjusted for your loss history, deductible and the underwriter's judgment, and trued up by an audit after the policy ends. These guides explain each step with the official rules and worked examples.

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Contents6 sections

Key takeaways

  • California's insurance department summarizes commercial pricing as rate × exposure = premium, adjusted by experience, schedule or judgment rating⁠1.
  • In many workers' comp states the bureau publishes loss costs, and each insurer multiplies them by its own loss cost multiplier, so the same class can price differently by insurer⁠2.
  • NCCI's experience rating usually compares the latest three available years with similar employers; a mod below 1.00 is a credit and above 1.00 a debit⁠3.
  • Schedule rating is capped at 25% either way in Pennsylvania workers' comp and in Florida commercial lines⁠4⁠5.
  • Premium paid up front on an auditable policy is a deposit; the audit can produce an additional charge or a refund⁠6.

Quick facts

Core formularate × exposure = premium ⁠1
Rate in loss-cost statesloss cost × insurer's LCM ⁠2
Experience modbelow 1.00 credit, above 1.00 debit ⁠3
Schedule rating cap±25% (PCRB plan; Florida Rule 69O-170.004)⁠4⁠5

Where a premium comes from

The California Department of Insurance describes commercial pricing as identifying the rating exposures, selecting deductibles and calculating “rate x exposure = premium”, which is then usually adjusted by “experience modifications, schedule rating, or judgment rating”⁠1. The exposure base depends on the line: payroll for workers’ comp, sales, payroll or floor area for general liability, insured value for property, vehicles for auto.

The rate itself is often two numbers. In many workers’ comp states a rating bureau publishes advisory loss costs, which cover claims only. Each insurer then applies its own loss cost multiplier for expenses, taxes and profit, so “individual LCMs will vary greatly” between companies⁠2. State funds such as Ohio and Washington publish full rates instead.

What moves your number

  • Your claims record. Experience rating replaces part of the class average with your own losses, usually over the latest three available years⁠3.
  • Underwriter judgment. Schedule rating credits or debits features the class rate misses. Pennsylvania’s workers’ comp plan and Florida’s rule for other commercial lines both limit it to 25% either way⁠4⁠5.
  • Choices you make. Texas’s insurance department notes that most general liability policies are auditable: the premium at inception is a deposit based on estimated payroll, sales or units, and the insurer may bill more or return premium once actual figures are known⁠6.

The guides

The list below is built from the guides on this site. Start with the overview if you are checking a quote line by line. The class code, experience mod and audit guides each take one mechanism in depth, and a separate guide covers cutting cost.

Every figure in the guides is labelled as an official statistic, a regulator-approved rate, an insurer-reported figure or our calculation, and carries its source date. Worked examples use stated assumptions and are not quotes.

All guides pages

Sources

  1. 1
  2. 2
  3. 3
  4. 4
  5. 5
  6. 6

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