What determines the premium that I will pay for coverage?
In its simplest form the formula that is used to calculate the premium is, exposure times the rate. Most often the exposure is the payroll paid for work performed of the specific trade. For a contractor it does not include payroll for office or sales persons. A fixed amount of payroll is used for any active owners, officers or partners that perform work in the field of the specific trade. Most of the time at least one owner, officer or partner has to be included in the calculation. If a business has a supervisor or foreman in the field and the owner, officers or partners only perform administrative or sales functions, then they can be excluded from the calculation. Often there is more than one exposure. For instance a contractor may perform interior and exterior painting. Each of these types of work has a different rate with most companies so the percentage of each has to be worked out to perform the calculation.
Some carriers use Gross Receipts as the exposure. In this case the rate takes in to account that the Gross includes materials and all other overhead. In addition to Payroll or Gross Receipts, the Subcontracted amount is considered a separate exposure by most carriers and a calculation is made for this exposure as well. Additionally, different carriers have different limits on how much work can be subbed out before a risk no longer is acceptable for that particular program. Generally, any specialty trade contractor is only allowed a maximum of 25% subcontracted work. This means 25% of the Gross Receipts.
Another method of rating is to use the number of full time and part time employees (part time is usually 20 hours or less per week). This method takes the number of employees and multiplies the number by a rate. Active owners, officers or partners are added in to the calculation as full time employees.
Finally, more complex systems of rating uses all of the factors above – gross receipts, payroll, subcontract cost, active owners and number of full time and part time employees.
Venture Insurance Services
124 E Olive Ave.
Burbank, CA 91502
866-726-8442