Hawaii Insurance Adjuster License Practice Exam

How are workers' compensation premiums primarily determined?

1. Insurance company rates

2. Payroll

3. Number of employees

4. Previous claims history

The correct answer is: Payroll

Workers' compensation premiums are primarily determined by payroll because the premium calculation is generally based on the wages paid to employees. Insurers assess the total amount of payroll because it provides insight into the overall risk exposure for a business. Higher payroll figures typically correlate with higher premiums since more employees generally mean greater potential liability and workplace risk. While the other factors are relevant, such as insurance company rates and previous claims history, payroll serves as the foundational element in determining premium costs. The number of employees alone does not account for the varying wage levels among different jobs, especially if there's a mix of low and high-risk roles. Therefore, calculating premiums based solely on payroll is a more comprehensive approach to assessing the risk and cost associated with workers' compensation insurance.