The Department of Labor and Industries (L&I) decided to increase Amazon’s fulfillment warehouse work injury insurance premiums by 15%. Consequently, and according to reports, Amazon is disputing L&I’s basis for the rate hike. Personally, this is nothing new. As always, premium rates are a contentious issue. The reason is simple – higher premiums increase the cost of doing business in Washington State.
Workers’ compensation claim in Washington State
In Washington State, the workers’ compensation claim system is governed by the Industrial Insurance Act (RCW 51). This act outlines the benefits for workers and their dependents in the event of work injury or occupational disease resulting in disability or death. Generally, L&I collects insurance premiums from employers and employees statewide into several funds. In turn, L&I pays benefits to work injury claimants from those funds. In the case of self-insured employers, either the employer or their workers’ compensation insurance company pays benefits to the injured worker.
Work injury insurance
To charge fair premiums, L&I uses a multi-factor system to calculate employer contribution. The goal is for premiums to reflect workers’ risk of injury in their work environment. To accomplish this goal, they calculate workers’ compensation insurance rates on the basis of three factors: (1) Risk classification; (2) Base rates; and (3) Experience.
Risk classifications captures the level of hazard or risk exposure for workers in the workplace. There are over 300 categories in this classification. Naturally, employers with more hazardous work environment pay higher L&I premiums. For example, premiums for indoor office work are significantly lower in comparison to premiums for the logging industry.
Calculating base insurance rates also involves several factors. Every year, L&I uses five years of L&I claim cost data to calculate the rates for each risk classification. Here, for each business, L&I multiplies the experience factor by the sum of the Accident Fund, Medical Aid Fund, and Stay at Work base rates. That value is added to the base rate for the Supplemental Pension Fund. Every business that uses the L&I work injury insurance program must pay into all four funds. Base rates for the first three funds vary according to risk classification. Furthermore, businesses receive an annual rate notice from L&I summarizing coverage for the upcoming year every December.
Finally, L&I applies an experience factor adjustment to base rates. The experience factor adjusts the base rate by comparing a business’ actual experience with all businesses in the same risk classification. Then, if a business’ actual losses are less than expected, L&I applies an adjustment to reduce premiums for that employer. Similarly, if actual losses are greater than expected loss, then the experience factor will be greater. When this happens, the business is expected to have higher costs than the benchmark for its risk class.
Since it’s December, L&I’s annual notices just went out. Therefore, it isn’t a coincidence that the Amazon story is in the news right now. Contrary to what the reports may imply, this increase was not to single out and treat Amazon differently from any other employer. In assessing Amazon’s fulfillment warehouse work environment, L&I simply found that the risk classification warrants an adjustment. This kind of adjustment occurs any time L&I finds that current risk classification or experience ratings are inconsistent with the costs and instances of injury in the workplace, for any business.