Re-engineering of premium computation formulas for construction workers' compensation insurance: critical factors and methods

Existing formulas to compute premiums for workers' compensation insurance (WCI) for construction projects have been found ineffective and lead to detrimental losses for insurers. This study developed a new set of formulas to address this problem. A combination of a literature review, questionnaire, statistical analysis of past WCI claim data, and an interview identify eight critical variables for premium rating and the correlations between these variables and the premium rate. Based on these, a new premium computation model was developed and validated. The proposed model streamlines structured analyses of project factors, contractor factors, market conditions and insurers' internal factors to decide optimal premiums. Moreover, it infuses the partnering notion in construction WCI. The implementation of the proposed model in the insurance industry could facilitate accident control in the construction industry and thereby loss minimisation for insurers.