A guaranteed cost workers’ comp policy is the standard kind: the rate per $100 of payroll is fixed for the policy year, and claims during the year do not change that year’s premium. Your final bill still moves with actual payroll at audit, but not with your losses. Most California contractors buy guaranteed cost. As premiums grow, loss-sensitive plans, where your own claims change what you pay, start to make sense. Here is how the options compare.
Guaranteed cost: what “guaranteed” means
Premium on a guaranteed cost policy is your payroll by class code, times the carrier’s rate, times your experience mod, adjusted by any carrier credits or debits. What is guaranteed is the rate, not the total. Two things still change the final number:
- The audit. The deposit is based on estimated payroll. At the end of the year, actual payroll is audited and you pay or receive the difference.
- Future years. Claims you have this year do not change this year’s premium, but they feed your experience mod and show up at renewals for three years. Our experience mod guide explains the window.
Guaranteed cost is predictable and simple, and it is the right plan for most contractors with premiums under six figures. Our guide to how comp premiums are calculated walks through the formula.
The alternatives
| Plan | How it works | Typically fits |
|---|---|---|
| Guaranteed cost | Fixed rate for the year; claims affect future mods, not this year’s premium. | Most small and mid-sized contractors |
| Dividend (participating) | Guaranteed cost premium, plus a possible refund after the year if the carrier’s results and your losses are good. | Contractors with solid loss history who want upside without risk |
| Retrospective rating | Premium is recalculated after the year using your actual losses, between a set minimum and maximum. | Larger premiums with steady, well-managed claims |
| Large deductible | Lower premium; you reimburse the carrier for each claim up to the deductible, usually with collateral. | Large contractors with cash flow and a safety program |
| Self-insurance | The employer funds its own claims under a state certificate, individually or in a group. | Very large employers with strong finances |
Dividend plans
A dividend plan is a guaranteed cost policy that may return part of the premium after the policy year. The catch is the word “may”. Dividends are declared by the carrier, are not guaranteed, and are often paid a year or more after the policy ends. Treat a projected dividend as a possibility, not as a discount, when comparing quotes.
Retrospective rating
On a retro plan, the carrier recalculates your premium after the year based on the losses you actually had, usually more than once as claims develop. A good year can cost well below a guaranteed cost policy. A bad year can cost more, up to the plan’s maximum, which is commonly set above standard premium. The WCIRB publishes a California Retrospective Rating Plan that carriers can use. Retro plans make sense once premium is large enough for your own losses to be statistically meaningful, and when you can live with a premium that is not final for several years.
Large deductible plans
On a large deductible plan the carrier pays every claim, then bills you back up to the deductible, often $100,000 or more per claim. In exchange, the premium is substantially lower. Carriers usually require collateral, such as a letter of credit, to secure what you may owe. This works for contractors with real cash reserves, a strong safety program and someone to manage claims closely. It is a poor fit for a company that cannot absorb a bad quarter.
Self-insurance
Very large employers can self-insure workers’ comp with a certificate from the California Department of Industrial Relations’ Office of Self-Insurance Plans, alone or through a group. It requires audited financials, security deposits and claims administration. For nearly all contractors this is not the next step after guaranteed cost.
Is there an “assigned risk” option in California?
California does not run an assigned-risk pool the way many states do. A contractor who cannot find coverage in the voluntary market can still get it from California’s state-run workers’ comp fund, which acts as the market’s backstop. Getting coverage there is not the same as getting a good price there, so a broker should shop the voluntary market first.
When to consider moving off guaranteed cost
- Your annual workers’ comp premium is well into six figures and growing.
- Your experience mod is at or below 1.00 and has been stable for several years.
- You have a written safety program and someone who manages claims and return-to-work.
- You can handle premium adjustments for several years after a policy ends.
If those don’t describe you yet, a well-placed guaranteed cost or dividend policy is usually the better deal. When they do, the right loss-sensitive plan can cut comp cost meaningfully. We model the options side by side, using your payroll and loss history, as part of a program review.
Sources
- WCIRB California — California Retrospective Rating Plan and Large Risk Deductible Plan (Filings & Plans)
- California Department of Industrial Relations — Office of Self-Insurance Plans
- California Division of Workers’ Compensation — employer FAQs
Common questions
What is guaranteed cost workers’ comp?
It is a workers’ comp policy with a rate per $100 of payroll that is fixed for the policy year. Claims during the year do not change that year’s premium, although the final bill is adjusted at audit to actual payroll and claims affect future experience mods.
What is the difference between guaranteed cost and a retrospective rating plan?
A guaranteed cost premium does not change based on the year’s losses. A retrospective rating plan recalculates premium after the year based on your actual losses, between a set minimum and maximum, so a good year costs less and a bad year costs more.
Is a workers’ comp dividend guaranteed?
No. Dividends on participating policies are declared by the carrier after the policy year based on results, are not guaranteed, and are often paid a year or more after the policy ends.
When should a contractor consider a loss-sensitive workers’ comp plan?
Usually when annual workers’ comp premium is well into six figures, the experience mod is at or below 1.00 and stable, there is a written safety program and active claims management, and the company can absorb premium adjustments for several years after the policy ends.
General guidance for California contractors, not legal advice. Your policy wording, CSLB record and payroll govern.