The Performance of Total Payroll as the Exposure Base for Workers Compensation - An Updated Analysis

Posted Date: Spring 2007


In the September 1991 edition of NCCI Digest, author Ron Retterath penned “Total Payroll/High Wage Payers” to review relationships between high wage payers and low wage payers and determine if there was an inequity in the lost-time and medical benefits awarded.

The 2005 update showed results consistent with the 1991 study and demonstrated that total payroll continues to be the most equitable exposure base for workers compensation insurance. In both studies, average claim costs rose steadily with increases in the average wage level for all classes combined and for each industry group. Furthermore, the relationship of average claim costs to average wage was strong. Actual results confirm that the benefits track strongly with wage levels.

This 2006 update focuses on the characteristics of claims by wage range in order to explain why benefits track strongly with wage levels. This study helps us to understand why medical losses and costs for lost-time claims affected by the cap on maximum benefits rise with increasing wage levels.


The data used in this study is based on a sample of lost-time claims provided by carriers for Accident Years 1998–2002 for the 36 states where NCCI provides ratemaking services. The data is adjusted to remove wage and benefit cost differences between years and states, which allows us to perform comparisons across all states and years. Analysis is performed for all classes combined and for each industry group separately.

Key Findings

A study of claim characteristics by wage range shows that claims among the higher wage levels:

  • Have a higher proportion of workers aged 45 to 64
  • Have a higher proportion of permanent injuries
  • Remain open longer
  • Are more costly among all major medical cost categories
  • Are more likely to involve a surgery

Among the lower wage levels, there are a higher proportion of claims that involve causes of injury and parts of body that are associated with lower average costs.