Workers Compensation Dividend Plans

Dividends Are Not Guaranteed

Businessman counting cash

One way to save money on workers compensation insurance is to enroll in a dividend plan. A dividend plan (also called a participating plan) is a rating plan that allows businesses to share in the profits of the workers compensation insurer. It pays a dividend to businesses that have prioritized workplace safety and successfully controlled their losses.

Many states require insurers to submit their dividend plans to the insurance regulator for approval. In Wisconsin, for instance, insurers must provide the regulator a description of their plan and a schedule explaining how dividends are calculated.


Dividend plans vary from state to state and insurer to insurer. Most have a minimum premium threshold you must meet in order to enroll. Some also specify a maximum loss ratio. Your loss ratio is expressed as a percentage and is calculated by dividing your losses by your premium. Dividend calculations are based on your incurred losses and earned premium.

Some insurers use dividend plans developed by the NCCI while others use their own proprietary plans.

Incurred losses are losses you have sustained during the policy period. They include losses your insurer has already paid and reserves for losses your insurer expects to pay. Incurred losses also include allocated loss adjustment expenses. These are expenses your insurer has incurred to settle specific claims. Your earned premium is based on your actual payroll and is determined when an audit is conducted after your policy has expired.

The following example demonstrates how your earned loss ratio is calculated. Suppose that you were charged $8,000 for a workers compensation policy that ran from June 1, 2019, to June 1, 2020. An audit conducted in August of 2020 showed that your payroll had increased during the policy period, generating $1,000 in additional premium. Your earned premium for the policy year was $9,000. If your incurred losses for that period were $2,000, your loss ratio was 22% ($2,000 / $9,000).

When calculating your earned premium, your insurer may include your experience modifier. For instance, if your earned premium is $10,000 and your experience modifier is .95, your insurer may calculate your dividend based on a premium of $9,500.

Types of Dividend Plans

There are three basic types of workers compensation dividend plans: flat, variable, and combination. 


A flat dividend plan pays you a specified percentage of your premium for the policy period. Your dividend is not affected by your loss experience during that period. For example, suppose you enrolled in a 6% flat dividend plan for the 2019-2020 policy term. Thirty days after your policy has expired your insurer performs an audit. If your earned premium is $10,000, your dividend will be $600. You will receive the dividend even if you incurred substantial losses during the 2019-2020 policy period. However, your insurer may refuse to enroll you in the dividend plan for the 2020-2021 policy year due to your poor loss experience.

Sliding Scale (Variable)

A sliding scale dividend plan (also called a variable plan) is loss sensitive. This means the dividend you receive at the end of a policy year depends on the losses you incur during that year. As the table below demonstrates, the dividend grows as your premium increases and your loss ratio declines. For example, suppose your premium was $13,000 and you didn't incur any losses. Your dividend would be $1,300 (10% of $13,000). If your loss ratio was 35% instead of zero, your dividend would drop to $520 (4% of $13,000).

Annual Earned Premium
Loss Ratio 5,000 to 15,000  16,000 to 25,000 26,000 to 35,000 36,000 to 45,000
0 to 10% 10% 12.5% 15% 17 %
11 to 20% 8% 10% 12% 14%
21 to 30% 6 % 7.5% 9% 10%
31 to 40% 4% 5% 6% 7%
41 to 50%  2% 2.5% 3% 3.5%
Over 50% 0% 0% 0% 0%



Combination plans include elements of both a flat dividend and a sliding scale plan.  For instance, an insurer might pay a 10% dividend if your earned premium is at least $5,000, and a 15% dividend if your premium is at least $10,000 (and so on up to a specified premium). Combination plans usually specify a maximum loss ratio. If your loss ratio for the policy period exceeds the maximum, you will not receive a dividend.

Dividends Are Not Guaranteed

Insurers cannot guarantee that a dividend plan will actually pay a dividend. The decision to pay (or not pay) a dividend is made by the insurer's board of directors. The board may veto a dividend for reasons such as the insurer's poor financial results. If the board declares a dividend, policyholders generally receive it a few months after their policy has expired.

Retro Plans and Safety Groups

Two alternatives to dividend plans are retro plans and safety groups. Both are effective tools for lowering your cost of workers compensation insurance. A retrospective rating (retro) plan can help you save money on premiums if you have few or no losses. The premium you pay for a policy depends on your current (not historic) loss experience.

Safety groups pay dividends to members to reward them for good loss experience. A safety group is a program that pools premiums and losses of similar employers. If the entire group has a favorable loss experience, each member receives a dividend. The dividend is determined by the loss experience of the group, not individual members.