23 Q: What is a minimum premium? A : Insurance companies have minimum premium amounts in place to cover the expenses involved in issuing and servicing policies. When the payroll of a company is small, it is possible that the premium generated from the premium calculation will be very low. If the calculated premium is so low that the insurer cannot meet even basic expenses, it is not a sound financial practice to insure the risk, as the insurer would be losing money before any claim had occurred. By setting a minimum premi- um, an insurance company determines the smallest acceptable premium that is willing to charge in order to accept a risk. Each insurance company must file its minimum premium require- ments with the CDI as part of its rating plan. Q: What happens when an employer cancels a policy dur- ing the policy year? A : When an employer cancels a workers’ compensation policy in the middle of a policy year (mid-term) in order to secure insurance with another company or to close a business, the insurance company will return any unexpired, or unearned, pre- mium on a pro rata basis, unless the insurer discloses to the pol- icyholder in accordance with California Insurance Code Section 481(c) that cancellation will be on a short rate basis. A short rate is an administrative penalty assessed to the policyholder for failure to complete the contracted term of insurance. An insurance company may charge a minimum premium for the cancelled policy if the short rate cancellation amount is less than the minimum premium in order to cover expenses. If an employer experiences problems with a cancellation or a premium refund issue, it can contact the CDI by using the information available in the “Talk to Us” section of this brochure.
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