Category: Workers Compensation Insurance

Are you paying too much for Workers Comp or too much for Payroll? Maybe Both

 

Have you ever purchased a used car or found a great deal on a piece of used furniture at a “sale”?  Than got home to find out it was not the steal you thought when writing the check. Buying commercial insurance can sometimes be this way. It can be a stressful and time-consuming process, especially if you do not have an experienced insurance agent on your side. A good insurance agent can help you find things you might be overpaying for, or maybe some parts of your insurance policy are not set up right at all.

 

For example, I recently worked with a client who’s business is in a high risk agriculture industry. They pay a significant amount on their workers’ compensation insurance each year. This business was part of an alternate service organization, which provided payroll services. It than reports the payroll to their workers’ compensation carrier for the companies Pay-as-You-Go reporting. This was two separate companies doing these processes.

 

In the case of this business we found the workers’ compensation rates were a little high. So to help this business we found a carrier who could save them money on their workers comp coverage. We also found their payroll reporting charges were very high. In this business there are lots of companies that provide work comp and Payroll services. both services. Most of these agencies can offer a better rate because they are getting both businesses. Some try to charge lower workers comp rates, but make up the difference by charging more for the payroll processing side of things or vice versa.  Sometimes it is just that a payroll company knows they can build in a little extra that ends up costing you a lot!

 

For this business we were able to find an aggressive workers’ compensation carrier that provided competitive workers comp rates.  This carrier also integrated their payroll services and collected on a Pay-As-You-GO billing plan. By combining the two services, we were able to save this client nearly $25,000 per year on their work comp premiums and $23,000 per year on their payroll processing. Part of this savings was based on the payroll being reported by a company different than the insurance carrier. This disconnect can cause inaccurate reporting. Many companies work with agencies who actually operate the payroll service in house. They do this with the insurance carrier operations to make this fully integrated. This process also helps prevent fraud by acting as an extra verification procedure.

 

There are a lot of solutions out there for getting coverage in place.  If you can get workers compensation in place on a hard to write class code and get it on a pay-as-you-go basis, it seems like a dream come true.  However, this is an example of how just looking at the down payment or the workers comp rates alone can end up costing your company significantly. It’s always best to review the rates you are paying for this type of plan.  Review what is being charged for all the services provided. Sometimes this is where another company is really making their margin at your expense.

What is Workers’ Compensation Insurance?

Workers’ Compensation Insurance is a state mandated insurance coverage required by nearly every state in the country. The basic purpose of Workers’ Compensation Insurance is to assure injured workers get medical care and compensation for a portion of the income they lose while they are unable to work as a result of injuries sustained on the job.  Workers give up the right to sue employers for injuries that occur as a part of normal business practices. Inured workers can sue employers if there is some form of negligence on the part of the employer.

Workers' Compensation

Workers receive these benefits regardless of who was at fault in the accident. In most cases if a worker is killed while working, workers comp (as it is often abbreviated) provides death benefits for the worker’s dependents. Also, Workers’ Compensation Coverage prevents the employer from bearing the full cost of injuries that occur during normal business operations. Employers also gain the relief that they cannot be sued for injuries that occur as a part of normal business practices.

In the United States, Workers’ Compensation Laws were implemented throughout the first half of the 20th century.  In 1908 President Taft signed the first legislation requiring mandatory employer coverage for employees working in multi-state commerce. Over the next 40 years each state enacted their own state specific workers’ compensation programs. Wisconsin was the first state to adopt such legislation and Mississippi was the last state to adopt a formal workers’ compensation program.

Workers' Compensation Insurance Claim Form

One of the most important legal concepts with regards to workers’ compensation insurance is that it is the “exclusive remedy” when an employee is injured on the job.  This means that employers who purchase coverage  can not be held liable for employee injuries in most states, except under narrow circumstances where the employer intended to cause injury to the employee or was willfully negligent. The idea behind the exclusive remedy clause is to force compromise between employers and employees. Employees give up the ability to to win large suits against employers in order to receive fast and limited financial return. Employers exchange liability regardless of fault, for legal protection from potentially devastating tort judgments in court.

In most states, employers are legally required to carry this insurance coverage. Each state has certain exemptions to the requirement. Two states (Oklahoma and Texas) have laws that allow certain employers to opt-out of the workers’ compensation requirement, if they qualify. Tennessee and South Carolina Legislatures are also proposing similar opt-out provision’s. This opt-out provision has been in the news a bit as of late. Oklahoma is in its second year of allowing companies to opt-out and fewer than thirty businesses have applied for and been granted the privilege.  Unlike Texas’s system, Oklahoma employers must meet certain financial and other requirements to qualify, including a written benefit plan that provides coverage and benefit levels that meet or exceed the minimum requirements set forth in the law.

Most states and employers are taking a wait and see approach to these changes to the opt-out provision.

 

 

Deductibles, Self Insurance and First Dollar Coverage?

Deductibles, Self Insurance and First Dollar Coverage?What is the best option?

When it comes to buying insurance there are a lot of decisions to make which can make the process a bit overwhelming for most. Insurance, like most purchases we make is a decision that has a variety of options to consider. For most of us this decision is based on a three things; Price, Coverage and Service. Is there more to the equation though?

Workers compensation in particular tends to be written on what we call “first dollar Coverage”. This means there is no deductible option and when a claim is filed the insurance carrier will pay claims without you having to first pay a portion before their on the hook. This is a nice policy to have as you don’t have to worry about funding a claim if that takes place, however depending on your premium amount and claims history you could be leaving a lot of money on the table with this option.

Generally when the premium is below $100,000 the benefits of a deductible are slim compared to the discounts offered by most carriers. However, if you have a a competitive market company who offers a quote compared to the fund this option might be worth considering. The savings could be much greater, so you don’t want to rule them out.

When a company starts paying in excess of $100,000 in premium per year this is when considering a high deductible option could be beneficial. This is mostly because that business will typically have an established insurance history and more opportunity to spread out risk. This allows for a better chances of savings. This is where a high deductible option can sometimes save you 20-30% off your premium, but this comes with the risk of you paying out more if claims develop frequently. Examples of the types of deductible plans would be an Aggregate deductible. This is where you pay the claims until the aggregate amount (Typically starting between 50-100k) then the insurance carrier picks up the tab there after.

The opportunity for savings in this business gets bigger and more creative as your premium grows. Once you are paying in excess of $250,000 per year in workers compensation premium you really need to consider alternative options besides first dollar coverage. The only exception is if you have uncontrollable claims history that cannot be corrected. If that is the case than this is a serious issue. This issue needs focus before considering alternative workers comp plans. If you’re not in this boat considering high deductible options are still an opportunity but the savings are not the best. At this point, self insurance is starting to sound appealing. The cash flow that gets tied up in claims reserves can be significant even though the savings can be great. The rewards are likely 5-7 years out. At this premium amount a Captive Self Insured Retro Plan is a great option for a company at this premium threshold or higher with the ability to control their claims. The best part about this plan is it essentially takes the rates out of the equation.

The Captive Self-insured Retro Plan Model we use at our agency is a 3-year plan. Many like this option because it locks in workers comp rates over a 3-year term. Since this is a retro plan, instead of having 1 set premium based on your payrolls, you will have a minimum and a maximum premium. This will change based on your claims development over the 3-year term. The minimum amount accounts for administrative costs for running an insurance company and having the claims handling in place. This plan can often offer premium savings in excess of 50% compared to first dollar coverage policies, if you perform well. The max premium will account for these same costs but give you a worst case scenario if claims get out of control. This allows for a conservative approach to managing risk while allowing the opportunity for maximized savings.

There are several variables to consider when selecting the best plan for your company. The Retro captive program I described is a good solution to consider for your company for the long term. If you would like to know more about it, any insurance agent should be able to discuss these options for your companies future and premium savings.

What do I need for a Work Comp and GL Quote?

Items needed to get a quote on Workers’ Comp and General Liability Insurance

Many times while talking to a prospect and gathering information I get the question “why do you need that, I just need a quote”.  Agents can usually give you a business owner a phone indication depending on the state you are calling in reference to, but that is only an indication and not a formal quote. Any agent can easily go into detail about why they need an address and Employer Identification Number (EIN). Sometimes the business owner on the other end of the phone does not want to give out the information.  At that point an agent has to say, unfortunately I cannot get you a quote unless I have your EIN and other needed information. This is a good piece of information to have if you are looking for a quote on workers’ compensation or general liability insurance for the first time. Below are all the basic questions any agent will ask while on a phone quote. These are also the questions you will get frequently via email when an agent needs more information on a submission sent in to me.

 

  1. It is very important that we have the correct name and spelling of the company. The way the company is formed is also crucial for Officer & Partner Exclusion Regulations per state.
  2. Phone numbers and email addresses are very important for the agent working on your quote and the future insurance carrier. Many carriers require agents to enter an email address upon quoting and or binding an account.  This is typically for billing and information delivery.
  3. Mailing and physical addresses: Many times this is a PO Box for a mailing address and that is acceptable.  However, a physical address is needed for the application and auditing purposes. In some cases there are multiple states and different mailing addresses. Your agent will need to know where to mail important policy information. Which address it needs to go to needs to be specified.
  4. Years in business: If you have been in business 5 years but are just now needing work comp or liability insurance our insurance carriers are going to want to know why. If you are a new venture and hiring employees for the first time, agents have different options for you than a business that has been in operation with employees and no workers comp coverage. All of this needs to be known to get an accurate quote.
  5. Federal or Employer Identification Number:  This number is very important for many reasons. This number acts as the Social Security Number for your business. This number also acts as a way for each agency or agent to identify they are working on your account specifically. For instance if you call four different agents and they all have the same insurance carrier appointments then it’s first come first serve. Meaning the agent that enters in your information first will have the ability to present the quote. The other agents will be “Blocked” from the market. This EIN will also follow you with the National Council on Compensation Insurance (NCCI). This will show what class codes you have used in the past as well as any past audits out for your company. On a side note please give any and all information to your agent. If an agent asks if you have ever had a Work Comp policy and you say no never, the carrier will have record that you have had a policy before. This makes for a very uncomfortable conversation for all involved.
  6. Officer and owner information: I cannot convey in words how important or vital this piece of information is. Depending on the state and how your company is formed determines what officers/ partners & percentage owned will allow some exclusions. I have seen this go many different ways and usually the head ache could have been detoured with correct owner information.
  7. What are the estimated annual wages for each department (office, field, sales): Workers’ Compensation Rates are based solely on Payroll. Your payroll times the rate of the class of business per 100 in payroll. We as agents understand that if you are just starting out this can be a hard number to decide on. Take it with small numbers first for instance how much money per hour?, how many hours a week?, and how many weeks will the employee be working for you? This number will give you a real number that you can give the agent to quote with.
  8. Detailed description of operations: Agents need to understand what your business is doing on a day-to-day basis. Telling your insurance agent I have a construction business does not give us a lot to go on. What kind of construction? Commercial or residential, new build or existing? Are you an artisan contractor? Or maybe you own a machine shop. What are you machining? All of the questions we are asking are so we can get you the most accurate quote.
  9. If you have a Workers Comp policy in place, agents are going to need a copy of your Loss Runs or Claims history along with an Experience Modification Number (if you qualify for one). You can obtain both of these documents from your current carrier and you do not have to call your agent if you do not want to.  Along with this information if needed a supplemental application will be sent to you to be filled out, signed and returned.

 

Always remember insurance agents are here to help you get the coverage you need. If at any point, do not be afraid to ask questions. Many times this is the first time making a call to inquire about work comp insurance and there is a lot to know before actually purchasing a work comp policy.

Shopping Assigned Risk and State Funded Workers’ Compensation Insurance

I very much enjoy phone calls from clients that say “I am shopping my state fund policy”. Many times, I can help the client on the other end of the phone. That is always a great feeling. Sometimes I can not help and neither can any other agent out there. I would like to discuss some of the many factors that go into writing a work comp policy.

Many business owners are under the impression they can switch after they spend a year or so in the assigned risk or state fund. These business owners think they can automatically get out and go to a voluntary or select carrier. Unfortunately this is not always the case.

When determining if a business qualifies, we will start with what type of business you have. If you have a green or go class code chances are better. Restaurant, retail and even some artisan contractors are great classes of business to pull out of the various fund policies.

Next we need to know how long you have been in business. Sometimes it just takes a year or two of prior coverage to move carriers. Next comes the loss history of your business. We will need to know things like if your business has had any large claims in the last 3-5 years or does your business have a bigger issue like a frequency problem?  A lot of little claims are sometimes less desirable to a carrier than just one large loss. That being said restaurants tend to have more of a frequency issue. A lot of small claims like cuts and slips and falls. If you have enough of those even though they are small it could land you in the state fund.  However putting a formal safety program in place goes a long way for frequency issues.

A big misunderstanding that I often have to explain is when a client asks, “I have been in the pool for what seems like forever. I have never had a claim. Why can’t you move me to a select carrier who will offer better rates.” Well if you are a class like 9014 (janitorial/commercial cleaning) who only has 2 very part time employees and you only have $7000 in annual payroll then I will not be able to help you get out of the fund. There is not enough payroll and or premium for select carriers to offer a policy. There are carriers that will consider lower payroll but it is very difficult with any type of contractor classes.

The other more difficult topic is the “model” business owner with 3-5 years of prior coverage and favorable losses. They also have a less favorable class code, but with enough payroll to generate a policy premium of $7-8k annually. Many clients and even myself would think that should be an easy move, but more and more I am seeing $10k minimum premiums for yellow class codes. These are usually heavy construction class codes. Our agency has success with some of these accounts with one of our new carriers. All hope is not lost for those business owners who think they are doomed for life to the assigned risk pool.

When I finish up with these types of phone calls, the client on the other end of the phone usually feels better about their policy. It may be a policy they have to have for now, but at least they know why. The majority of business owners I talk to are very thankful when I take the time to discuss their policy, even if I can not help them. Many just want to know why the only option is a state fund policy. When I let them know that option is just for a certain time period they know what they have to look forward to after a couple of years in the assigned risk.

 

 

 

Insurance For Home Health Type Businesses – W-2 – 1099 – Leasing

The home health care industry is one of the fastest growing business types in the U.S. As the American population grows and the life expectancy becomes longer the population needing health care type services at their home continues to increase. In my experience home health companies are servicing the elderly, the mental or physically disabled and people with permanent disabilities that require constant care.

There are three types of home health agencies that can have a drastically different impact on the business insurance coverages.

  1. Business that employs all as W-2 employees
  1. Business that chooses to employ all as 1099 independent contractors
  1. Placement agency that places their employees with a third party employer

The first type is the easiest model to insure for professional liability, third party crime coverage and workers compensation coverage. Being employed on a W-2 status, these are direct employees and the ownership of the business has the right to direct, control and fire.   Insurance companies prefer this set-up.   Business owners MUST make sure their third party crime bond extends coverage to the client’s home.

The second type is the most difficult to insure. For the third party crime coverage, business owners must confirm that coverage is specifically for “independent contractors”. For the workers compensation coverage there is a specific question on the application asking about “sub-contractors” and whether they are insured or uninsured. You must answer the question “Yes, the business is using sub-contractors”. If you are covering the 1099’s under your policy the business owner must also answer “Yes, the sub-contractors are uninsured”.

The third type is different from the two above because the business owner is not purchasing a policy to cover their tax id number. For a placement agency, the business owner is “leasing” their employees to a “Leasing Company” aka “Professional Employer Organization” aka “Staffing Agency”. The staffing agency is insuring under their tax id number specifically for workers compensation. If the staffing agency requires the business owner to purchase their own professional liability and third party crime coverage, the business owner must inform their insurance company and make sure coverage is acceptable.

Employer’s Liability Coverage Explained

Most business owners are familiar with workers’ compensation insurance. However, many do not know it almost always comes in two parts. There is workers’ compensation coverage and employer’s liability coverage. Workers’ compensation coverage has unlimited benefits for covered claims where as employer’s liability insurance has limits to its benefits. Employer’s liability insurance protects employers from claims caused by workplace conditions or practices which are not covered by workers’ compensation coverage.

Employer’s liability claims are very rare. However, they can occur and are often costly when they occur. Employer’s liability coverage can cover damages, judgments, settlements, legal defense fees, and other court costs. Increased employer’s liability limits generally only increase the cost of the workers’ compensation insurance policy by around 1%. Employers liability coverage is part of every work comp policy. You may be able to increase or decrease the amount of coverage (and the cost) based on your needs and risk exposure. This is a good reason to partner with an experienced independent insurance agent because they will be able to advise on how much coverage your business actually needs.

The most common types of employer’s liability limits are as follows:

  • Third Party Claims
  • Dual Capacity Claims
  • Loss of Consortium
  • Consequential bodily injury
  • Intentional acts/torts by the employer

(1) Third party claims: these are generally claims brought by an injured employee against a manufacturer of the object causing the employee’s injury. The manufacturer then brings a claim against the employer for contributory negligence.

(2) Dual capacity claims: Dual Capacity Claims are similar to Third Party Claims, but it comes up when the employer is also a manufacturer. If an employee is injured by a defective product manufactured by their employer, they might bring a product liability claim against the employer in addition to claiming workers’ compensation benefits.

(3) Loss of consortium or other services to family members: loss of consortium and other claims such as modifications to homes or lost parental services resulting from a workplace injury can be covered.

(4) Consequential bodily injury: claims by a spouse or other family member of an injured employee arising from the injury such as a heart attack due to the stress of the news of the employee injury. It is common for these types of claims to include alleged mental injuries. Legislative action in many states has narrowed the applicability of this type of lawsuit so it is important to know the laws within the state or states that your business operates in.

(5) Intentional acts/torts by the employer: claims covered in some jurisdictions such as knowingly allowing employees to work in unsafe workplace conditions.

Employers Liability Insurance Coverage Explained