Can Workers Compensation Premium Really Be Controlled? – Here’s A Check List You Can Use

Is workers comp insurance just a cost of doing business? Or can an employer really do something to get control over rising premium costs? Valid questions we are asked every week!

Workers comp insurance is not the same for all employers. Sure the basic function of a policy and the benefits it provides to employees are similar regardless where an employer’s located but the structure of a policy or coverage delivery mechanism can vary a great deal depending on certain, specific circumstances.

Employers must be categorized. Large employers with many thousands of employees and many more thousands of dollars in payroll compared to a small employer with only a few employees and very little in payroll have very different options in securing workers comp coverage.

A very large employer will have many more options available for their delivery of coverage to their employees. These may include:

  • Self Insurance – Rather than securing fully insured coverage from an insurance company, the employer qualifies for self insured status from the state in which they operate. Self insurance is for the sophisticated insured. It requires professional administration and the use of TPA’s, third party administrators, for the management of claims and program administration. It requires valid historical statistical data from which claim trending and other actuarial functions can be performed.
  • Excess Workers Compensation – For the self insured employer there are many options and a multitude of ways to structure their programs. Some insurance carriers specialize in providing excess workers compensation which may include specific excess coverage and aggregate excess coverage both providing a sense of security to the self insured employer.
  • Sophisticated Loss Sensitive Rating Plans – Otherwise known as retrospective rating plans underwritten by an insurance company may provide the large employer with certain cash flow advantages not available through fully insured plans. These plans may include;  the tabular plan, the incurred loss retro, paid loss retro and depressed payroll retro. The most common seem to be the incurred loss retro and the paid loss retro. The use of retro plans requires a knowledgeable employer and support staff consisting of the insurance carrier personnel and in house plan administrators to oversee these plans and to consistently analyze their effectiveness.
  • Large Deductible Plans – There are several options available to the large employer through fully insured plans. Of these the large deductible plan is somewhat common and operates just like it sounds. Claims are paid by the insurance company subject to a participation by the employer in the form of a large deductible. The employer still has the backing of the insurance company but at reduced costs because of their participation in the claim costs through the large deductible.

The small employer has limited options which may include:

  • Standard Fully Insured Workers Compensation – This would be a standard workers comp policy secured through an independent or captive insurance agent with coverage provided by an insurance company authorized to write coverage in the state where the employer is located and has operations. Many states are open competition states where the rates for coverage will differ from one insurance company to another. However some states are monopolistic where coverage can only be secured through that states workers compensation program. Some states use NCCI as the rate making authority and others don’t. Many standard insurance carriers have their own rules as to who will qualify for their workers comp programs. Not all small employers will qualify. Some because of the type of operations they perform, some because of their lack of previous coverage and still others because of their size of operations, lack of employees or adverse claim situations. It varies considerably between insurance carriers.
  • Assigned Risk Plans – Otherwise known as the market of last resort or the “Pool.” Assigned risk plans provide coverage for those employers who typically cannot secure coverage through the standard market. Pricing for these plans are generally much higher for the participating employer.
  • Association or Group Self Insured Trusts or Funds – For the smaller employer these programs may allow them the option of participating in a workers comp program with less cost over the standard market plans. But there is a trade off! Participation agreements are often times overlooked and the rules established by these agreements may impose heavy duties on the employer given certain adverse circumstances. However for some, these programs are beneficial.
  • Small Deductible Plans – Like the large deductible plans for large employers, the small deductible plan may allow certain small employers to share in the costs of their claims and enjoy a reduced overall premium cost. Not available to all employers for some it makes sense.

Those are just a few of the options available for securing workers comp coverage for the large and small employer. But what about some tips in controlling the costs?

Here’s a check list that all employers can use to help control their premium:

  • _____ Have I secured coverage through the most beneficial program for my operations?
  • _____ Do I work with a broker/agent who is knowledgeable in the workers compensation arena and do they provide the information I need about my policy?
  • _____ Do I have the claim reporting, claim investigation and followup procedures in place to monitor claim activity in my business?
  • _____ Have I had a claim review performed by a independent workers compensation consultant?
  • _____ Do I have my employees properly classified for workers compensation in regards their activities and job functions?
  • _____ Have I had a workers compensation code review performed by an independent outside source?
  • _____ Do I have procedures in place for preparing for my workers compensation audit?
  • _____ Is my experience modification factor or other rating factors correct?
  • _____ Have I had my audits and rating factors reviewed by an independent workers compensation consultant?

While some employers may believe workers comp is just a cost to do business…it’s those who are proactive in the management of their program, knowledgeable about the individual items that drive the costs and take an organized approach in verifying those individual factors that can and do get a handle on their premiums!

So be proactive! Get control over your workers comp program. And seek out the assistance of an independent workers comp consultant when it comes to verifying those rating parts that drive your premium!

Hope this helps you out! Thanks!

Share