Is it wise to shop around for workers compensation insurance? Maybe…but it really depends on your specific situation. For most employers it’s a good thing to do every couple of years. Here’s some tips to follow for shopping around for workers compensation insurance.
Why should you shop around for workers compensation insurance?
- If your business is located in a competitive market state, and not all states are, then rates used by different insurance carriers are different. In competitive market states the state approves what’s known as a loss cost per classification code. This is the base rate. Individual insurance carriers then apply a loss cost multiplier and develop their final rate for each classification code. This is then the final rate that a specific insurance carrier will use in calculating the premium for their insured. You don’t have to know the details but should remember that in a competitive market state different carriers will have different rates.
Who should shop their coverage?
- Most employers should shop their coverage. It’s never a bad idea. We’ve seen employers who have experienced adverse claim situations with high experience mod factors who have, by shopping around, improved their bottom line workers comp costs. Workers compensation insurance is a cyclical product. While many carriers find it difficult to make a profit in this line of insurance others do quite well. Trends that directly effect the pricing of this product include medical costs, litigation costs and specific state legislative environments. States who have tightened up legislation on workers comp and have reigned in legal issues surrounding this product have created environments where insurance carriers can be profitable want to provide coverage. In other words if the insurance company can make money on selling the product you may better your position by shopping your coverage around.
How often should you ask for quotes?
- It depends on your specific situation and the complexity of your workers compensation program. A good rule of thumb would be every 2 to 3 years. For simple single state policies shopping your insurance may not be that big of a deal. For these operations shopping every year may be possible, maybe not wise, but possible. Preparation and going out for bids can be time consuming and the more complicated your program the more difficult it will be to do so. Your agent or broker should be a good source for guidance on this issue. A good workers comp agent will know the market place, the position of carriers in the market place, carrier appetites for your type of business operation and should help you make this decision.
How should you prepare a RFP?
- If you already have a workers comp policy you should begin by gathering current, detailed information you will need to provide to those carriers you want to receive quotes from. Next, talk with your existing agent. Ask them about the market place, ask them if they can improve your situation by moving to another carrier. Have an open, honest discussion. Let them do their work for you.
- Identify the insurance carriers you want to receive quotes from. If you are working through an independent agent ask them for a list of the insurance carriers they can quote you with. Keep that list. If you approach another agency, ask them for the names of the carriers they will work with, check it against the list you already have and limit submissions from agents to carriers. You do not want to have multiple agents sending your information to the same insurance carriers!
- Set a return date! Be sure all involved are aware of the cut off date. You do not want to be waiting for a final proposal to come in the day before your coverage is set to renew! Give yourself plenty of time to make comparisons and come to a good decision!
What kind of information should you make available? Get your house in order! Gather these items, put them in a binder and provide this information to each agency you are requesting quotes:
- Loss Runs – Provide a minimum of three years loss runs from your current and past insurance carriers.
- Audit – Provide copies of the last three years audit information.
- Payroll Report – Provide a payroll report that corresponds with your expiring policy period. This report should show a breakdown by class code on your policy.
- Job Descriptions – If your company has written job descriptions, provide copies.
- Ownership and Entity Information – Provide detailed ownership information including percentage of ownership and duties of all owners.
- Bureau Inspection Reports – If your business operation has been inspected by a rating bureau then provide a copy of that report.
- Experience Modification Rate Worksheets – Secure and provide copies of the past three years experience mod worksheets.
When developing a request for proposal or going out for bid your goal should be to provide the same information to each organization you expect to receive proposals from. This should include your existing agent. While there can never really be an apples to apples comparison between carriers, you are the one who needs to guide the process. Make sure there are not overlaps between carriers, make sure all know the proposal deadline and make sure all involved are using the same information. Then let the carriers and their agents do their jobs.
Once you’ve received proposals back, do your comparison and make your decision!
A few things to watch out for:
- Be careful if someone wants to change your classification codes! – If there is a question about your codes or the use of the classifications, seek professional independent help!
- Make sure the payrolls being used on the quote are those provided by you! – Payroll assignment by class can make a big difference in the final premium.
- Watch the standard exception classes! – Primarily watch the use of code 8810 clerical and 8742 outside sales. These can be tricky and cause problems at audit.
- Watch for proper inclusion or exclusion of owners! – Guided by state statute incorrect application of this may be picked up at audit and could be costly.
- Do your homework on the insurance carrier! – Make sure you are aware of the carrier’s status. Real insurance company vs self-insured funds or others. Be sure the carrier is legitimate!
There you go! If you have any questions about how to shop your workers compensation insurance or specific questions about your premium, audit or classification codes, contact our office at Workers Compensation Consultants! That’s what we do!
Hope this helps you out! Thanks!
