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Workers Compensation Q&A

Get answers to the most common questions about workers compensation insurance.

Workers compensation Q&A

Workers Comp May Be Required By Law

In most states, workers compensation coverage is required by law.  Certain state rules and regulations may exclude some entity types such as sole-proprietors or partnerships, or employers with fewer than one or two employees.  This insurance coverage is the most commonly utilized commercial insurance product.

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Common Questions and Answers From Our Customers

WHAT IS WORKERS COMPENSATION?

It's insurance for employees injured while working on the job.  Workers comp provides a form of wage replacement and medical expense coverage for work related injuries or illnesses.  A policy will cover the cost of necessary medical care and pay a percentage of the employees average wages if they can't work after an injury or illness.  All polices also pay disability and death benefits in the event of partial or permanent disability or death.  Medical insurance does not cover work-related injuries.

see also: What is Workers Compensation Workers Comp Benefits

HOW MUCH DOES IT TYPICALLY COST?

Rates are based on a percentage of gross wages (or a rate per $100 of payroll).  They can vary from as little as a few cents per $100 all the way past 99% per $100 of payroll.  There are three key factors that determine rates:  1) What business you're in, 2) Your claims history and how it compares to other employers in your industry, and 3) Your total amount of employee wages.  A clerical (white-collar) rate will always be less expensive than a construction (blue-collar) rate because the exposure and claims history/severity is more costly to insure.

see also: Workers Comp Class Codes Workers Comp Experience Rating

WHY DO EMPLOYERS NEED WORKERS COMPENSATION?

When an employee gets hurt on the job or has a work-related illness only workers' comp insurance will cover them.  Health insurance will not cover an accident, let alone pay lost wages.  Additionally, workers compensation policies cover additional employer liability and protect employers from lawsuits by injured employees.  Without workers comp, employers may be held personally liable for the cost medical care and lost wages, and may even be fined or jailed. 

see also: Employers Liability

WHO DOES IT PROVIDE COVERAGE FOR?

It provides coverage for all full-time and part-time employees and may cover owners and officers depending on the application and the owners inclusion or exclusion on the policy. In many states, a policy will cover uninsured subcontractors and 1099 employees if they do not have other coverage in place.  As a general rule, employers with at least one employee should have coverage.

see also: Workers Compensation Exclusion

WHAT IF I HAVE A CLAIM?

The best practice is to always report any claim right away to the insurance company.  This will help ensure that employees get the care they need and it protects you in the event the claim gets worse.  Statics show that earlier claim reporting reduces the overall cost of most claims.  Your agent should be willing to help you and all policies and required Comp Postings will have the carriers contact number for claims.

see also: Workers Comp Claims

WHAT IS A WORKERS COMP AUDIT AND WHY DO THEY HAVE THEM?

Insurance carriers may conduct an annual audit for any policy after it expires.  The purpose behind an audit is to make sure you paid the right amount of premium so that you don't pay too much or too little.  Since traditional plans were based on estimated payroll, most audits were done to determine actual payroll over the policy period.  Auditors will also ask about subcontractors and verify correct classification codes.  Audit can be done over the phone, via mail, or in person depending on the carriers' preference.

see also: Workers Compensation Audits NCCI Class Codes

HOW DO I BUY WORKERS COMP AT A GOOD RATE?

Although workers compensation may not be a choice, how and who you get it from is your decision  Ask a lot of questions and make sure you fully understand all of your options.  Compare coverages from carriers and review rates from at least 3 carriers to make sure your getting the best rates.  Ask the agent about the carriers reputation and how they manage claims.  Rates can vary significantly from one carrier to the next.  And many agents only have a few insurance contracts do to their size or location.  Be sure you agent has plenty of markets and expertise with workers comp insurance.

see also: 10 Good Workers Comp Questions

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WHAT IS PAY AS YOU GO WORKERS COMP?

Pay As You Go plans are the newest way to buy coverage.  Instead of making standard installments based on estimated payroll, these programs allow business owner to pay their premium based of real-time payroll.  There are three primary benefits including: 1. Lower start-up cost for policies, 2. Better cash flow throughout the policy period, and 3.  Less exposure to year end audit balances.

see also: Pay As You Go Workers Comp

CAN BUSINESS OWNERS EXCLUDE THEMSELVES FROM COVERAGE?

In most states owners and officers have the ability to choose whether or not they want to be excluded or included in coverage.  There are some restrictions for corporate officers in several states.  It is important to clearly communicate your intention with your agent prior to binding coverage.  Most carriers will go by the choices listed on the Acord 130 Application for Coverage.  It is also important to note that some states require an additional form filed to either exclude owners or to include owners in coverage.  Failure to properly execute these forms can create a real problem in the event of an audit or a claim.

see also: Workers Compensation Exclusion

WHAT IS A GHOST POLICY AND WHAT DOES IT COVER?

A ghost policy is a policy most common with subcontractors who are required to carry workers compensation coverage but don't have any employees.  The owner is typically excluded from coverage and the policy only applies if the owner hires an employee or utilizes other subcontractors who do not have coverage during the policy period.  They are typically based off of a minimum premium amount per state.

see also: Ghost Policy

WHAT IS AN EXPERIENCE MODIFICATION FACTOR?

An Experience Modification Factor is a factor, or rate, assigned to an employer by NCCI or a state rating bureau.  This factor is tracked by each employers' FEIN and typically takes a few years before being assigned.  An employer who do not have an official Experience Modification Factor, or "MOD" are automatically assigned a value of 1.00.  This means the employer will not receive any mandatory credit or debit on their rates.  A credit Mod is represented by any number below 1.00 (example: .85 = a 15% automatic credit).  A debit MOD is any number greater than 1.00 (example: 1.25 - a 25% automatic debit on rates).

see also: Experience Modification Rate

HOW DO I KNOW MY BUSINESS IS CLASSIFIED CORRECTY?

It is generally the agents responsibility to properly classify your employees into the proper workers comp class codes.  Unfortunately, many agents inadvertently misclassify employees.  Employers have the right to appeal to NCCI or their state rating bureau to get assistance with proper employee classification codes.  Carriers also have the right to reclassify employees during the annual audit so its important to utilize the proper codes up front.

see also: NCCI Codes

WHY DO THE RULES AND REGULATIONS VARY BEWTEEN STATES?

Workers Compensation is not a federally mandated program.  Therefore, each state is free to establish their own laws and rules regarding coverage.  All states share the common framework and state rules and regulations are designed to eliminate litigation and ensure injured employees are financially repaired in the event of a claim.  States have different guidelines and laws regarding requirements for coverage, treatment of owners, and even rates.

see also: Workers Compensation Laws

WHAT ARE THE BASIC PARTS OF WORKERS COMP COVERAGE?

A workers compensation policy always has seven basic parts to the coverage: 1. Medical treatment, 2 Disease exposure, 3. Employers Liability, 4. Temporary disability, 5. Permanent disability, 6. Total disability, and 7. Death benefits.  All policies address coverage for these separate categories.

see also: Workers Compensation Basics

WHAT IS A STATE FUND OR ASSIGNED RISK POOL?

Almost all states require employers to obtain workers compensation coverage.  However, most states utilize private insurance carriers in a competitive market.  In some cases, none of the private insurance companies want to write high hazard industries or companies who have had a high number of claims over a period of time.  A State Fund or Assigned Risk Pool is the carrier of last resort and is obligated to provide coverage for these companies at a higher cost to the insured.

see also: State Fund

WHAT DOES "A RATED" MEAN TO ME?

In most cases an A rated carrier has shown greater financial strength and has a higher amount of reserves set aside to pay claims and, therefore, greater financial solvency,  However, recent years have demonstrated that more A rated carriers have gone bankrupt than non-rated or B rated carriers.  As an agency, we evaluate our carriers' rating as well as their reinsurance coverage and reserve funds before representing them.  In some cases, a general contractor may require all subcontractors to have coverage from an A rated carrier.

WHAT'S A CERTIFICATE OF INSURANCE AND WHEN DO I NEED ONE?

A certificate of insurance is an Acord form used by insurance agencies or carriers to provide proof of insurance coverage two a third party on behalf of an insured.  Certificates are most commonly used in the construction industry.  They will list the insurance company, the limits of coverage, and the policy inception/expiration date.  It is not common for Certificates to contain additional special wording regarding coverage.

WHAT ARE LOSS RUNS AND HOW DO I GET THEM?

Loss Runs is a common insurance term you may hear from insurance agents.  The term refers to an employers Official Claims Report from their current or prior insurance company.  Carriers are legally required to provide Loss Runs within a reaonable amount of time.  Most insurance companies typically want to view an employer's prior claims history for 3 years before offering a quote.  This practice is utilized to verify the amount and cost of claims over a period of time.  Other terms to decsribe loss runs are Loss History and Claims History.  Loss Runs can be requested from your insurance agent or directly from the insurance carrier.

HOW MUCH COMMISSION WILL MY AGENT MAKE OFF OF MY POLICY?

Generally speaking an agent will make anywhere from 5% of the insurance premium up to 12% depending on how they wrote the policy and their compensation plan with each of their insurance carries.  Policies procured through a wholesale broker usually pay on the lower end of the spectrum and policies bound through a direct appointment with an insurance company pay towards the higher end of the commission spectrum.

see also: Workers Compensation Commission

DO YOU WORK WITH OTHER AGENTS AND BROKERS?

At WorkersCompensationShop.com we work directly with business owners to find the lowest rates and best quotes available for their coverage.  We also have a separate wholesale division dedicated to helping other insurance agents find the best coverage for their cusomers.

see also: Retail vs. Wholesale Coverage Workers Compensation Wholesaler

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