Workers Compensation Insurance

Unfortunately, getting sick or injured on the job is a fairly common occurrence. In fact, it is the reason why most states mandate that employers purchase worker's compensation insurance. Texas is the only state that does not require employers to purchase worker's compensation insurance, and specific workers' compensation insurance laws vary from state to state.

Worker's compensation insurance covers injuries that occur at work, occupational diseases that are contracted at work, or either of the above that occurs off site while working. The fault does not matter, as employers are liable, regardless of whether or not the employee may have contributed to the injury or illness.

Worker's compensation insurance is not only for hazardous industries, and it is important to choose the right worker's compensation insurance to ensure a good fit for your business.

What Does Worker's Compensation Insurance Cover?

Worker's compensation insurance can cover all of the following areas: injuries or loss of limbs, diseases like emphysema or repetitive motion, injury inflicted at work, medical treatment, rehabilitation needed in order for workers or employees to return to work, lost wages (up to two-thirds of employee's salary), death, and liability insurance for the company for all lawsuits filed by injured employees.

Because the worker's compensation insurance laws vary from state to state, some of the provisions mandate that employers with fewer than three to five employees are not required to supply coverage. There are also some states that give the employer the option to self-insure, which allows them to purchase insurance that cover the costs flowing from on-the-job injuries. It is up to the business owner/employer and the type of business they are in, as well as the laws of the governing state, to make this important determination.

As previously described, workers compensation insurance covers workplace and work related accidents and injuries for employees, which include performers, collaborators, and technical staff. It is a common misconception in the construction industry to classify any independent contractors as performers. As stated in several state guidelines, independent contractors are required to provide workers compensation insurance for themselves. There is a downside to this however - if the independent contractor you are working with does not comply with this regulation, you as the business owner are required to get workers compensation insurance on their behalf.

What Kind of Costs Are You Looking At?

If you are in need of worker's compensation, and you choose not to self-insure, it is up to you to figure out the exact coverage you need per employee, and the cost of the worker's compensation insurance policy. What you will pay depends on the type of business you are in. There are more than 700 occupational codes that are used by insurers, and each carries a different premium amount. These codes are developed by the National Council on Compensation Insurance, Inc. The premiums are calculated per each $100 of the company payroll.

For instance, a low-risk occupation such as a secretary or administrative assistant may cost the employer approximately 30 cents per $100 of payroll. Premiums will rise as jobs become more hazardous or risky. Purchasing worker's compensation insurance for contractors will cost an employer about $4 per $100. Higher risk occupations, including truck drivers and freight plane pilots, can cost an employer as much as $10 per $100 on the payroll.

Worker's compensation insurance rates are typically set for three years. During this time period, the insurer will track how many claims are submitted. After the three-year time period has passed, the "experience modification factor" will take effect. This is an evaluation of how your claims compare to other similar businesses in your state and/or region. If an employer has few, less costly claims, he or she can earn a dividend, which is a refund of part of the premium paid, from some insurers. In addition, building safety practices incorporated into the business' daily operations can help you earn an additional discount.

Like all types of insurance, it takes a certain amount of due diligence to find appropriate, sufficient worker's compensation insurance at a reasonable price. After you have established a good history with a few claims, you may find that you qualify for a "preferred" rate from many insurance companies instead of their "standard" rates that you received when you first signed up. Some businesses have to unfortunately pay a high premium above standard rates if the insurer perceives them as risky.

It does not matter whether or not your business needs worker's compensation insurance now - it is always a smart idea to know exactly what to expect when your profits, size, and number of employees grow to a point where you will need worker's compensation insurance.

Finding the Right Insurance Company

When you seek out worker's compensation insurance policies for your business, the insurance company should thoroughly assess your needs, analyze all aspects of your company's exposures and review your claim history. The insurance company would then reach out to their network of carriers to locate the best program coverage for you, at the best possible price. Most reliable insurance companies continually monitor laws and regulations regarding worker's compensation insurance (as well as other types of insurance markets) in order to remain abreast of changes to identify trends that can save you money.

A good insurance company will also pay close attention to claims and patterns in an effort to control costs and exposure, two factors that are key to helping clients reduce high workers' compensation insurance premiums. Typically, a reputable insurance company will offer programs that aim to help companies manage these types of processes.

In Your Control

Perhaps the most controllable insurance expense is worker's compensation insurance, because the losses that drive both direct and indirect program costs can be drastically reduced through aggressive claims management and risk exposure management. Your insurance company should ideally start this process by helping you custom design and develop a comprehensive, strategic program that will improve the entire worker's compensation process and thereby reduce claims costs.