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 that injured workers get medical care and compensation for a portion of the income they lose while they are unable to work.  Workers receive 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 costs of injuries that occur during normal business operations.

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.

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.

What is Pay as You Go Workers’ Compensation?

Pay as You Go Workers Compensation Insurance is a fairly new program that is designed to help business owner’s free up cash so they can pay their insurance premium’s monthly instead of in one lump sum. Pay as You Go Workers’ Compensation benefits employers in three main ways:

  1. Pay as You Go Workers Compensation Insurance allows businesses to pay their premium monthly instead of in one large payment.
  2. Pay as You Go frees up cash flow for more immediate business needs.
  3. Pay as You Go prevents audits because both payroll and premiums are calculated monthly instead of yearly.

Pay-as-You-Go

Pay as You Go Workers’ Compensation Insurance Coverage benefits businesses by allowing them to pay their insurance premium’s monthly based on the payroll of their workforce that month only. This is a great option for industries like construction, farming or landscaping. These industries sometimes have a hard time forecasting payroll because of the weather and many other factors. If your business deals with these types of issues than Pay Go may be a great option for you and your business.

 

Another benefit of Pay as You Go Workers’ Compensation Insurance is that it frees up cash flow for more immediate business needs. With a traditional Workers Comp policy typically twenty five percent of the premium is due all at once. The rest is usually paid in nine monthly payments. This means the business is spending money on insurance immediately that could be used on other more urgent business needs.

Pay as You Go Workers Compensation Insurance

Finally, business owner’s benefit from Pay Go Workers’ Compensation Coverage because it prevents audits from happening more frequently. An end of term audit still happens, but Pay Go prevents audits from happening more frequently and makes the difference owed much smaller. With the monthly payment format there is less risk of over or underpaying the premium.

Should you Price Check a Flat Renewal Quote?

In meeting with carrier representatives frequently, I always get updates on the marketplace from a broad array of perspectives. Recently, one of the common themes in the current marketplace is that many renewal quotes are a similar price to what they were in the last year. However, carriers are often pricing quotes for new business to that carrier at very low rates in an attempt to win additional business in a flat market.

For example, as I was price checking my upcoming renewal accounts recently, I was able to save one client around 20% on their policy even though their renewal quote with their carrier had not changed from the prior year. By having their renewal policy price checked, this client saved 20%. It’s not to say you should move your business insurance every year as there are advantages to having continuity with one carrier in case claims or service issues arise. However, potential savings can exist even if your renewal pricing is the same as last year’s pricing.

The current marketplace has several carriers notably pricing aggressively to compete for new business opportunities. One of the carriers that comes to mind right away for workers’ compensation insurance is The Hartford. They are discounting their base rates up to 40% for certain business types and in certain states. It is a hard to beat combination when an A rated carrier with excellent customer service is pricing as low as any carrier in the marketplace for certain businesses.

Another carrier that comes to mind is GUARD Insurance. They are another A rated carrier that is affiliated with insurance giant, Berkshire Hathaway. GUARD has been rapidly expanding into the marketplace for small and mid-sized businesses. If you haven’t shopped your business insurance in a few years, GUARD may not have been an available option at the time you decided on a carrier. Now, they are the leading carrier for many industries (particularly certain artisan contractors) in the marketplace and also offer excellent customer service.

There are so many variables that it is hard to write generally about some of the best carriers in the marketplace for particular businesses. However, AmTrust, Employers, FirstComp and Travelers are all highly rated carriers which offer great customer service and are pricing certain industries very aggressively to attempt to grow their business.

There can be other reasons that it may make sense to price check your business insurance. For one, your claims history may be more favorable than it was several years ago.   Other insurance carriers may offer more favorable payment plans than you currently have. An example in the workers compensation arena is that pay as you go insurance might be available. Over time, different carriers happen to prefer certain industries more or less than they do at other times. That can lead to better pricing in some cases than may have been available at different points in time.

Without checking prices, it’s hard to know whether or not there might be better options out there than your current carrier.

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.

The Importance of Your Company’s Website for Getting Business Insurance

The web presence of a business dramatically affects the business insurance options available for that business.  Much of the insurance buying landscape for businesses is shifting to the online/e-commerce environment. This often offers businesses faster service, better prices and the opportunity to get quoted by more carriers. Many of these transactions are conducted exclusively over the phone and by email.   An agent seeing a business face to face is becoming less and less common. Thus, underwriters are increasingly relying on a company’s website to assess whether they want to insure a company or pass on the opportunity.

For some industries, such as contractors, many insurance carriers will require evidence of a business online before they will quote that business (even if a formal website is not be required).  This gives the insurance carriers more confidence they know what business they are insuring. A good web presence helps businesses obtain better business insurance by getting quotes from more carriers.

Websites are generally used as a marketing tool for businesses. They often are over-expansive in the services they list they will offer.  That is good for marketing, but can make it more difficult for businesses to get insured.   Insurance company underwriters often rely on information contained on a website more than any other resource available. Thus, they will often decline quotes if services are offered which are ineligible for coverage. The rub is that often the businesses don’t really offer all of the services listed on their websites. Many times websites are created by a vendor the business owner contracted with, and their only goal was to make the website the strongest it could be from a marketing perspective. Additionally, the business owners may not always monitor their website on an on-going basis or update the website for changes in business operations.

However, when it comes to getting insurance, it is important that your company’s web presence most accurately reflects your business operations. Editing your company’s website is one way to accomplish this task. Sometimes, it is possible to explain why websites advertise services which are not really offered. However, sometimes it is not. Furthermore, sometimes carriers might price insurance more conservatively due to their potential doubt of the company’s operations based on an inaccurate website. An accurate website puts a good foot forward with insurance carriers.

There are many persuasive reasons to have an accurate and current website. Ease in obtaining business insurance (and potentially better priced business insurance at that) is another reason to add to that list.

Lets talk about Landscaping!!

When I first started doing workers compensation insurance, I had the privilege of writing a lot of landscaping types of risk. I have never been a landscaper, so it was difficult to understand all the aspects of landscaping insurance. For example, are you just mowing yards, are you trimming bushes, are you cleaning the yards, are you replanting the grass or flowers, are you doing edge work? Who knew there would be so much that goes into just one risk?

Landscaping insurance liability questions at myinsurancequestion.com

So, while you ponder on the type of landscaping you do, let me tell you there are plenty of carriers that love writing landscaping insurance.  Except tree trimming and that does not classify as landscaping!! So moving on, I find it very interesting that all the types of work my clients have been doing and the challenges I had to write them. So let me walk you through the process of how this is done.

First, we need to talk about exactly what you do. Never be scared to tell an agent what you actually do on a daily basis. If you cut grass, say that. If you trim trees, tell them! I can’t stress how important it is that you tell the agent exactly what you do. The agent and underwriter will do research on your company and we will scroll through every picture and question whether or not you are doing something… so tell us everything!! It is beyond stressful for the client (i.e. you) to have to wait for a carrier to quote your work comp landscaping insurance policy and at the very last minute tell you they found some issues with what you say you do. Especially if you didn’t tell them that you did something. If you have a website that says you do tree trimming, we will know. If your Facebook page has pictures of you climbing ladders to hang plants, we will see them. So tell us exactly what you do. We understand you might have been declined by a lot of other agents, but we are trained to write tough/difficult risks, or we can tell you who to call exactly. We won’t waste your time and we don’t want to waste ours.

Secondly, after you have told us exactly what you do, we will discuss the payroll and employee count. No agent has your actual monthly payroll reporting in front of us, so we need you to be honest. If you pay one of your landscapers $10,000.00 a year, tell us! Honesty is the best policy. If you are starting out as a new company, we will help you figure that out.

Thirdly, this is the best part, we quote your landscaping business. Believe it or not there are a lot of carriers that are competing to write landscapers. You need work comp for a reason, so let us find the best price for you. I get how stressful it is to try to find coverage in your area… but let me take that stress away. I can shop dozens of carriers and I can get you the best coverage for the lowest price.

In the past three months I’ve spoken with 19 landscaping companies. Seven of those companies have become my clients.  I’ve used four different carriers to place those policies. That shows how much our insurance carriers are willing to compete against each other for landscaping insurance. Landscaping has so many aspects to it that it is a fun risk to write. Also companies are competing for the general liability and business owners insurance too.

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.

 

 

 

OH NO! AUDITS!?!

This past week I went to a training seminar on workers’ compensation insurance. I showed up to this event expecting to learn about claims,  class codes, and all the new products coming out. When I got to the seminar I first sat down at the table I was assigned to. While I introduced myself to all the other insurance agents, I asked them, “What do you expect to learn this week?” To my surprise, everyone wanted to learn about audits. Everyone wanted to learn about things like how an audit works, who does the audit and why do we need to do them? I really was shocked that so many agents didn’t know much about an audit.

What is an audit?:

Workers’ compensation policies are issued with estimated payroll figures for the policy period. An audit is completed at the end of the policy period in order to determine the final policy premium. It can be completed either by phone, mail, or physical visit.

How to prepare for an Audit:

Assemble all financial documents that you have accumulated throughout the year. You should really start at the beginning of each policy year. Things that will be helpful/needed: payroll books, 941s, SUTAs, 1099s, checkbook (which is best if you have a separate checkbook for personal and business), general ledger, or tax records and lastly all Certificates of Insurance. It is very important to know that all grossed wages are used, for example wages for all payroll, commissions, bonuses and lodging allowance.

Who does the audit?:

Typically it is the actual carrier that will do the audit. Your agent will be able to assist you, but it will be the carrier that will proceed with the actual audit. There are times where the carrier can use a third party as the auditors.

When do audits take place?:

Audits typically take place at the end of the policy year. Your agent can request a quarterly, monthly or semi-annual audit for your company. The reason they might suggest that you do one mid-term, is to check on your payroll. It is always best to get the most accurate payroll, but sometimes we might have to actually estimate what an employee will make in a year. When we estimate the payroll, it is always nice to check to see if you are close or going over the estimated payroll. It is a lot easier to adjust payroll during the policy term, than to do it after. It is also a lot nicer to not have to pay any additional premium at the end of the term.

I understand that audits can be stressful and just a pain in the butt, but they are necessary. But if you are prepared for the audit, then you will be okay. The auditor isn’t after you or after your business. They just want to make sure you are paying the correct premium. They also want to make sure that you are classified correctly. So don’t think that audits have to be the end of the world, just breathe and relax. With this advise you will be all set for the audit. You can always call your insurance agent and they will gladly assist you with any additional information you might need.

Umbrella Insurance

Umbrella Insurance is a type of liability coverage you may have seen before. It may have been a part of your contract requirements or as an additional coverage option on your policy. Umbrella Insurance is a source of protection that sits over the limits of any of your qualifying underlying policies. These could be policies like general liability, commercial auto liability, and employers liability. Umbrella insurance policies can also protect from exclusions and gaps that exist in your primary liability insurance. The covered causes of loss that are not normally included in primary policies are subject to a self-insured retention (SIR). This is the responsibility of the insured to pay. An SIR in the amount of $10,000 is the most common. The coverage of an umbrella policy is triggered when the limits of the underlying insurance have been exhausted. The umbrella liability policy has a critical requirement. You must maintain the policies listed in the schedule of underlying insurance. They must be kept in force, without alteration of terms and conditions, during the term of the umbrella liability policy.

Now that you have the basic understanding of what an umbrella policy is, lets look at why it can be important. The area I am going to focus on is in regards to lawsuits. Lawsuits seem to be more common place than they were 20 years ago. They could be from a slip and fall, or giving out a wrong phone number resulting in a large number of calls to another business. Lets look at an example:

A repairman arrives at your location to fix the phones, computers, system, HVAC, etc. It is a rainy day outside. He makes a few trips in and out of the building. On one of the trips he slips and falls in a hallway. The repairman claims that he had no warning about water in the hallway. From the fall he has a back injury along with a broken arm and neck stiffness. The injury requires a few surgeries to help the ailing back and it is determined he will always have an issue. This issue will affect his ability to work and his way of life. The repairman files a lawsuit against your company for not having the hallway marked notifying of the wet conditions. The case goes all the way to trial and a jury rewards the individual $1.5 million. The problem with that amount of money is your general liability policy has a $1 million per occurrence max on it. This leaves you exposed for the remaining $500,000.00. Thankfully your business had an umbrella policy that will then provide coverage over the excess amount. This will take care of the $500,000.00 difference. If your business had NOT had an umbrella policy then your business would have been on the hook for the $500,000.00.

The cost of adding an umbrella policy to your coverage is generally not that expensive. Hopefully you will never end up needing it, but over the course of time insurance claims happen. Whether you have been in business for 1 year or 75 years an incident will eventually occur. It is important to always consider how well your business is protected and make sure there are not any holes in your insurance coverage. If you have not thought about adding umbrella insurance, now may be the time to sit down with your agent to discuss the benefits it could provide your business.  In order to make an informed decision you need to think about if your business might ever be in a situation where you may need additional coverage on top of your existing liability coverage.  If you do need additional coverage then a Commercial Umbrella Policy might be right for you.