Work Comp 101

Work Comp Insurance 101 – A Complicated Insurance Explained Clearly

Find out everything you need to know about work comp insurance here at my insurance question.com

I regularly speak to business owners that are purchasing workers compensation coverage for the first time. Most insurance agents do not take the time to explain how the basic process works.  When this happens, business owners are purchasing a coverage they don’t clearly understand. It can lead to frustration on the part of the business owner and the insurance agent when something changes with the policy.  Especially when the change demands more money. Work Comp Insurance is my niche. I make sure to take the time to explain the basic process of how premiums are developed at the beginning of the policy period and after the policy period ends. I feel it’s important to explain this coverage properly. By doing this I find that business owners understand why changes happen and what changes are important to pay attention to.  I also make sure they know to notify their agent or insurance company throughout the policy period if any of these changes occur.

Work Comp Insurance and Employers Liability Coverage

The Basic Process:

Workers compensation rates are first dictated by the workers compensation classification code. Every industry does not have a specific code. A lot of times the process of how the work is completed is assigned to a work comp insurance code where the process is similar. For example, a business that puts waterproof coatings on parking lots would be classified the same as a painter because the process is similar.

After the workers compensation classification code is determined, in nearly every state the insurance company is able to file their rates depending on how competitive they want to be in an industry. The state typically sets the minimum and maximum rates, insurance companies file their rates within the range.

Work comp insurance policies require that business owners declare an estimated payroll for all covered persons for the annual policy period, 12 months from the date the policy begins. Business owners are tricky because states require that business owners are covered using a minimum annual payroll up to a maximum. If a business owner is included in coverage and takes less compensation than the state minimum, the additional payroll is added after the audit. If a business owner takes more than the maximum set by the state, then wage calculations stop at the maximum.

The total policy premium is determined by several factors. First the rate per $100 of payroll established by the insurance company per work comp insurance code. That rate is a percentage of the gross wages paid to employees in each workers compensation code. Second, different states can charge different taxes that are added to the bottom line. The insurance company typically charges an expense constant factor that is a flat fee. Then, the insurance company can apply credit or debits (discounts or increased pricing). All of these factors determine the final pricing when you activate coverage.

After the Workers Compensation Policy is finished a payroll audit must take place. The purpose of this audit is to determine the actual gross wages paid to covered persons throughout the policy period. Also, the auditor will double-check the work comp insurance classification codes for accuracy. If the agent used the incorrect workers compensation code OR something changed throughout the policy period, the auditor will adjust the workers compensation code. It’s very important to verify the workers compensation code for your business before purchasing a workers compensation policy. Your agent should be able to provide a detailed description of your workers compensation code to verify accuracy.

During the audit process, most insurance companies do not have the ability to staff auditors across the U.S. so they use 3rd Party companies to handle their audits. These 3rd Party auditors typically specialize in workers compensation audits for multiple insurance companies. Typically the auditor will make contact with the business point of contact within 60 days after the policy period has expired.   It’s very important to set-up the audit as soon as you can coordinate schedules, make this a priority. The auditor will inform of the payroll documents needed, have all of them prepared. These auditors are required to complete the audit process within a small timeframe otherwise they return as non-productive. When an audit is returned as non-productive, the insurance company will process and mail to the business owner an “estimated audit” with a balance due and a cancellation notice. The business owner must contact the insurance company to re-open and process the audit. This is typically a headache, it’s a lot easier to make it a priority and take the necessary time to complete it.

After the audit is processed you will receive the results and either a balance due or a credit being returned. At this point the business owner should review and file a dispute with the insurance company IF the results are incorrect. The auditor’s duties are to capture the gross wages for covered persons and verify job duties. Auditor’s make mistakes, don’t ask the appropriate questions and sometimes they are new to the industry therefore, do not know all of the rules. I know these to be the truth, I speak with the auditor’s for clients frequently. Before filing the dispute the business owner should request the auditor’s notes from the insurance company to understand how they arrived at the results. Then, the business owner can file the dispute with the insurance company if there is an argument.

There are several rules within the workers compensation industry that surprise owners after audits are complete. The audit’s purpose is to accurately charge the owner based on what happened during the policy period. Workers Compensation audits are determined by the 4 bullets below:

  1. Gross Wages for Employees of the business (no surprise here).
  1. Gross Wages for Uninsured 1099 sub-contractors. This is the most common surprise. 1099’s is discussed further below.
  1. Proper Classification Codes per employee job duties.
  1. INCLUDED Business owners. In most situations, business owners are allowed to choose whether they want to be Included or Excluded in the workers compensation coverage. When a business owner chooses to be included, the State typically determines a minimum and maximum wage threshold.   Rules for whether or not a business owner can be included/excluded and wage thresholds are determined by Entity Status (Individual, Partner, LLC, Corporation). If a business owner changes entity status during a policy period, it’s important to notify your workers compensation agent to determine if different rules apply. Otherwise, all adjustments are made at audit.

Uninsured 1099’s

This is one of the most common surprises for business owners after the audit is completed, especially in the construction industry. Uninsured 1099’s are added to the workers compensation policy based on the classification of work the 1099 is performing. Even if the state doesn’t require the 1099 to purchase workers compensation coverage, the only way for a business owner to exclude 1099’s from their policy audit is to collect a certificate of workers compensation coverage OR a “state approved exemption”.

It’s important to understand when a business owner can treat a 1099 like a true independent contractor and request a work comp insurance certificate.

1099 must use their own tools/equipment

1099 must drive their own vehicle

Contractor cannot determine when and where the 1099 is working. Must assign a project and let the 1099 execute on their own time.

1099 must also perform work for their own customers

1099 must carry appropriate licenses with state when required

5 coverages every Non-profit business should have.

The Non-profit Industry is a very wide industry that encompasses a large amount of different types of organizations.  Some businesses simply operate a soup kitchen and only offer meals to those in need. Others offer medical coverage and still others offer construction services for those in need of housing. Each type of mission brings its own unique risks.  That is why it is important for non-profit managers to partner with insurance agents who have knowledge in many different industries and agents who partner with a large amount of carriers. This can help the agent find the non-profit quotes from numerous carriers and will allow them to get your nonprofit more complete coverage and usually at lower rates on premium.

non-profit workers compensation insuranceA lot of insurance carriers have restricted coverage for non-profit and charitable organizations due to a large amount of historical claims and their potential exposure from volunteers serving these organizations. A few carriers have taken a different approach to non-profits and created programs designed specifically to the unique needs of these businesses.  Below is a list of six coverages most non-profits will need.

General Liability

General Liability Insurance covers you and your organization from damages done to third parties as a result of the actions of your organization. These can be bodily injury claims and property damage to anyone who is not you or your employee.

Workers’ Compensation

non-profit-workers-compWorkers’ comp differs from General Liability because it protects your business from being liable to injuries that occur to your employees. It is frequently referred to as the ‘Exclusive Remedy”. That is because it will pay for employee medical costs, disabilities, and lost wages related to on-the-job injuries and accidents. Your organization will benefit from this policy by having the security that you will not be sued by your employees for accidents that occur as a part of your normal operations.

Commercial Auto

Commercial auto insurance for your vehicles is an important aspect of any business insurance program. This coverage provides protection against physical damage and bodily injury resulting from car accidents involving you or your employees. Most coverages also provide some protection from theft and vandalism.  Your organization does not have to own any vehicles to need some form of commercial auto coverage. For example, one of the most often overlooked business insurance coverage is Hired and Non-Owned Auto. Almost every business will occasionally utilize a personal, or non-owned vehicle for work related tasks. For example, your organization has an office staff member make trips to the bank to make a deposit of donations. Another example might be sending an employee to the restaurant to pick up food for volunteers. Every time someone uses a vehicle not owned by the non-profit to perform a business related function, the organization is at risk.

Cyber Liability

Most non-profit organizations think they are not at risk of a data breach. Many may think, I am a small organization with not much money, why would anyone bother to hack my organization. That is exactly what two small business owners thought when two of the largest data breaches in history occurred. Both the Home Depot and Target data breaches occurred by hackers first accessing a small business and then that small business had a vendor partnership with the larger business and that is how the hackers gained access.  If you store any information about donors or have a partnership with another organization, you could be at risk of a breach. Most cyber insurance plans can be added to a (BOP) at minimal cost to your organization.

Commercial Property

business-property-valuation-for-commercial-insuranceCommercial property is needed if you own property no matter the size of the premise. This will cover all property, including things like desks, chairs and anything physically attached to the building (i.e. shelvings, cabinets, etc.). Property coverage does not cover some specialized equipment like printers, computers or other office equipment. Coverage for this type of property would be covered under and Inland Marine Insurance Policy. These policies can easily be paired together under what is called a Business Owners Package (BOP). It is usually a good idea to ask your agent to quote a BOP because carriers are more likely to give your organization a discount on premium if you are carrying more than one coverage from them.

Owners and Officer’s

Owners and officer’s coverage might be the most important and frequently overlooked coverage for most non-profit organizations. The people who sit on your board are usually giving their time and expertise for free. Most just believe in you or believe in the mission of the organization. The last thing you want is for something to go wrong with your organization and them be liable for the actions of the organization.

liability-insurance-for-small-businesses Owners and Officers Coverage is for defense costs and damages (awards and settlements) arising out of wrongful act allegations and lawsuits brought against an organization’s board of directors and/or officers. Securing this coverage allows your officers to sit on your board and comfortably know they are not going to be liable for the actions of the organization.

Underwriting and What It Means to You

I have taken many calls from business owners in search of Work Comp. I would like to say that I have always been able to help. One common exception is when a business can only purchase coverage through the assigned risk pool and the truth is there are many businesses who have no other option.  Assigned risk is outside the volunteer insurance market.  Underwriting these industries is risky for the carrier and that makes it extremely difficult for an agent to find a carrier willing to quote the business.

Insurance agents typically interact with a minimum of 20 workers comp clients per day.

What ultimately puts a business into the assigned risk pool is what is called, underwriting guidelines. What can sometimes be a hurdle is explaining to potential clients that I am not the underwriter. I ultimately do not have the say on if a carrier will take on a particular business (risk).  What makes a business a “risk”, whether it be a high risk or a low risk, is determined by the underwriter with the insurance carrier. There are many factors that determine if an insurance carrier will take on the risk of you and your business.

Insurance Underwriters research and assess the risk each prospect presents. Get all of your questions about underwriting answered at myinsurancequestion.com

Underwriters also research and assess the risk each prospect presents.  This helps to create the market for securities by accurately pricing risk and setting fair premium rates that adequately cover the true cost of insuring policyholders. If a specific applicant’s risk is deemed to be too high, underwriters frequently refuse to cover it.

The most common reason a business is declined coverage on the open market is due to the business not having enough payroll for the exposure. Most construction businesses are going to need between $20 and $30k in payroll to be offered coverage by a carrier on the open market.  Many of my potential clients ask me to just quote with $25k in payroll so they can get the policy they need.  However, the policy will most likely be cancelled in a year due to not enough payroll or premium too small for risk.

The next reason for a business to be declined is because of 1099 or sub exposure. I should say that the amount of sub exposure to w2 employees makes a difference.  Most carriers want no more than 20% of sub or 1099 employees.   Just because a business has chosen to issue 1099 rather than W2’s does not automatically mean the employee is an independent contractor and should not have rights to work comp coverage. Many business owners assume that they do not have to provide coverage for the subs however if the sub or 1099 is not providing a Certificate of Insurance to the contractor or business owner, than the payroll will be picked up at audit. because of this the policy owner will owe in to the carrier for that employee.  Ultimately what carriers worry about most with the subs is if there was a lapse of coverage the contractor would be on the hook for any claims that were to happen.

If I had to pick one other reason for a business to be declined coverage it is because of travel exposure.  By travel exposure I mean using a vehicle to do work related to the business. Carriers deem this a larger risk because when the employees are driving there is a higher rate of claims and the claims tend to be more severe.  It seems these days’ contractors need to go where the work is.  If there is multi-state exposure where employees are traveling out of state or live near the border of two states, that is something that many carriers are not interested in writing.  For instance, if a contractor sends 5 or 6 employees more than 50 miles away to do a job and they all ride together that is 5 or 6 claims that would have to be paid if they were all riding together and were injured in a car accident.  Many employers think that while their employees are driving to work they are not covered under an employer’s work comp policy.  That is accurate if you drive the same route to work every day and generally go to the same place every day.  However, if you as a business owner send your employees on jobs that in tails driving exposure. The driving exposure is anything that would not normally be a part of everyday work. If the employee is solely driving for the reason of doing a job then the insurance carrier would indeed need to pay for the claims that arise out of a car accident.

Insurance is the most common example of underwriting that most people encounter. In order for insurance to work well, risk has to be spread out among as many people as possible. Underwriting helps insurance companies manage the risk that too many policyholders will file claims at once by spreading out the risk among outside investors. Once an underwriter has been found for a given policy, the capital the underwriter puts up at the time of investment acts as a guarantee that the claim can be paid.  This allows the company to issue more insurance to other customers.  In exchange for taking on this risk, the underwriter is entitled to payments drawn from the policyholder’s premiums.

Long story short the 3 reasons for businesses being declined by an underwriter are not enough payroll, too much 1099 or sub exposure and too much travel exposure. These risks are just a few that could result in your business being placed in the Assigned Risk Pool.

7 questions to consider when renewing or purchasing a Workers Comp Quote.

When should I start looking into getting competitive Workers Comp Quotes?

For a new business this should be before you hire your first employee. Depending on the state you are operating in, the type of business you run and the amount of employees you plan to hire; it is required by law in most states to have workers compensation coverage in place before employees start working. If you are an existing business you should start shopping for new coverage approximately 90 days before your policy ends. This gives the agents and carriers you are quoting with enough time to accurately assess your business and find the best coverage at the best price possible for your business.

Why should I shop around for Workers Comp Quotes?

Unfortunately insurance carriers are not as forgiving to customers who have been a customer of theirs for several years. In an ideal world carriers would reward businesses for sticking with one carrier for several years. In reality only a few carriers operate this way and finding ones that do gets more difficult every year. This is because carriers appetites change from year to year for certain industries and particular coverages. Shopping around to make sure your premium is competitive, is something a business owner should do just about every year. That is not to say you should switch carriers every year for only a small difference in premium, but you should have the information at hand to at the very least negotiate better prices on premium with your carrier. Choosing an insurance agency who partners with multiple carriers and not just a select few can save you a lot of time finding multiple options.

Are there any costs involved with getting workers comp quotes?

No, simply getting a quote doe snot carry a charge except for the time it takes you to contact agencies and fill out the necessary paperwork to get a quote. Partnering with an independent agency instead of an agent who woks with one or a few carriers can speed up this process.

Are there any other payment options?

Yes, some agencies offer Pay as You Go Billing for both workers compensation and general liability coverage. This tends to be a good option for cash strapped and seasonal companies. With a typical Pay as You Go Policy you can get policy initiated for a small amount of money and then pay your premium monthly based upon the payroll each month. With a traditional workers’ compensation program, 25% of the total premium is due at the beginning of the term and then there are 9 monthly payments that are estimated from past years payroll. Pay as You Go prevents over or under paying because payments are based upon this years payroll and not an estimate. For most business this frees up cash for more immediate business needs.

What are your state rules and regulations for coverage?

Workers’ Compensation coverage is left up to being regulated by each individual states. In 48 out of 50 states it is required by state law for most businesses. There are exceptions to this requirement based upon how many employees you have and what industry you operate in. The Department of Labor has a list of websites for each state where you can get the most up to date information about the requirements for your state.

Does workers’ compensation cover my family members?

If you have a family business whether or not those family members are covered by a standard workers’ compensation policy is determined by your industry, how your business is classified and the role of your family member in the business. Checking with your insurance professional and state department of insurance is the best place to determine if your family members are covered by your policy and in what degree.

Does workers comp cover sole proprietors, partners and corporate officers?

Most standard workers’ compensation policies can include sole proprietors, partners and corporate officers, but it depends upon the state regulations whether those groups are automatically included in coverage. In many policies it is required to ad those officers or partners to the policy in order for them to be covered. Some are required by law to be covered and some are not. Again it is crucial to bring this to the attention of your insurance professional and check with the proper state governing agency.

 

Workers’ Compensation Rates Could be on the Rise in Florida

Workers’ compensation insurance rates in Florida could be on the rise. As reported in outlets such as the Miami Herald, the Orlando Sentinel and the Insurance Journal.  The National Council on Compensation Insurance (NCCI) filed for a 17.1 rate increase to take affect August 1st. The bulk of the recommended rate increase is due to an expectation that attorneys’ fees will increase the Florida workers comp landscape due to a recent Supreme Court Ruling.

Florida Workers Comp Insurance System

The increased rates are unfortunate in that Florida workers comp insurance is already a significant expense to business owners. Furthermore, increased legal fees should not be a necessary expense to add to the system. Increased education, safety devices, adoption of return to work programs and decreased prescribing of opiates are all trends within the industry which are helping to control workers’ comp rates. Thus, while this appears to be a blow to work comp rates in the state, there are some trends that are working to reduce rates as well (which is a challenge given the ever increasing cost of medical care in the United States).

Another factor which drives Florida workers comp rates higher is the existence of fraud and other scams. Florida is one of the highest states in the country for fraudulent work comp claims, especially in the Miami area. Additionally, as demonstrated in this article from the Insurance Journal, scams to artificially reduce workers’ comp premium are prevalent in Florida. Scams and fraud unfairly increase work comp rates for business owners that are trying to work within the system.

Florida is what is known as a rate mandated state for workers’ compensation insurance. Wisconsin and several other states are set up like this as well. This means workers’ comp rates are set by the state. Work comp rates vary by employee classification and experience modifications, but they are otherwise set by the state. This is in contrast with most states where insurance carriers file rates and there is different pricing between carriers. Florida’s workers’ compensation rates are just below average compared to other rates in the most recently published national study.

Given Florida is a rate mandated state, business owners may wonder what they can do to reduce workers’ compensation rates. In Florida, a small number of carriers, such as Employers, have file with the state of Florida to offer a 5% discount from the rates set by the state of Florida. On the other hand, there is a consent to rate, which can be offered by certain carriers in Florida for difficult to quote businesses. This means a carrier offers workers comp insurance, but they are allowed to charge up to 25% more than the rates set by the state of Florida if an insured signs off on this pricing. If rates can’t be improved, business owners may have better payment options available such as pay as you go insurance. Furthermore, better safety practices leading to lower claims (and thus a lower experience modification factor) are always a way business owners can decrease their work comp insurance costs.

6 coverages every Lawn Care or Landscaping business should carry.

Lawn Care and Landscaping is a diverse industry and with that diversity comes a lot of risk. How you go about protecting your business from those risks can make all the difference in the long term success of your business. Some landscaping businesses simply mow lawns, others lay sod and plants shrubs, some even climb several feet into the air to work on trees and others grow and sell plants at one central location. No matter what type of landscaping business you are running, here are 6 coverages that every business in this industry should carry.

  • General Liability
  • Workers’ Compensation
  • Commercial Auto or Hired and Non-owned Auto
  • Inland Marine
  • Commercial Property
  • Business Owners Package

General Liability

General Liability Insurance is a policy that most every business needs. Depending upon the state and industry you operate in, it is required by law to be in business. For the lawncare and landscaping industry this coverage can prevent your business from damage that is caused to third parties by you or your employees. This can apply regardless of whether the incident occurs on your property or at the property of the customer.

Workers’ Compensation

In 48 out of 50 states workers comp is required by law. What you pay in premium will depend on your experience modification rating and the NCCI class code for your business.  Lawn care and Landscaping is an industry that has several classification codes which include: 9102, 0042, 9182, 0106, 9220, and 9016.

Commercial Auto or Hired and Non-owned Auto

Commercial Auto and Hired and Non-owned Auto Insurance are two coverages that deal with vehicles being used for business purposes. Which of these two coverages your business needs is determined by whether or not the business owns the vehicle that is being used for daily work. If you have employees using their own vehicle as a part of their job than you need Hired and Non-owned Auto Coverage. If you are leasing the vehicle for the season, than this is the coverage you need as well. If your business owns the vehicle than you need commercial auto insurance.

Inland Marine

Inland Marine Insurance Coverage is also known as equipment coverage or floaters coverage. These terms are used because this insurance is for equipment not covered by your property or auto insurance policies and it is usually equipment that is going to be in transit. If you have a trailer with several pieces of equipment that is going to be transported to several locations throughout the day than you need this type of coverage. This could also be necessary for greenhouses if they are having plants delivered to a clients location. while the products are being transported they would be covered by this policy.

Commercial Property

If you own property, no matter how big or small than you need this coverage. Without it you can put at risk everything that makes your business run. Unless you can afford to replace the property and everything inside it than you need this coverage. This policy can usually be added to  BOP for minimal cost to the business.

Business Owners Package

Most insurance carriers have what are called Business Owners Packages designed for each industry and each classification code. Through their experience with claims in each industry, each carrier has a basic recommended package of coverage they deem appropriate for each business. These packages can be adjusted based on the industry you are in and the amount of risk you as a business owner are comfortable taking. This is where the advice of an experienced insurance agent who you trust can be very valuable. An experienced agent should be able to lay down the risks and rewards of each coverage and help you to make the most informed decision possible when buying insurance for your business.

 

 

SIC Business Insurance Codes:

    • •   0781- Landscaping and Planning

•   0782- Lawn and Garden Services

NAICS Liability Classifications:

    • •   541320- Landscaper Architectural Services

•   561730- Landscape Services

Business ISO General Liability:

    • •   Code: 97047- Landscape Gardening

•   Code: 97050- Lawn Care Services

Common Workers Compensation Class Codes:

    • •   0042- Landscapers and Drivers
    • •   9102- Park Maintenance, Lawn Care, and Drivers
    • •   0106- Tree Pruning or Spraying

Toolbox Talks. What are they and are they helpful?

Toolbox Talks is a term that spawned from the construction industry. It refers to when companies or crews would meet briefly in the morning. These informal safety meetings help keep your company’s safety procedures, rules regarding equipment, personal protective equipment, job assignments and expectations on the forefront of your employees’ minds. This type of meeting can be shorter and used more to reinforce formal safety meetings or training programs.

Find out how Toolbox Talks can help your business at myinsurancequestion.com

These meetings help to prevent employees from cutting corners to get a job done more quickly. A prime example is an employee not taking the time to walk back to the truck to get safety glasses. By constantly reminding your staff about safety you can reinforce the importance of safety in your company culture. This can help you as a business owner save money on insurance premium over the course of many years.

It only takes one big claim or many small claims in one policy period to hurt your businesses reputation with an insurance carrier. When your business is not safe it can drive up premium and thus effect the growth of your company.  An even worse result could be having to lay someone off due to the rising cost of insurance.  This does not have to be the case and these Toolbox Talks can help to prevent just that.

How can ToolBox Talks help your business save on commercial insurance?

Obviously some accidents happen and they are not avoidable. Carriers do take that into account when looking quoting your business, especially when you have had a claim. If you have procedures like Toolbox Talks or safety meetings on a regular basis the underwriter may view the loss as more of a shock loss or an uncommon accident. If these talks are in place they are much more likely to view your accident as an outlier and less of a sign of more to come.

When planning topics for your Toolbox Talks you may find it is hard to come up with interesting topics. If you are having trouble coming up with topics to cover your insurance agent or carrier can help you with ideas or even provide some material for you to cover. Insurance carriers and agents want you to have a safe and informed workforce. They want this so they can insure your business for a long time to come. No matter the size of your business or how much work has to be done, you will be able to find the importance and benefits of doing these quick meetings.  Below you will find a quick outline on how to operate a meeting effectively and efficiently. These quick meetings are more to reinforce what you have discussed previously and to act as a quick reminder to your workforce that you want them to be safe.  More importantly, you want the workforce to know that the business culture is one that wants safety on the forefront of the minds of the employees throughout the work day. When safety becomes a habit it benefits not only the business owner but the workforce as well. There is never a better day than today to get started on a structure format to educated and reinforce employee safety. Safety is and always should be a proactive approach instead of a reactive one.

Find out how Toolbox Talks can benefit your business at myinsurancequestion.com

Below is a quick example of a format for Toolbox Talks:

 

  • Focus on one subject per talk
  • Choose a subject that involves your group on hand
  • Avoid vague statements. Be specific and to the point when delivering the message.
  • Give an example of what you expect or from a past experience
  • Leave time for questions or concerns so that everyone leaves on the same page.