Differentiating Workers’ Comp Insurance from being a Commodity Product

Workers’ Comp Insurance is often thought of as a commodity product. There is some logic to that line of thinking. Pricing is determined by classifying employees and then taking the percentage rate assigned to that classification and multiplying it by estimated payroll. In some states such as Florida and Wisconsin, the workers’ comp rates assigned to those classifications are set by states, whereas in some states the rates by classification can vary from carrier to carrier. In competitive states, pricing is often thought to be the main differentiator between workers’ comp carriers. Most of the benefits paid from claims related to workers’ comp insurance are set by statutes, so carriers should be viewed pretty similarly in that regard as well.

Other than pricing, what can separate workers’ comp insurance carriers? Carrier rating is one factor that is considered. It relates to the financial strength of carriers. A higher carrier rating should lead to more certainty that claims will get paid, but it is highly unusual for claims not to get paid by any workers’ comp insurance carrier. Higher carrier ratings are sometimes required to meet insurance requirements of vendors or customers. A carrier’s customer service reputation can also be relevant. Additionally, payment plans can vary by carriers. Some carriers offer pay as you go. This allows premium to be paid in line with how busy a company is at a particular time. Furthermore, it generally reduces large audit balances.

Another differentiating factor is, are different programs offered by workers’ comp insurance carriers. Missouri Employers Mutual is one carrier who offers several programs to enhance employee safety. They often safety grants to policy holders. The grants will provide dollar for dollar matching funds up to $20,000 for successful applicants to purchase more permanent type safety devices. Some applicants may be able to get a grant larger than their policy premium. Missouri Employers Mutual also offers safety dividends to policy holders with lower loss ratios as a way to reward good safety practices. The Hartford is another carrier that offers numerous programs to differentiate its product. They offer programs to provide discounted slip resistant footwear to employees, programs that can lead to weight loss and overall a healthier employee pool and discounts related to vendors which can provide a more ergonomic friendly workplace. The Hartford also provides a broad form policy which includes things like more cancellation notices, pays benefits for more additional expenses, includes complimentary waivers when needed and provides longer notification periods for insureds related to certain mandatory notification events. Some carriers, such as Employers, offer price differentiators such as filing for a 5% rate deviation in Florida which allows them to offer worker’s comp rates which are 5% lower than other carriers in Florida which must use the rates set by the state.

Another area carriers can differentiate themselves is by superior loss control or claims management services. Utah Business Insurance (UBIC) is a carrier that offers superior loss control. Very knowledgeable field reps meet with prospects and insureds to provide insight on safe work places. These field reps are strongly versed in OSHA and other safety protocols. Both UBIC and Missouri Employers Mutual also diligently investigate claims as they arise.

While price is always an important consideration as it relates to workers’ comp insurance, there are numerous other factors worth considering when selecting a workers’ comp provider.

What Do My Workers Compensation Limits Mean?

We get this question a few times a week because most business owners don’t quite understand their workers compensation limits. They try to compare them to their general liability limits and that is where some of the confusion sets in. The Limits on your workers’ compensation insurance policy provide coverage for a business against lawsuits arising from employment-related injuries or illnesses.  For example, if an injured employee is not satisfied alone with medical and loss of wage benefits because they feel their employer purposefully put them in harm’s way on the job or were grossly negligent, and as a result they were injured, they may sue for punitive damages.  In some cases, even the employee’s family can sue for the same damages. This is where Part II of a workers’ comp policy would kick and provide coverage.

It is important to note that employers’ liability coverage is limited, unlike medical benefits or loss of wages.  This is the spot that a lot of business owners or anyone starts to get confused. They see limits on their workers’ compensation policy and naturally think that is the max that would be paid in an injury scenario. A workers’ compensation policy will pay out whatever it takes to rehabilitate an injured employee. Employers liability or Part II will not pay out unlimited amounts on behalf of employers who were charged with gross negligence or knowingly placing their employees in harm’s way.  Employers’ liability coverage in most states starts at $100,000 each employee, $100,000 each accident and at $500,000 per policy limit for disease- these limits are statutory or minimum limits that come with the purchase of a policy.  These coverage limits can be raised for a nominal additional premium percentage on most policies.  Many businesses opt for increased employers’ liability limits.  They do this because of a need for peace of mind or because their work contracts often require higher limits than statutory requirement.

To give you an idea on how these limits work, think about it in this manner. An employee working in a manufacturing plant is exposed to lead on a daily basis. The employer does not have proper ventilation or does not always check on the employee to make sure they are wearing proper attire. Whether that is long sleeve shirts and pants or to have a respirator so they are filtering the air quality they are breathing. The employee gets injured on the job after many years of never missing work. It is also discovered that they have come down with a serious illness that may be caused by years of lead exposure. The employee and his family are not satisfied with the level of benefits workers compensation is providing and has decided to sue the Employer for negligence. This is where the limits in Employers Liability or Part II would kick in. There are many other scenarios that could come into play outside of illness, but this is just one example of how a 3rd party may potentially bring suit against your company. The best thing to do is always be proactive with safety, etc. which can be hard for a small business.  Because your time is very invested in the day to day activities of the business.

Why so many questions???

Shopping your Workers Compensation insurance –

4 Tips for the best and fastest results

Shopping insurance can be a daunting task. This is not commonly the case with other purchases. When you buy a couch, you just pick out one that feels comfortable.  One that fits your room or matches your style. You look for one that is in your price range and bam! you have the newest edition to your next super bowl party.

Shopping insurance, as much as we would like it to be, is not like buying a couch. Yes, you shop for a policy that fits your coverage needs and the budget you are able to afford, but there are some distinct differences to shopping for an insurance policy. An important factor to consider is the seller’s motives. When you buy a couch, the sale for all intents and purposes is over. The expense and liability of the company selling the couch is basically the same no matter who they sell the couch to.  When you buy insurance, the company who is providing that coverage doesn’t have the same benefit. Insurance companies use a variety of data to determine the risk of each person or business purchasing from them. The reason this information is used is because it has been shown somewhere in their data that this factor shows a correlation between certain variables and their likeliness of a claim. There are something you can do to help tip the odds in your favor. Here are four tips for making the quoting process easier for you and can help you get you the best price you desire:

Be Presentable: Dress your business up for Sunday church, not casual Friday. Show a clear outline of the purpose of your business and the kind of work you do. Equally importantly is to outline the work you won’t do. Make sure your marketing material and websites match this. There are few objections harder to overcome with an underwriter than a website that says you do something your application says you do not. Having these things in line is the best way to get a great first impression.

Be Open about the biggest risk: Every company has some operations that are lower risk than others. Insurance is as much about preventing claims as it is about paying them. The goal of the industry is to make your business whole after a claim, but wouldn’t it be better if we help you to prevent that claim from happening in the first place. Tell your agent about everything you do. If we don’t know that you are hanging from a rope 50 ft off the ground with a chainsaw in your hand, we can’t help find a better way to protect yourself and your employees in that situation (true story).

Note the details: Sometimes high risks are deal breakers, however sometimes in the right circumstances this can be overcome by showing the amount of this exposure. “Yes, we do work on roofs, however they are only flat commercial roofs and only ones with inside stair access or a permanently attached ladder with walls around the perimeter”. The controls you have in place for the highest risk work will be the most vital controls to focus on.

Don’t be afraid to show your hand: A lot of times people look at an insurance purchase like a poker game. If you are buying insurance as a commodity, then that’s what you should expect to receive when you want that policy serviced.

If you work on the same side of the table with your agent however they can work to get the best pricing possible. There is no better pricing than you can obtain from an insurance company than when the underwriter knows what they are insuring. When the underwriter is confident in your business and knows what price they have be at to earn your business they may be more aggressive with credits and discounts. There is much more savings to be had if you say “this is the premium you have to be at to earn my business” than there is with “show me your best price”.

Workers Compensation Fraud

Fraudulent Workers Compensation Claims – How to Defend Against Them

Over the course of 10 years writing workers compensation insurance, throughout the country a very common conversation I have with business owners is “that claim was fraudulent”.   For the most part the explanation I am given seems correct, but the story is only one-sided.  For that reason, how can I fully agree with the business owner. Fraudulent or not, workers compensation claims cause the overall cost of the coverage to increase almost immediately for the business owner.

One solution rarely thought about is requesting your company loss runs periodically throughout the year. Some business owners are so disconnected from their employees that claims are filed without the business owner knowing what really happened. I have personally insured a business that suffered a $180,000 fraudulent claim and the business owner didn’t realize the injury was serious. Certainly not serious enough to amount to $180,000 in medical costs, compensation and the attorney fees. From my perspective I have to ask:  How do you not realize a fraudulent injury occurred, that has a large effect on your insurance cost, until the increase happens? As a business owner, by requesting your loss runs periodically you can monitor 2 very important things. 1. Which employee filed a claim?   If the claim is fraudulent then you can catch it early enough to attempt to fight the claim being paid. 2. Has the insurance carrier properly closed the claim? When claims are “open” the insurance provider typically sets aside an amount in a reserve account. This amount is for just in-case the claim pays more.  For example, if someone hurts their back, goes back to work and re-injures their back.  This is what the reserve amount is for.  The reserve amount counts against your claims history until it’s closed.

Another solution is having the same supervisor, foreman or key employee being responsible for handling all claims. One of the best solutions I have ever heard was a nursing home. This nursing home required all injured employees to report to their claim to one supervisor.  That supervisor was required to write the report, drive the employee to the doctor’s office and listen/report the information relayed to the doctor by the injured employee.   By doing this the story has been told twice with the same details and reported by the medical professional within their file. Almost all of us have smart phones that allow the supervisor and employee to take pictures or video the interview if needed.

The easiest solution to avoiding fraudulent claims is creating a safe work environment. Safety within the workplace and enforcing those requirements are the easiest way to avoid claims. A great first step is to have the business owner, supervisors and key employees almost always present when the employees are working. As the business owner you need to show the employees you care and appreciate them.   Reward employees for long periods of time where 0 claims occur. If at all possible, develop a return to work program. By creating a return to work position, with light duty the employee is motivated to return to work quicker and reduces the overall cost of the claim.   Your workers compensation provider can assist with setting up a return to work program.  Ask them for assistance and documentation for setting up a program, make sure you input into your employee handbook.

What exactly is the “Exclusive Remedy”

Exclusive Remedy

What is the exclusive remedy for risk management and small business professionals?  In the world of insurance, the term ‘exclusive remedy‘ refers to the workers’ compensation system.  These systems are administered by the sate governments of each individual state, not the federal government. In most states, this grand bargain began around 100 years ago.  It was an agreement between employment and labor during a time when many employers severely abused the rights of workers. As a result of these abuses, many workers were beginning to unionize.  In an attempt to keep both sides happy, most states created a workers compensation system to deal with both medical benefits to employees and protection from most lawsuits for employers.

workers-compensation-insurance-is-the-exclusive-remedyThese workers’ compensation systems are administered by each individual state and not the federal government. Because of this, each state provides the system a tad bit different.  Wisconsin was the first state to administer a workers’ compensation system in the year 1911. Mississippi was the last state to come around to the exclusive remedy in 1948.


workers-compensation-forms-aid-the-exclusive-remedyThe term ‘exclusive remedy‘ came about because the benefits that are provided under the workers compensation system are supposed to be the sole remedy available to employees injured on the job. The benefits to employees are, they have the confidence to go to work knowing that if they are injured on the job they will have their medical costs covered and some lost wages. Employers benefit from the system by having most lawsuits taken away for injuries that occur as a normal part of business operations. Businesses are not covered for injuries that are caused by the intentional actions of the business and its management. This includes decision-making or neglect by the business to operate the way in which they do business in safe conditions.

Workplace-Safety-Toolkit-Exclusive-RemedyAs time has passed and work environments have changed so has the opinion of many in the business community about the need for an exclusive remedy in todays’ business climate. A few states have removed workers compensation as a requirement for some types of businesses. A few other states have proposed the idea, but are still in a wait and see approach. At this time Texas and Oklahoma re the only states to implement what is referred to as an Opt-out program. This is a program where if the business qualifies they can elect not to carry coverage and provide an alternative to what most states give through the workers comp exchanges. Both have in place certain minimum standards that are similar to those standards required under most workers compensation systems. Opponents of these system frequently critique that there are very strict reporting policies put on the responsibility of the employee. In the system set forth by Oklahoma employees must report the injury to management within 24 hours or they may not be eligible for coverage. Most states are sitting in a wait and see approach and depending on the success or failure of these states will determine the future of the workers’ compensation system.



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

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. Most within the industry believe the Florida legislature will make sweeping changes to the workers compensation system at some point in 2017 or 2018.  So business owners can rest assured that in some way, help is on the way in Florida.

Workers Compensation Insurance Expert

Personally, I have written workers compensation insurance across the U.S. for 10 years. I have partnered with multiple industries and multiple insurance providers. While doing this I have realized the difficulty and importance of finding an insurance agent that specializes in this line of insurance.  Especially finding an expert who has a positive relationship with the underwriters they work with. For most business owners, Workers Compensation Insurance is one of their biggest insurance expenses. It can be a nightmare to find if the business experiences’ a substantial change in payroll, or if the business has claims or a bad audit experience.   Most insurance agents do not specialize in workers compensation insurance and because this they do not fully understand how it operates.  Therefore, these agents do not want to jeopardize their relationship with their client and potentially lose the other lines of insurance such as general liability or auto by giving bad advice.

While speaking with business owners about workers compensation insurance I feel it’s important to explain the process of how the policy works. I attempt to explain what a classification code is, what the rate per $100 means and how uninsured and insured 1099’s are handled by the audit process.  I do this in an attempt to help the business owner understand how the policy can change throughout the policy term. After the audit is completed, most workers compensation policies change in total pricing after the policy period expires. Since the policy is audited following each policy term it’s important for the business owner to understand the potential changes that could have a significant financial impact on their pocketbook. Do you want to work with an agent that doesn’t take the time to explain these potential changes to you?

When working with a workers compensation expert, the agent will be able to determine or research the correct workers compensation classification code. The correct workers compensation code determines the businesses pricing for workers comp insurance, it’s the most important first step in the process. After the classification code is determined the agent should explain the importance of estimating your employee wages correctly at the beginning of the policy due to the audit. If a business uses 1099 labor, it’s important for the agent to explain how that 1099 is either added or excluded from the business owners audit. After the policy period expires and the audit takes place, it’s important for the agency to be able to explain why the audit resulted in the way it did OR be able to help with disputing the audit.   Business owners can typically accomplish this with the insurance company directly, however, I feel it’s important for your insurance agent to be able to review, educate and assist with correcting after an audit is finished.

One component that most business owners do not understand about insurance quotes is the relationship between the agent and the insurance company is very important. If the agents relationship with the insurance company is untrustworthy, it could cause the insurance underwriter to decline instead of quoting because they don’t trust the information given by the agent. If the agent doesn’t specialize in workers compensation insurance, it’s possible the agent is not providing the relevant information to the underwriter. It’s important to make the underwriter feel comfortable with the business they are reviewing before they are willing to quote, especially when it’s a more difficult or unfamiliar industry. Loss ratio of the clients that agent has insured with an insurance provider is extremely important. If an agency continues to insure bad businesses with an insurance company, suffering bad losses or them finding dishonest information at audit, that insurance underwriter will be less likely to quote for that agent and will not be as aggressive with pricing.

Work with an expert when trying to find optimal pricing for workers compensation insurance. Not only will an expert know how to explain and assist but they will have the relationships established with insurance providers that will give you the most competitive pricing.