The word ‘insurance’ can mean a lot of different things. In most situations, it provides protection against a possible eventuality. You can pay to insure just about anything you value: your home and health, car, and even treasured possessions. Work comp insurance is designed to protect your business. But what does it protect you from, and how do you make the most of it?
On this episode of the WorkSAFE Podcast, we’re joined by returning guest Christian DeLozier from Mike Keith Insurance, Inc. As a Proactive Business Risk & Insurance Consultant, he helps businesses control risks and manage their work comp costs.
First, we’ll talk about what work comp insurance is. Then, we’ll break down how work comp premiums are decided. Finally, we’ll share how business owners can take an active role before and after they have a work comp policy.
Listen to this episode of the WorkSAFE Podcast or read the show notes below.
Work comp insurance 101: Protection for your business
In our daily life, some types of insurance are optional. You can choose to purchase policies that protect furry friends, your belongings as they are moved between homes, and even wedding expenses in the event someone has a change of heart.
Work comp insurance is different. It provides several important things for business owners: medical care for injuries, lost wages, and death benefits in the event of fatal incident. “Every business owner needs it, whether they have employees or not,” DeLozier explained. “They have a risk when they show up to work and start performing whatever their occupation is.”
Business owners: Protecting employees
Most states mandate work comp insurance for business owners. Laws determine when you need to have coverage. For instance, you may need to buy a policy when you reach a certain number of employees. In Missouri, the standard number is five. However, for more hazardous trades, like construction, having a single employee means you need a policy. It is even more important when working with uninsured subcontractors.
Sole proprietors: Protecting yourself
Having coverage for your business is important, even if you work alone. Sole proprietors aren’t automatically covered by work comp policies. Some may opt out of covering themselves, hoping to save on costs. Others try to rely on solely on health insurance.
But DeLozier encourages them to elect for coverage anyway. For example, driving is one of the most hazardous tasks that can be done on the job. Whether you’re driving on behalf of a company, or even as a one-person LLC, you’re still exposed to risk.
He points to higher costs for including a business owner on a policy as a misconception. Further, in the event of a workplace injury, health insurance coverage isn’t always guaranteed. These carriers know work comp covers workplace injuries. As a result, they may deny a claim found to be work-related. Without a work comp policy, the expenses may simply fall to the injured person.
“You should buy, or you should be required to buy, a work comp policy, but we would also encourage you to include yourself for any injuries,” he added.
Breaking down your work comp insurance premium
For most employers, work comp isn’t an option – it’s a requirement. And where things are required, cost is one of the first things people worry about. How much will a policy cost me? Does my industry make a difference in the premium cost? What if I’ve had a workplace incident before?
Work comp premium is calculated based on three elements:
- Payroll. Your payroll is determined by how many employees you have and how much you spend paying their wages.
- Classification code. The National Counsel on Compensation Insurance (NCCI) assigns a four-digit code to each type of business. With each code comes a standard premium rate for each $100 of payroll. Employers can expect lower rates for less hazardous industries, and higher rates for more hazardous ones.
- Experience modification factor (e-mod). This calculation summarizes a company’s loss experience. Then, it compares it to similar businesses in the same industries. A lower e-mod could result in a discount on your premium. A higher e-mod could cause extra costs.
It is vital to remember the cost of an injury without work comp. Medical bills and lost time on the job will be standard expenses. In some states, work comp policies protect employers from being sued by injured employees. Without one, liability may fall into the business owner’s lap. Most importantly, for those required to have a work comp policy but don’t, steep fines may also lie ahead.
All these costs can be the result of just one injury. As they pile up for an employer, it’s a possibility that the business itself simply won’t recover. A work comp policy eliminates the worry and risk of these tricky expenses.
The importance of loss control
No matter what kind of insurance you’re purchasing, carriers want to know that you are preventing risk where you can. When it comes to work comp, this means reducing losses with a safety-focused culture and having a return to work plan in place.
Some employers who haven’t had many workplace incidents often resist implementing loss control strategies. However, a single incident can change everything. More serious claims factor into a company’s e-mod for up to four years. As a result, premium costs could rise – and hold steady – for years to come. “If you have a good loss ratio, a good experience mod, and you don’t have a solid strategy in place, you’ve been lucky,” DeLozier expressed. “But if that’s all you’re relying on, your luck is eventually going to run out.”
“The insurance companies are all going to want to see that you’ve got loss control in place,” DeLozier explained. Not only does this help injured workers get back on the job sooner, it minimizes claims costs.
Owning your work comp responsibilities
A work comp policy is important for businesses large and small. He recommends that those searching for a policy:
- Find a broker that understands your business. What type of business do you run? Which industry are you a part of? What are your unique needs? The answers to these questions are key to identifying the right class code, and thus the right baseline premium rate, for you.
- Find a carrier with great claims experience. A work comp claim can be a difficult experience. The right claims representatives and nurse case managers connect injured workers with the right care and at the right cost.
“Not all brokers and not all insurance companies are created the same,” DeLozier said. “When you’re looking for someone to represent you – and that’s what they’re doing – they’re representing your insurance buying experience, needs, and loss control for your company.”
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