Would it surprise you to learn that a sizable number of small businessmen don’t really understand the plans, what they are really paying for or even why they are working with a particular carrier? These were the results of a recent poll conducted by small business insurance specialist Employers. Other results include:
· 13% don’t understand how workers compensation protects their employees or how it can protect their business from catastrophic claims.
· 14% of small business owners and executives could not name their insurer.
· A significant number of small businesses rely on state funds, an early source of workers’ compensation insurance that dates to the 1900s.
· Over 50% of those unhappy with their workers’ compensation use state funds.
· 18% of small business owners who reported selecting a new workers’ compensation carrier within the last policy renewal period could not recall the name of the new provider.
· 70% of small business owners, partners, presidents and CEOs depend upon their insurance agent to explain workers’ compensation coverage and pricing.
· 58% of these decision-makers reported they consider choice of a work comp carrier a "hands-on" responsibility that is theirs alone.
This adds up to a lot of small businesses that may not be getting the most out of their workers compensation programs. Ignorance and confusion stemming from the myriad plans that exist both contribute to the problem. Knowing what to look for, what would compliment your business, is the key to making the right choice for you and your employees.
Worker’s Compensation Basics
This is how it works: Worker’s compensation is an insurance scheme that covers medical care and offers compensation for employees injured on the job. In return, employees give up the right to sue their employers for negligence, pain and suffering or punitive damages. These last are generally not included in worker’s compensation plans. Still, even with these limitations, worker’s compensation does have broad reach in that it acts as a form of:
· Health insurance . Offering reimbursement or payment of medical and similar expenses.
· Disability insurance . Offering provisions for payments in place of wages and compensation for past and future economic loss.
· Life insurance . Offering benefits payable to the dependents of workers killed during employment.
You can see that this tradeoff between guaranteed limited compensation over a broad spectrum of needs and relinquishing recourse outside the workers compensation system has benefits for everyone. It helps the injured employee and it keeps the employer safe from catastrophic lawsuits. Now, the question is how do you choose a plan?
Choosing a Worker’s Compensation Plan
According to Ingo Coolins, manager of broker/agent relations for California’s State Compensation Insurance Fund, the key things to look for in a worker’s compensation plan are price and financial strength.
With workers' compensation coverage, the cardinal rule is to make sure you compare final quotes and not just basic rates. Rating plans or the discounting schedules of workers' compensation insurers yield final quotes that may be vastly different from their basic rates. What makes the difference? That depends on how you answer key questions:
· Are you receiving discounts for proactive programs you've instituted--programs that generally entail a lower risk for the insurer? Such programs include early return-to-work programs, comprehensive health benefits for your employees and full use of the medical control options.
· Do you fully understand the variables that could affect your final price, such as premium range discounts, subclass qualifications and group discounts? When comparison shopping, ask carriers to specify the variables that will affect your final price.
· Once you understand the pricing of your quote, ask: What am I getting for this price, and what do I need or expect? Can I rely on the carrier's financial strength?
Coolins holds that a carrier's financial strength is highly important since it will determine that carrier’s ability to withstand economic fluctuations, pay future claims and remain competitive within the industry. You can determine a carrier’s financial strength by reviewing the following through the carrier’s annual report, records from your state’s Department of Insurance, and ratings given by independent rating agencies:
· Total assets
· Level of reserves
· Investment portfolio quality
While these two items will help you make a good choice of providers, there are a number of other things you should take into account.
· Strong medical cost-controls. These programs reduce the medical costs of a claim.
· Workplace safety initiatives. Look for good rates for businesses that are active in promoting and maintaining workplace safety.
· History-based rate changes. By comparing your claims history with industry averages, your carrier judges the risk you pose and, therefore, the rates they will want to charge.
· Electronic claims reporting . This allows you to report and file claims information at any time, which will help you fulfill your reporting obligations.
· Fraud and System Abuse. How does your carrier handle these? Do they have a special investigation section and a way to report suspected fraud? Do they offer training to help prevent fraud?
Before speaking with an agent, you should educate yourself on the basics of worker’s compensation and on each of these facets, as well as on the prices and financial strength of the carriers that interest you. You can consider this a form of due diligence since having this information beforehand means that you will know enough to ask educated questions and that will put you in a stronger position to choose the right plan for your business regardless of the plan that the agent wants to sell you.