Worker's Compensation

What is Workers Compensation?

Workers compensation was developed as a method to collect benefits for employees who sustain job-related injuries. Because of this, employers can no longer take a callous approach to compensating injured workers.

Every state in the U.S. has passed laws on workers compensation benefits, with many requiring even the smallest companies to purchase insurance providing this benefit. Larger companies may be exempt if they are able to provide evidence of an adequately funded self-insured program.

Depending on the state for which you require coverage, you may obtain workers compensation from a private carrier or a state fund.

Types of Worker's Compensation

Workers compensation policies typically provide two types of coverage.

Workers compensation provides the basic level of benefits as mandated by the state.

Employers liability insurance provides coverage for legal defense fees for lawsuits brought on by employees for work-related injuries.

Each state has its own menu of injuries and illnesses that can qualify for workers compensation. In addition, each state mandates a certain minimum level of benefits. In general, these minimums will cover the medical expenses of the employee and a percentage of that person's salary.

In the event of death, reasonable funeral expenses and financial support to dependents is usually required. The actual level of compensation and the length of coverage will differ from state to state.

Workers compensation insurance will usually include some provision that covers employees injured in states outside those where the business typically operates. Because employees may apply for workers compensation under another state's laws if they provide better benefits, other states coverage provides allowances for potentially higher payments.

How Premiums Are Set

Workers compensation premiums are calculated by taking your business classification and finding the appropriate coverage based on your payroll data.

While workers compensation benefits are fixed, you typically do have some choices in determining the desired level of employers liability coverage.

For the most part, basic rates are calculated by a rating bureau called the National Council on Compensation Insurance (NCCI). A few states have their own rating bureaus that calculate the appropriate rates for all business classifications.  Pennsylvania DOES set it’s own rates, however the individual participating insurance companies may and do deviate from the posted/scheduled rates by either debiting or crediting each classification based on their own experience.

Because workers compensation is often the largest category of insurance costs, it's worth keeping an eye on how those costs are calculated to make sure the rates are appropriate.

Minimizing Your Premiums

Check the data.
At minimum, payroll should be classified correctly and updated regularly. In addition, the payroll data used to calculate premiums should include the correct overtime exemptions. (Should you discover you have been overpaying, some states offer mechanisms that allow you to recover this money.)

Offer better working conditions.
Your company could be eligible for credits or dividend plans; some states allow insurers some flexibility in assessing premiums to reward companies that institute better working conditions.  Start a “SAFETY COMMITTEE” and earn a 5% credit from the state.  Call me if your broker doesn’t know what your talking about or have an established program for you.  They may not know contractors as well as they think they do.

Use your good claims history.
Companies may also be eligible for experience-rated coverage, which takes into account their actual claims history when determining premiums. This usually is a function of the PCRB in Pennsylvania.  They are responsible for determining your experience modification credit or debit.  Simply, it is a function of premium paid verses claims paid over a period of time.