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Workers’ Compensation costs are escalating rapidly. So while there’s no way to completely prevent every incident, there are steps an organization can take to minimize the frequency and cost of such events. These insurance policies include two different coverages – Part A for employee accident and illness while in the course and scope of work and Part B which is Employer's Liability for allegations that you knowingly placed an employee in harm's way. Workers' Compensation insurance was originally legislated as an “exclusive remedy” for claims by employees against their employer. This vast majority of all claims fall under Part A. Additionally, all 50 states have regulations regarding this compulsory insurance coverage.
Coverage Review and Marketing
Of all of the various commercial insurance products, Workers' Compensation may be one of the most regulated. In addition to regulatory oversight by the States (usually through the Commissioner of Insurance), many states and insurance companies involve the National Council for Compensation Insurance (NCCI) for rate setting and premium rules. While there is a significant oversight, each insurance company has the ability to establish its own unique rates and underwriting guidelines, based on its own risk appetite. Therefore, it is imperative that regular remarketing of Workers' Compensation coverage take place in order to assure a cost-effective insurance program. It is also important to recognize that premium alone is not the only factor in selecting an insurer, but their claims processing reputation and available loss control services require consideration.
Evaluation of Funding Options
For most small and medium-sized companies, guaranteed cost (fixed price) insurance programs are most common. However, small deductible, large deductible, and self-insurance may be options for consideration. Evaluation of historic claim experience is a critical part of this evaluation.
Claims Review/Safety Programs/Payroll/Premiums Audits
Workers' Compensation insurance utilizes a heavy reliance on past claim experience in its rating model. For each company, NCCI promulgates an “Experience Modification Factor" based on actual claims as compared to industry norms. The Mod Factor looks at each company’s payroll by type of job function (job class) compared to the overall claims of the company over a multi-year period.
For this reason, it is extremely important that each company have a regular claims review with their insurance company in order to be sure that claims are being well managed for cost-effective strategies. Additionally, safety programs can reduce both the frequency and severity of claims having a direct impact on future premium costs.
Lastly, as Workers' Compensation insurance is rated based on the payroll by job function, it is vital that each employee is classified correctly and any state allowed limitations are considered. Although the initial premium is based on payroll estimates at the beginning of the policy term, the insurance company audits the actual payroll at the end of the policy period in order to “true up" the actual premium. Management of this audit function can have a direct impact on your ultimate insurance premium.
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