You may not know anything about worker’s compensation insurance, but I can almost guarantee that you have it. Whether you are a business owner with 10 employees, run a large company with 500 employees, or you are one of those employees- worker’s compensation insurance is part of your life. I say this because in the state of Virginia if you have two or more employees you are required to carry a worker’s compensation policy.
But what is worker’s compensation insurance? Worker’s compensation or ‘work comp’ insurance is a policy purchased by an employer to protect and insure the safety of their employees during the course of business. In simple terms, a work comp policy will pay for the medical expenses and lost wages of an employee that may be injured on the job, resulting in their absence at work for a period of time. People commonly think about construction jobs or any other labor-intensive job when they think about work comp due to those jobs being naturally risky and accident-prone. However, work comp is used to protect all employees whether it is someone who answers a phone all day to someone that climbs on roofs all day. The bulk of this blog will help you understand how your work comp insurance is broken down by job description, how the premium amount is decided, and discussing some ways that you can help control your worker’s compensation insurance cost.
Just like any insurance policy, an insurance company wants to charge the appropriate premium for the amount of risk they are covering. If you refer to my blog (blog title and link), I discussed the profitability of an insurance company and how that can determine rates and work comp is no different. In fact, work comp insurance is probably the line of insurance where cost is impacted the most by losses and profitability. The reason being there is simply no other way to underwrite worker’s compensation other than looking back at your track record of claims or no claims. When discussing commercial insurance with a business owner, an insurance company covers a lot of information. I ask questions about how the company started, what their business does, how they make money, how things are managed, etc. What I cannot ask is if an employee goes out every night and one day shows up for work, forgets to attach a safety harness, and falls off a roof one morning, resulting in serious injuries. What I am saying is, we have questions and guidelines for businesses to help us underwrite the risk, but there is no way for us to underwrite the risk of the people that work for you and that is why there is something called the NCCI.
The National Council on Compensation Insurance, also known as NCCI, is a third-party governing body for worker’s compensation insurance. The purpose of NCCI is to collect and analyze work comp data from every industry across the country. Not only do they break down the industries, but they also break companies down into segments to get a better understanding of the industry. An example of a segment could be all electrical contractors that have 10-25 employees with average revenue of $500,000 – $5,000,000. Another segment could be IT consultants that have less than 10 employees and revenue under $1,000,000. NCCI will take a look at every company that falls into a segment and determine what the average amount of work comp losses were for that segment in a given year. Once they determine an average they will then assign an experience mod specifically to your company. The average experience mod in every industry is 1.Based on your claims your experience mod will be shifted either up or down, which directly affects how much premium you pay for work comp insurance. Here is an example:
Let’s say in 2015, every electrical contractor in America with 10-25 employees averaged $3,000 in work comp claims. Let’s say your company, ABC Electrical, had a major claim last year that paid out $15,000 to an employee that electrocuted himself. Your work comp experience was 5 times the national average for businesses just like yours. Because you had a bad year of claims your experience mod has now shifted to 1.3, which means you multiply your work comp total premium by 1.3. You now pay 30% more than your peers. On the other hand, you could have no losses and your mod would be bumped down to .85, giving you a 15% discount on your work comp insurance.
As you can see, your experience mod can be your best friend or your worse enemy and unfortunately, it is not something you can always control.
Fortunately, there are many ways that you can help control your work comp insurance costs:
- Safety meetings – depending on your industry you might want to hold a meeting daily, weekly or monthly. Keeping safety and proper procedures in the forefront of your employee’s minds will help create a safer work environment. Here is your insiders tip for this one, make sure you keep minutes for your safety meetings and give a copy to your insurance agent. I can help lower your premium if I can show my underwriter that you go a step further than most companies to make sure your employees are safe.
- Incentive programs- these can be used to reward your entire staff when they go for long periods of time without injuries or being involved in dangerous incidents.
- Handbook – get an employee handbook. Insider tip- ask your insurance agent for help. I have access to a lot of good material that we can use to help create a handbook for your business (it’s FREE!)
- Proper procedures for any incident- you are most likely not a health professional and you shouldn’t try to make case-by-case decisions. Every time there is a work place injury there should be a set procedure involving a medical professional. Your work comp isn’t going to change because someone needed a $200 check up for a cut hand. Your work comp will change if that person waits a few days and is now missing two weeks of work because of surgery on an infected hand.
- DRUG FREE WORK PLACE- did you know, in the state of Virginia if you implement a drug-free work place policy you automatically get off 10% on your work comp premium? Did you know your Bridge First Insurance agent can help you set up and implement your drug-free work place policy?
Worker’s compensation insurance can be a confusing policy to understand and if you have never filed a work comp claim, then it can be an absolute pain for you to pay that bill. If you have filed a work comp claim then you know how expensive those claims can get and how valuable having proper coverage can be. The largest work comp claim I have ever seen paid out is $600,000 and that total will continue to grow because the employee became partially disabled as a result of a work place accident. Protect your business and employees by having the proper worker’s compensation insurance in place and make sure you work with a Bridge First Insurance agent to help you take advantage of any savings you may be eligible to receive.
Speak with a Bridge First Insurance Agent today! (571) 249-3857
Previously on the Blog:
Dave has accumulated extensive knowledge of commercial insurance and the skill set that it takes to succeed. In 2013, he and co-founder Jack Cordes, joined forces to establish Bridge First Insurance. Through Bridge First Insurance, Dave utilizes his knowledge and unique expertise to offer clients the best care in insurance.