Workers’ Compensation 101
Understanding Workers’ Compensation Insurance
As a business owner making sure your employees stay safe while on the job is your top priority, but accidents happen. Workers’ compensation insurance is such a vital part of your company’s day-to-day operation it is important that safety and health professionals, as well as management staff, have a robust understanding of this topic.
As a Risk Advisor, I have outlined below some high-level information to help you better understand workers’ comp insurance.
Including within the article:
- General explanation of workers’ compensation
- Types of claims
- Factors that determine your works’ comp premium
- How to obtain workers’ comp insurance
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What is Workers’ Compensation Coverage
Workers’ compensation insurance aids in protecting businesses and its employees from financial loss caused from injury or an illness that arises from a work-related cause. Most states require businesses to carry a workers’ compensation policy with exception of Texas and New Jersey where it is elective. This gives employees benefits if they get a work-related injury or illness. It can also provide death benefits to your employees’ beneficiaries if they pass away from a work-related injury or illness.
The cost of coverage is dependent on many factors, including:
- State laws
- Business size
- Type of work employees perform
- On-the-job risks
Due to state laws, you will need to research the laws in your state to find the requirements for your business or consult with a licensed independent insurance agent.
What Workers’ Comp Covers
There is often confusion among employers about what a workers’ compensation claim will cover. Workers’ compensation is no–fault and covers things such as slips, falls, or other accidents that occur while performing a job-related function.
The no-fault workers’ compensation system is based on the principle that injured employees are entitled to receive compensation for their injuries without proving fault against the opposite party. This insurance provides either medical benefits or wage replacement to employees in exchange for relinquishing their right to sue their employer for negligence.
Common Types of Claims
There are several types of workers’ compensation claims but the two most common types of workers’ comp claims that occur are medical treatment only and loss time.
Medical Treatment Only
Medical treatment only claims arise when there is medical treatment provided but the injury is not serious enough to cause the injured employee to miss any time at work. In many of these situations, the worker can remain at work with the employer once he or she has recovered from the injury.
Some types of medical costs that are covered by this type of loss include things such as hospital bills, prescriptions, mileage, medical equipment, etc.
It is the claims adjuster’s duty to make sure the insured is receiving proper treatment and is receiving the proper benefit that the insured has a right to under state workers’ compensation laws.
Lost Time
A lost time claim arises when the injured party is unable to work for a longer period than the state’s waiting period. These types of claims are usually larger than medical treatment only claims.
This is due to the fact that on top of the medical cost the claimant may be entitled to receiving payment based on the time they are out of work.
The cost associated with these claims are salary reimbursement, medical expenses, legal representation, and investigation expenses.
How to Determine Workers’ Comp Premiums
The premiums on a workers’ compensation policy are based on how employees are classified within their line of employment and the rate that corresponds with that type of employment.
For instance, a lineman will not be rated the same as a receptionist at a dentist’s office. The number one thing to look at in regards to workers’ comp premium is the business’s payroll. For each $100 dollars of your payroll, there is a specific rate determined by the class code your employees fall under.
The experience modifier, or MOD, is a way of showing a company’s claim history. The average MOD is set a 1.00 and yours is based on how your company’s lost history compares to others within your industry.
An example would be a company with a great loss history compared to the industry standard possessing a MOD of .80, while another company in the same industry that has suffered some losses in the past having a MOD of 1.12.
As a risk advisor part of my job is to work with organizations to come up with plans to keep a MOD down or work on bringing an already high MOD lower.
- Each employees job classifications
- Company’s claims experience (more claims vs less claims)
- Companys payroll size
Premiums for workers’ compensation insurance is calculated by the below formula:
Payroll (per $100) X Class Code Rate X Experience Modifier + State Taxes and Fees = Premium
How to Obtain Workers’ Compensation Insurance
The best way to obtain a workers’ compensation policy for your business is to contact an independent insurance agent such as SouthPoint Risk. We represent many different insurance carriers and do the shopping for the customer. It is our job to gather the appropriate information to fully understand that specific business and decide what coverages are appropriate.
On top of placing proper coverage to financially protect someone’s business, we make it a priority to ensure that customer is getting the best rate available to them. This takes the guessing out of the business owners’ hands and puts them in contact with a professional that they can trust.
The Importance of Speaking with an Agent
It is important for any business owner to take the time to discuss with their insurance agent the uniqueness of their business. No two businesses are alike and therefore there are no two insurance policies that are the same.
For an insurance agency to provide an accurate analysis of a business insurance programs, they need access to the policies and understand the business in order to relay this information to the insurance underwriters who will be writing the policy.
If you need help assessing your business risks, need more information, or would like help getting coverage give us a call at 615-356-3212 or complete an insurance quote form here.
MEET THE AUTHOR
Shane Shelly
Risk Advisor, SouthPoint Risk
