Posts Tagged ‘Workers Compensation Insurance’

Unemployment Takes Its Toll on Workers Compensation

Thursday, October 7th, 2010

Waiting for the Recovery

Persistently high unemployment is taking its toll on the workers compensation market. A.M. Best, an insurance rating agency, reports that net premiums written for the workers comp line declined for the fourth consecutive year in 2009, from $41.9 billion in 2008 to $36.2 billion in 2009, a decrease of 11.6%. Fewer employed workers results in lower premium volume for workers compensation coverage.  At the same time, workers comp claims typically rise in an economic downturn. Uninsured workers are more likely to attribute injuries and illnesses to work-related incidents when they cannot afford the cost of their own care. This is reflected in the 8.8 percentage point increase in the combined ratio of A.M. Best’s index of workers comp underwriters. The combined ratio rose to 120% in 2009, the highest level since 2002. This means that for every dollar the insurers collect in premiums for workers comp coverage, they pay out $1.20 in claims and expenses. Profits for workers’ comp underwriters have fallen off a cliff; the net income for the A.M. Best composite workers comp insurers fell 61% in 2009. So small businesses can expect declining capacity and rising rates in the near future.

Rising Medical Costs in Workers Comp Claims

Monday, September 14th, 2009
Lower Employment, Higher Costs

Lower Employment, Higher Costs

The California Workers’ Compensation Institute reports that workers’ compensation costs for self-insured employers rose 12.1% from year-end 2007 to year-end 2008. These data reflect the claims experience of private-sector employers that self-insure, which are chiefly Fortune 500-size companies. Nevertheless, this report offers insight for small businesses as it reflects cost trends. Last year represents the first increase in the number of workers’ comp claims for self-insured private sector employers since 1991. Increases in medical payments account for the rise in claims volume. Indeed, it is medical payments, rather than indemnity or lost time from work payments, which account for most workers’ compensation benefits. Because the self-insured employers are large corporations it is less likely that cost-shifting occurred by workers who lacked medical coverage. For small businesses, this can be a significant driver of costs, as employees who lack medical coverage are incented to seek medical benefits by other means. At the same time, however, net premiums written for workers’ compensation in California have declined. Unfortunately, this decline does not reflect reduced risks, but rather reduced employment. California’s unemployment rate is approaching 12% and other states are following, with rising unemployment and declining workers compensation premiums. This trend is exacerbated by the fact that manufacturing, which typically accounts for more claims than service businesses, is in decline. It makes sense to review workers compensation job classifications annually to ensure that your business is not paying more than it needs to in premiums and assessments. The complexity of job coding often results in overpayment. Make sure that your assessments are accurate and fair.

Protect Your Workers, But Manage Your Costs

Tuesday, April 21st, 2009
Protect Your Workers, But Manage Your Costs

Protect Your Workers, But Manage Your Costs

In this economy, small businesses are under pressure to cut expenses. One area to consider is workers’ compensation insurance, which is typically a mandatory coverage for businesses, depending on your state’s requirements. Should a disaster cause injury to an employee on the job, or while performing work duties when disaster strikes, these components of your insurance program will be very important to the recovery of your employee and your business.  Workers’ compensation insurance protects employees against the risk of sustaining a job-related injury. It covers medical expenses, disability income benefits, and death benefits to dependents of an employee whose death is job related. Premiums are assessed according to payroll and depend on the industry classification of your business. An advertising firm would pay lower workers’ compensation premiums than a construction company, reflecting the relative risks of injury to employees of those two businesses.  That is why it is important that you classify employees accurately for their job descriptions and wages. If you are adding new employees to your payroll, be certain to update your workers’ compensation coverage to avoid incurring an additional year-end charge.

Obviously, the risk of incurring workers’ compensation-related claims increases with the occurrence of a disaster: employees may incur injuries themselves while evacuating the business premises, stress-related injuries and depression and other types of disorders may occur as a result.  Be certain that your workers’ compensation coverage is up-to-date. Similarly, employees injured in disasters while on the job may require disability benefits.  Certain states mandate coverage for short-term disability for all employees.  Check the Web site of your state’s insurance commissioner or consult with your insurance broker to learn the requirements of your state.

I have three suggestions that may help to reduce your workers’ compensation premiums. First, ask your insurance company about merit-rating credits.  In most states, small businesses that have favorable claims experiences may be entitled to credits toward their premiums.  Second, consider adding a deductible to your workers’ compensation policy.  Workers’ compensation typically covers from the first dollar of losses, but most states allow deductibles that will reduce your costs. Finally, consider foregoing coverage for yourself or for other officers or directors of the company.  Many states let small business owners and certain officers and directors opt out of their workers’ compensation policy.  This would lower costs, but would leave you without workers’ compensation benefits should you be injured on the job.  This may make sense if you have medical insurance to pay for medical expenses incurred in an on-the-job injury or other means of financial support, such as a disability income policy, if you or any of your directors and officers were medically unable to work.

By the way, if you are wondering about the image I posted to this blog, it is a photograph of an office building in Brussels illuminated in the evening. It is the headquarters for a labor union organization, which I thought a fitting image for the topic of workers’ compensation insurance.