The Great Premium Deals May Not Be Deals After All
Do the great workers comp premium deals really save money? With prices rising (at least for the short-term) in California and other states, the “we can save you a ton of dough on premiums” vendors are now appearing again on the Workers Comp radar screen. Are they such a good deal or not? Let us cover a few of them.
Self Insurance – this is the old “we will take ourselves out of the Workers Comp system” method. There are many hurdles to cross to even qualify. One of the most important things to remember is that your company has to qualify for each state, not in the aggregate. You can have a billion dollars of payroll in one state but may not qualify in the others. The other considerations are:
- Liquid assets in a certain state – most states want $500,000 at a minimum (per state)
- Bond – harder to find a performance bond in the market. These are used in case your company goes bankrupt to pay the claims
- Licensed Third Party Administrator (TPA) to handle claims or you can hire your own licensed adjuster
- Approval by Insurance Commissioner – obvious one. The Commissioners are more picky than in the past due to the economy.
- Actuary or reserve specialist must assign your company a Loss Development Factor (or LDF) to assess your level of risk.
- Your company must file a pile of forms for each state including audited financial statements
- Reinsurance is a must and usually required by each state in case your company experiences a spate of very bad claims, or one large one.
- Your company may have to pay for temporary WC coverage until the Insurance Commissioner approves your application. This is the one that seems to get employers into a bind.
Large Deductible – this type of insurance for WC has really started to become more popular, at least in webinars. Your company will pay a lower premium than regular Workers Compensation insurance in most cases.
- Your company must be large enough for the carrier to take on part of the risk
- Your insurance carrier will provide reinsurance in most cases, or broker it to another company
- E-Mods are still reported to NCCI and other state rating bureaus
- Your company will pay the funds for the first $250,000 of each claim or some type of aggregate of claims payouts. Once $250,000 has been paid out on a claim or you “bust” your aggregate the insurance carrier will pay the claim or group of claims when it exceeds these numbers
- The ability to call the shots on most claims will still rest with the carrier. That statement will usually be included in the contract.
- Your company is still in the WC system
- Your company has taken on more risk than using a regular carrier and paying premium, but not as taking on as much risk as being self insured.
Self Insurance and large deductibles are not available to smaller employers. The three that are available to smaller employers are:
Professional Employer Organizations (PEO’s) – these are for companies that have a:
- High E-Mod – above 1.1 at a minimum
- Uninsurable companies – trucking and employment agencies were not able to find coverages over the years. PEO’s became very popular with these market segments.
- In Risk Pool or will be renewed in the Risk Pool. The Risk Pools are basically forced coverage by each state. The carrier is required to cover certain employers that cannot find coverage and charges very high rates (up to 500%) more than the regular marketplace
You should heavily consider and consult with a Workers Comp expert if you are not in one of the three types of listed companies as noted above. You could be paying much more than some of the alternative programs or even a regular WC policy. Great premium deals exist if your company fits into that insurance model.
Captive Insurance Arrangements – these used to be designed for larger companies. However, with the advent of protected cell and rent-a-captives even small companies may find these applicable.
Captives require a full analysis by a WC expert before WC coverage in placed in them. They are not self insurance. The question to ask is “Where does the funding come for the Captive?” It comes out of the employer’s budgeted funds, so everything is on the line as in self insurance.
Rent-a-captives require less upfront money. I have written on them in the past in detail.
These two types of alternative insurance may be more suitable for small business. However, your company must go into the transactions as informed as if you were going to be a self insured. Many companies have been burned in what looked like a great way to have WC coverage, but ended up paying more than expected.
There are other alternative insurance arrangements for Workers Comp. I wanted to cover the current major supposed great premium deals the marketplace.
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