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Small Business Workers Comp Policies – Limited Options


Paying More Per Unit of Risk- Small Business Workers Comp Policies

Where can I find small business Workers Comp coverage?  Are there any less expensive options?  What is the maximum number of employees that I can hire without having to fund a small business Workers Comp policy? These questions will be answered later in this article.  The maximum number of employees question will be covered later this week in a separate article.

I receive these questions multiple times per year – more in December and early January each year when entrepreneurs are surveying the cost landscape of starting an enterprise.

Size Definition of Small Businesses

Two different governmental organizations – the SBA and IRS have two different size numbers for small businesses.  The SBA says any company that has 500 or fewer employees is a small business with exceptions for size and gross receipts.  The IRS defines a small business as an enterprise with assets under $10 million.

Usually, the definition in workers comp premium dollars is $50,000 or lower – my definition.

pic Thai Tollway 50,000 workers comp small business
Public Use License – Abhisit Vejjajiva


Small Business Workers Comp Coverage Options

Locating Coverage

The usual way to find any Workers Comp coverage is by Googling local insurance agents.  You may have one for your personal auto, home, and other types of personal insurance.  The agent may be a good starting point.  Your company will likely require more than just workers compensation insurance.

If your company belongs to an association (cost saver) check with the agents that are part of the association. The association or members of the association may be able to recommend an insurance agent or agency.

Expensive Small Business Workers Comp Options

This question remains one of the toughest to answer.

Small businesses do not have that many options:

  • Large Deductible – for larger businesses
  • Self-Insurance – for very large businesses
  • Micro-captives – possible but the IRS has been heavily scrutinizing this type of coverage recently.
  • Package – included with other business coverage such as a Business Owner’s Policy, a less expensive option than standalone
  • Standalone policy – most small businesses are covered with standalone policies, expensive option
  • Insurance search engines – one of the better alternatives such as Pie Insurance.  Three minutes will generate a policy quote
  • PEO – an option that I have recommended often in the past for small businesses with high Experience Mods that result in very expensive coverage.


Why Do I Pay More Than Larger Businesses?

The WCIRB (CA Rating Bureau) provided a good reason –

Predicting whether or not a specific business within this large group of businesses will experience a workplace accident, however, is more difficult. This is especially true for small businesses. The statistical chance of incurring a workers’ compensation claim for any single small business within a large group is small, and an experience modification based on this loss history is less reliable than it would be for a large business.

Bottom Line on Small Business Workers Comp Policy Risk

The premium on a small business workers comp policy is usually higher because the risk is greater than the premium. A $175,000 claim can be absorbed by a large business workers comp policy.  A small business workers comp policy cannot absorb the claim.

This means that a small business needs to work harder to find coverage at a reasonable price.

What made me write this article was that I have two clients, one a large business, the other one small.   I reviewed their workers comp insurance programs for January 1st renewals.   Both companies had the same classification codes in the same state.  The small business workers comp policy charged them over 200% more per unit of risk for the same coverage.




James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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