Workers’ Compensation Insurance 101
Workers’ compensation laws mandate that employers cover their employees for injuries incurred while on the job, whether on company property or at another location on company business. For example, a delivery person would be covered for an injury loading his truck on company property, an injury while unloading his truck at the customer’s site or an injury in transit. Coverage is for medical costs plus lost wages.
Workers’ compensation applies regardless of fault. The employer does not have to admit blame for coverage to kick in and the employee can recover benefits without having to sue his employer. There are limited circumstances where coverage will not apply, such as:
- Self-inflicted injuries
- Injuries incurred while committing a crime
- Injuries incurred while violating company policy
- Injuries incurred as a result of the employee’s reckless behavior
The extent of coverage is mandated by state law. Coverage is therefore fairly standardized from one employer to the next within a state. Basic coverage includes medical treatment, rehabilitation and lost wages (up to a percentage of regular salary – typically 2/3). Policies in many states also include liability coverage for damages arising from an employee’s workers’ compensation claim.
What does vary from employer to employer is experience ratings. Premiums are stated as a percentage of salary and are based on the following factors:
- Salary rate
- Job category
- Experience modification
The experience modification is the factor that offers the most opportunity for savings. Salary must generally be paid based on the employment market. The job category can only occasionally be manipulated to put an employee into a lower rated classification. The experience modification, however, is based on the safety record and claims history of the insured business. Sound safety programs and employee participation in loss reduction systems will result in lower premiums. Your insurance agent should be familiar with your industry and should be an excellent source of suggestions for reduction of risk.
The workers compensation laws do, of course, vary from state to state. At one end of the spectrum, states require employers to purchase coverage from a state agency. These states include:
- North Dakota
- West Virginia
At the other end of the spectrum, private insurance companies compete for the business and larger companies are even allowed to self-insure.
Another option in many states is state insurance pools. These pools provide coverage to companies that would not be able to purchase insurance through normal channels because they are considered too risky. These companies generally have a claims history problem that causes regular private insurers to turn them down for coverage. The states require carriers to participate on a pro-rata basis in the pooled coverage. Because the risk is high, the premiums for pooled coverage are fairly high as well.