Numerous states have assigned risk plans for workers’ compensation. These plans provide workers’ compensation coverage for employers who are required to have coverage but are unable to obtain the coverage from the standard insurance carriers within their state. It is often thought assigned risk plans are for employers with unsatisfactory loss history or for employers in hazardous occupations. While these are reasons employers end up in assigned risk plans for workers’ compensation, there are various other reasons as well.
New businesses and small businesses without loss experience history often have difficulty in obtaining work comp insurance and have to obtain their work comp coverage from the assigned risk plans. Assigned risk plans in some cases can be the lowest cost option for the employer, especially for employers who have been canceled by their former insurance company. Also companies in high-risk fields, companies with poor loss experience and companies with poor payment history end up in assigned risk plans.
Small employers may end up in assigned risk plans simply because their small number of employee results in their workers’ compensation insurance premium being lower than the amount the standard work comp carriers will accept. Many work comp carriers will set a minimum premium of $2,500 which is more than the experience rated premium should be for the very small employer.
Employers in assigned risk plans are often involved in occupations with higher than average risk such as the construction trades, trucking, logging, farming and heavy manufacturing. The loss history and payment experience of these employers is also often the reason they are unable to obtain workers’ compensation coverage from standard insurance companies.
In some situations the employer relies on the insurance agent to locate and purchase the coverage for workers’ compensation. The employers often have no knowledge of insurance and are not involved in making the decision as to where to obtain work comp insurance. Many times the employers placed in the assigned risk plans are unaware they are in the assigned risk plan or they do not know why they are in the assigned risk plan.
In some states as much as 75% of employers in the assigned risk plans will be new and small businesses. The assigned risk plan will provide the required workers’ compensation coverage while the business develops enough loss experience history for standard work comp carriers to be able to rate the business. Typically the new business will have enough loss history within three years to be rated by the standard work comp insurers and will leave the assigned risk plan.
A problem often associated with assigned risk plans is the use of a guaranteed cost program where the premiums are set with no regard to the actual losses incurred by the employer. This often results in the assigned risk plan losing money. In most states the remedy for the underwriting loss is to make an assessment against the standard insurance carriers, which they pass on to their policyholders. This results in the employers not in the assigned risk plan subsidizing the employers who are in the assigned risk pool.
If the assigned risk plan uses retrospective rating where they can assess the employer additional premium based on the employer’s actual loss history, the employer bears the cost of its loss history, subject to caps on the maximum additional premium.
If an employer (other than a new business) has remained in an assigned risk plan for more than two years due to a poor loss history, the employer should be considering an in-depth review of their safety program and their risk management program. A determination should be made as to what were the causes of the injuries and what can be done to prevent the injuries from occurring. They should take advantage of the assigned risk plan’s safety programs (or they can contact us about our safety course
Some employers remain in the assigned risk plan when they no longer need to do so. If an employer has remained in the assigned risk plan for more than two years, the employer should be consulting with their broker or agent to see if they can obtain better work comp rates outside of the assigned risk plan.
Assigned risk plans are necessary for those employers who are unable to obtain workers’ compensation coverage from the standard insurance companies. The employers who are in assigned risk plans should be reviewing their risk management and safety programs for ways to improve their loss history. As assigned risk plans normally have higher premiums than standard workers’ compensation insurance, the employers should seek work comp coverage from the insurance companies available to them.
Author Rebecca Shafer J.D., Consultant, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, healthcare, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. She can be contacted at: RShafer@ReduceYourWorkersComp.com or 860-553-6604.
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