State Risk Pool Is Option for All Employers, Not Necessarily Where You Want To Be

Every Employer Has Option for Workers Comp Coverage

Every employer who is required to have workers’ compensation insurance has at least one option to purchase their insurance coverage.  The option all employers have is their state’s assigned risk plan or pool.  Assigned risk plans or pools are state created insurance options for employers who are unable to find an insurance company who will sell them a workers’ compensation insurance policy.

Assigned risk plans and pools can be a life-saver for employers who would otherwise have to close their business due to a lack of workers’ compensation insurance.

All but 4 states provide either an assigned risk plan or pool to provide workers’ compensation insurance coverage to those employers who cannot find coverage elsewhere.  (The 4 states that do not have an assigned risk plan or pool are the four monopolistic states of North Dakota, Ohio, Washington and Wyoming where the state sells workers’ compensation insurance to all employers, except state-approved self-insured employers).

The National Council on Compensation Insurance (NCCI) administers the assigned risk plans in 18 states and the District of Columbia.  The other 29 states administer their own plan or pool.

Often Considered Insurer of Last Resort

Assigned risk plans/pools are often considered the insurer of last resort.  If the employer can obtain insurance anywhere else, it is normally the employer’s best bet, as an assigned risk plan is often the most expensive option.  Assigned risk plans are expensive because they are required to accept employers with unsatisfactory claims history and higher than normal severity exposure.

Certain occupations are considered “risky” and very few workers’ compensation insurers will consider insuring employers in these high risk occupations if their loss history is poor.  This includes high risk fields of logging, mining, farming, trucking, construction and heavy manufacturing.  Employers in these and other hazardous occupations often have no choice but to obtain their workers’ compensation insurance through the assigned risk plan or pool.

Often Only Choice for New Business

In addition to employers with unsatisfactory loss ratios, assigned risk plans will often be the only choice for the new business (in business less than three years) which has no loss history on which an insurer can calculate a premium. Once the employer has a three year loss history, the employer is normally able to obtain workers’ compensation insurance in the voluntary market.

Very small employers who are in a relatively low risk business can end up in assigned risk plan because the premium a workers’ compensation insurer can receive from them is below the cost of underwriting the policy. (Many insurers will not write a policy with a premium under $2,500 per year).

In most assigned risk plans the employer must be able to show that they were turned down by a workers’ compensation insurer licensed to write workers’ compensation insurance in their state before the assigned risk plan will issue an insurance policy.  (Some assigned risk plans will require the employer provide three or four rejections letters before they will write the employer who has been in business for more than three years).

Many States “Assign” Employer to an Insurer

In many states the assigned risk plan/pool does not actually sell the insurance to the employer.  Instead, they “assign” the employer to an insurer doing business within the state.  While the insurer is required to accept the employer who has already been turned down by other insurers, the insurer is often allowed to surcharge their regular insurance premium to offset the additional risk they are required to accept.  The employer normally does not have any input in the selection of their insurance carrier, who is assigned on a random basis.

Assigned risk plans often use retrospective rating where the employer who has an unsatisfactory loss ratio while a part of the assigned risk plan is charged additional premium after the policy year, subject to a cap on the maximum additional premium that can be charged.

Multi-state employers often have a difficult time with assigned risk plans as the plans normally restrict their coverage to the state where they are located.  If the employer has any employees in another state/jurisdiction, then the employer has to find another insurer or another assigned risk plan to provide workers’ compensation coverage for the employees in the other jurisdiction(s).

Employers in Assigned Risk Plan Should Take Steps to Improve

Employers who find themselves with their insurance through an assigned risk plan should start immediately to take steps to improve their loss history.  Employers in high risk occupations can often obtain insurance on the voluntary market when they improve their loss history and it becomes better than average. If you need assistance on improving your safety programs and reducing the number of workers’ compensation claims, please contact us.

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.

Editor Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

WORKERS COMP MANAGEMENT MANUAL: www.WCManual.com

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.