Part 2 of 5: Work Comp and the Grand Bargain – Understanding Work Comp Insurance

One overlooked step in reducing workers’ compensation program costs is the failure of interested stakeholders to grasp what is covered (and not covered) by their insurance policy. Taking the time to understand this issue will allow for a better experience during an active claim. It will also allow the claim management team to do their job better and coordinate efforts with defense counsel when defending a case before and during litigation.

Back to the Basics: Understanding the Work Comp Guaranteed Cost Insurance Policy

The purchase of workers’ compensation insurance coverage for employees is generally required in every state. Insurance purchase operates like any other type of coverage – a tool to mitigate risk and ensure the timely payment of benefits. Employers should follow statutes and rules regarding the insurance policy and report all work injuries promptly.

Workers’ compensation insurance covers many items and services:

• Payment of indemnity, medical, and vocational rehabilitation benefits for all compensable work injuries;

• Assistance in claim investigation, determination of primary liability, and defense; and

• Coverage during the stated coverage period within the insurance contract.

There are items and services the insurance policy does not cover:

• Employment-related issues such as claims for discrimination and wrongful termination;

• Claims made by the employee for interference with workers’ compensation benefits and

• Fines and penalties associated with OSHA (occupational and safety)

Interested stakeholders should take the time to understand what is not covered and implement steps to mitigate risk and exposures.

The Benefits of Reporting a Work Injury

There is sometimes a hesitancy among employer representatives in reporting work injuries to their insurance carrier. Members of the claim management team play a crucial role in educating their insured on the value of reporting.

• It is the law – all work injuries must be reported under statutory provisions within workers’ compensation laws;

• Timely reporting of work injuries allows for immediate investigation. Delayed investigation reduces its effectiveness and

• Allows for employers and interested stakeholders to share their side of the story. This is helpful in unwitnessed or otherwise “suspicious claims,” such as the employee who reports an injury Monday morning immediately after arriving at the workplace.

Now is the time for insurance carriers to approach this issue with all insureds proactively.

Calculation of Work Comp Insurance Premiums

The individual insurance carrier calculates workers’ compensation premiums using several different factors. In many jurisdictions, an employer can purchase coverage from any insurance company licensed to underwrite coverage. These states also have assigned risk plans that guarantee acceptance of an insurance application for employers whose applications have been rejected. A few states, such as North Dakota, Ohio, Washington, and Wyoming only allow coverage through a state-run program.

The factors taken into account by underwriters when calculating premiums vary but generally include the following:

• Employer’s industry classification(s);

• Total payroll;

• Prior claims history;

• Miscellaneous adjustments; and

• Jurisdiction(s) where the employer operates and has employees.

Given the complex nature of calculating workers’ compensation insurance premiums, there is the ever-present tendency for unscrupulous employers to misclassify their workforce and discourage reporting work injuries. To combat this fraud, special units are created within insurance programs to audit their accounts and verify the accuracy of the information being reported. Inaccurate reporting can result in civil and criminal penalties, and the insurance contract is voided.

Conclusions

Education regarding workers’ compensation insurance is necessary for those interested in reducing workers’ compensation program costs. It can help fill the knowledge gaps and ensure better reporting of workers’ compensation claims. It can also assist in obtaining more accurate information for the underwriting process.

Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%. He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors. IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.

Contact: [email protected].

Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/

Injury Management Results (IMR) Software: https://imrsoftware.com/

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.