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.

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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.

 

©2012 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact us at: Info@ReduceYourWorkersComp.com.

 

The Basics of Assigned Risk Plans – Workers Comp 101

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. (workersxzcompxzkit)
 
Summary:
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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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.
 
© 2010 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ ReduceYourWorkersComp.com.

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