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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MODIFIED DUTY CALCULATOR: www.LowerWC.com/transitional-duty-cost-calculator.php

 

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.

 

Out of State Insurance Coverage for Workers Compensation

As any employer with locations in more than one state knows, the workers compensation policy is written specifically for the states where the employer has physical facilities.  On the Information Page that comes with each new policy or policy renewal, is Item 3.A (for most insurance carriers) which designates the states where the workers compensation policy is applicable.  Workers compensation coverage does not apply to claims filed in other states.

 
While the insurance carriers attempt to limit the exposure to claims occurring where they may not have claims offices, or knowledge of the workers compensation statutes, the states take a much broader approach. The workers comp statutes of most states specify when and how the workers comp act applies out of state.  Normally, the state statute will indicate that if the contract to hire was negotiated within the state, the workers comp laws apply regardless where the injury occurs. (WCxKit)
 
 
Most state workers comp statutes will have extraterritorial provisions that state if the principal place of employment is within the jurisdictional boundaries, a workers comp injury occurring outside of the state boundaries is still covered by the state law.  The workers comp statutes also normally specify that any work related injury occurring within the borders is subject to the workers compensation statutes, even for employers and employees whose place of business is not within the state line boundaries.
 
 
When the employee is injured in another state where the employer does not normally do business, the extraterritorial provisions of the state workers comp act work great, as long as the employee elects to utilize the benefits of the home state workers compensation act.  The problems occur when the employee elects to file the claim in a state where the employer does not have a physical location and the employer does not have workers compensation coverage. 
 
 
The usual reason an employee files for benefits in a state other than the home state is the amount of temporary total disability (TTD) benefits that will be paid.  Consider the highly successful salesman from Georgia earning $1,500 per week.  If he is injured in Iowa with its high maximum weekly TTD rate, he will receive $1,000 per week while he is unable to work, if he elects Iowa for workers comp benefits.  If he elects Georgia benefits, the TTD rate is capped at $500 per week.
 
 
This creates a coverage issue for the employer.  When the workers comp policy is purchased, the employer should have the insurance agent or broker specify in Item 3.C of the Information Page the other states for which coverage is requested.  Some agents will approach this by listing every state and territory except North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the US Virgin Islands (the four monopolistic states and two monopolistic territories where the state/territorial governments provide the workers comp coverage). This can result in an accidental oversight where the agent leaves out a state. 
 
 
A better approach is to insert the following on the Information Page in Item 3.C: “All states and US territories except North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the U.S. Virgin Islands and those states listed in Item 3.A of the Information Page.” While this is the best approach to out of state coverage, some insurers, especially single state insurers or small regional insurers, will object to providing workers comp coverage in other states where they are not licensed to do business.
 
 
Most employers think of the workers compensation policy and the workers compensation coverage as one and the same.  Actually, the workers comp policy is divided into several sections with Part 1 being the actual workers comp coverage.  Part 2 is employer’s liability insurance which covers injuries to employees when workers comp coverage does not apply. Part 3 is Other States Insurance.  With this coverage, workers compensation and employers liability insurance is provided for incidental exposure in states not listed in Item 3.A of the Information Page.
 
 
It should be noted that Other States Insurance covers only incidental exposures.  When the employer starts to have employees in a state on a regular basis, the states needs to be included in those listed in Item 3.A of the Information Page. If your business has employees who occasionally travel out of state, it is a good idea to routinely review your coverage with your insurance agent to confirm that your policy provides for incidental out of state exposures.
 
 
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.
 
 
NEW 2012 WORKERS COMP MANAGEMENT GUIDEBOOK:  www.WCManual.com
 
WORK COMP CALCULATOR:  www.LowerWC.com/calculator.php
 
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.

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