The Ultimate Buying Guide To Workers' Compensation Insurance


Why and how did Workers Comp come about and how has it evolved?

The first recorded establishment of workers compensation is the German Employers’ Liability Law of 1871. Chinese records also indicate some type of workers compensation. Employers liability payments to injured employees was to provide a safety net for workers in dangerous industries as a result of the Industrial Revolution and Urbanization; industries such as railroads, mining, quarries and factories. Prior to this most people worked as farmers or self-employed craftsmen without the benefit of workers compensation.

Tragically, the fire at the Triangle Waist Company factory in New York City on March 25, 1911 killed 146 workers but spurred workers, their families and the government to enact safety codes, and worker compensation laws.

In 1913, California government enacted The Boynton Act, which among several things required employers to provide compensation for employees when injured or became ill due to working. It gave employees the right to sue their employer for compensation. It provided the following:

  • Temporary total disability at 65% of average wages after a two week waiting period
  • Medical benefits with no maximum amount, but limited to 90 days after injury
  • 40 weeks of benefits for each 10% of permanent disability
  • No specific injury benefits, all payments related to disability level under IAC schedule
  • Death benefits up to $5000, with only burial expenses if no dependents (Footnote?)

Tragically, the fire at the Triangle Waist Company factory in New York City on March 25, 1911 killed 146 workers but spurred workers, their families and the government to enact safety codes, and worker compensation laws.

Workers Compensation is “no fault” insurance meaning the employee is not required to prove their injury in order to qualify for medical, disability or rehabilitation payments. The exception to this is the injured employee must be under the care of a physician or other health professional and the health professional must submit claims to the insurance carrier. The injured employee, the health professional(s) and the insurance carrier claims representative must all be in regular communication as the primary goal is to help the employee recover and return to work. All injuries should be reported within 24 hours of occurrence. The importance of quickly reporting the claim is based on insurance statistics that prove when an employee is treated quickly and shown care and compassion for the accident or illness the employee returns to work

What is the Workers Compensation Insurance Rating Bureau known as WCIRB?

The WCIRB was formed in ___. The primary purpose of the Workers Compensation Insurance Rating Bureau is to collect data from employers and insurers that help the WCIRB to promulgate recommended Pure Premiums for the upcoming calendar year. The rates are released by WCIRB on ___ ; carriers take the recommended rates and analyze then decide what their rate will be for that particular class. www.wcirb.com.

Every state has a Workers Comp Bureau that uses the same or similar method of promulgating premiums for the employers and carriers who reside within that state. The advisory pure premium rates approved by the Insurance Commissioner act as a benchmark that insurers can use to establish their own premium rates. Loss and payroll data is the driver for advisory pure premium rates. These rate are submitted to the WCIRB by all insurance companies.

How is my Workers Compensation Insurance Rated and how is it calculated?

Every and we mean every job has a description and each description has a code beginning with 4 digits. Dependents upon the ____ there may be more digits following. These codes then reflect what the rate per one hundred dollars of payroll will be. For example, the clerical definition has ___ categories. As the specific job duties is better analyzed by the agent and insurance underwriter a decision is then made and the correct specific category is then applied.

Once this result is known then the carrier applies their Manual Rate* to the job title, a mathematical formula that’s available to the public is applied to the total annual premium within that job classification and its code. Voila! You have your **Estimated Annual Premium

*Manual Rate: The published rate carriers will apply without any credits or debits to the policy.

**Estimated Annual Premium: Few if any employers know what their future payroll will be for any category or their total workforce for the upcoming year. To be sure the employer is protected from lawsuits resulting from employees on the job injury, the carrier will request an estimate of what the payroll for each class will be. The total is then added together and that will be the Estimated Total Premium for the year. The Employer then will pay the estimated premium also known as deposit with installments as offered by the carrier.

Can I find workers compensation rates that are published for anyone to view?

California Department of Insurance website provides a section so that anyone can compare rates. That includes lists of insurer rates by classification code. To learn more and to view the lists, go to http://www.insurance.ca.gov/01-consumers/105-type/9-compare-prem/wc-rate/. You may also contact your agent, broker, or insurer for more information.

What are the State Taxes and Fees:
  • Expense Constant: This is the fee applied for development and annual service of the policy.
  • State Tax:
  • Employer Tax:
  • Broker Fee: When allowed by the carrier, a broker fee may be collected.

What is the Experience Modification (EXMOD) and how are credits or debits applied?

Initially when an employer is a start up with just a few employees, or if the employer has payroll less than $13,xxx.00 per year there will be no experience modification to apply a credit or debit. Therefore your rate will be based on a 1.00 (one point) rate.

Once an employer is established and the annual payroll exceeds the minimum threshold of $XXX, or if the employer has been in business for X number of years, the Experience Modification will be applied.

This is a very important part of the calculation as this affects what you as an employer will pay in annual premiums. If you’ve purchased a home, car or any type of financing you know the better your credit (sometimes called a FICO) score the better your interest rate. The same example is applied to the employer’s “EXMOD” except in the case of workers compensation insurance the lower number of On the Job injuries and/or On The Job Illnesses the more credits are applied to your EXMOD. Every employer job classification has a Minimum Modification Factor. Do you know what yours is?

What is the Department of Industrial Relations and is it affiliated with the WCIRB?

Among its many jobs, The Department of Industrial Relations works to improve work environments of California’s workers. Important to this mission is to assist employees with their rights to safe and legal working conditions such as wage and hour issues, overtime, safety, training. The DIR also offers workshops and seminars promoting workplace safety and health many of which are no charge to attendees. Anyone interested in learning more about this important department, visit www.dir.ca.gov.

Who should be covered by Workers Compensation?

Any employer within the State of California is required by law to provide workers’ compensation benefits to their employees. This law is under the California Labor Code Section 3700. If a business owner employs one or more employees, then it must satisfy the requirement of the law.

If your company is formed as a ‘solo-preneur’, a sole proprietor and your business does not yet have W-2 employees, but you’re considering a contract which requires you maintain workers compensation in order to get the contract, you may need to purchase workers’ compensation to cover yourself only. In today’s economic environment more carriers are considering solo-preneur coverages. Contact your commercial insurance broker to see what’s available for your situation. You may also consider purchasing a health insurance policy, a disability insurance policy and/or a disability insurance policy. The three coverages just named are all included in the workers’ compensation policy for injuries and illness sustained while on the job or the result of a job.

Executive officers and directors of corporations may also be included in workers’ compensation coverage. Some exceptions apply and have to do with the number of shares owned by the officer or officers and the interpretation of the labor law by the carrier underwriters. Typically the cost to include the officer or officers under the workers compensation coverage is minimal and is an added benefit to the officer of the company. Otherwise, the officer may be able to exclude themselves from benefits by signing a Waiver Form. Discuss the options and costs with your workers compensation insurance broker.

California Labor Code Section 3351 defines who is an employee, and clearly spells out who is required by law to insure with workers compensation coverage. [“Employee” means every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed”]

Fines and penalties for evading labor laws are a risk to a business and is a business expense that can easily be avoided by purchasing coverage. In addition to paying fines and penalties the employer then must purchase the workers compensation insurance. The law is indifferent to how a business is formed, whether it is a sole proprietorship, a formal partnership, a corporation, Limited Liability Company it’s worthwhile to develop a close relationship with a competent and trustworthy commercial broker who can help understand your business and eligibility issues. An independent broker can also access all carriers in the State of California for which your business would be eligible to apply for coverage.

What is Employers Liability and how is it different from Workers Compensation?

Workers Compensation Insurance includes both the Injury and Illness side of coverage; immediate benefits are available for medical treatment and payments, disability payments and rehabilitation or job training can be covered. This side may be referred to as Part I. Employers Liability is often referred to as Part 2, this part further extends rights to the employee. When an employer disregards employee safety and a serious accident or illness occurs an employee can seek further compensation under Employers Liability. States that are known as Monopolistic States do not include coverage for Employers Liability. Part 2 coverage for Employers Liability must be purchased elsewhere usually through an insurance carrier that is licensed in that state to place workers compensation and employers liability insurance . The monopolistic state has it’s own jurisdiction and the ability to set its own rules and regulations that govern the placement and administration. Your broker can assist you with finding this coverage. A Monopolistic State is a state that mandates that no other carrier can compete in the workers compensation marketplace, all workers compensation insurance is rated and issued by the state government. Those states and US territories are: North Dakota, Ohio, Washington, Wyoming, Puerto Rico, and the U.S. Virgin Islands.

Where can I get a Workers Compensation Insurance Quote?

Purchasing any coverage for your business is an important matter since your business could face a financial crisis should a claim be presented and the business owner finds they didn’t have that coverage. A competent and seasoned broker will take the time to find as many carrier markets as possible and return proposals for your review. They’ll also take the time to explain questions or concerns the business owner might raise about their requirements. Workers Compensation rates are pre-set by the carrier so the applicant will not get a better rate by working with numerous brokers. Rates are based on the type of business, the number of job classifications within the business, the number of employees, estimated annual premiums and the employers Experience Modification rate. Carrier A may charge a lower rate than Carrier B but both carriers charge the employer the same rate regardless of the broker representation.

Summary

The most important factor to remember when considering workers compensation costs is claims: the number of claims, severity of claims and how long a claim opens. Most business people recognize the correlation between employee success through job engagement and days sick due to injuries while on the job.