What is Workers' Compensation Insurance?

Workers' compensation insurance, commonly referred to as work comp insurance, is required (almost) everywhere in the United States and helps employees injured on the job. Work comp pays medical costs and lost wages when employees are injured at work. It can include rehabilitation services and death benefits too.

Workers' compensation insurance is know as the "exclusive remedy" for work-related injuries. And, in exchange for purchasing this insurance, employers receive protection from liability. Employees can not file suit against their employer (except in extreme circumstances like intentionally injuring an employee), and, instead, must utilize the employer's work comp program. Thus, the exclusive remedy.

What Workers' Compensation Insurance Covers

Workers' Comp Insurance For Employees

Employers buy Workers Comp Insurance to pay for medical care and replace a portion of missing payroll wages when employees are unable to work due to an accident. Part-time employees are covered as well as long as they are "regular;" one who works regularly on a part-time basis. Examples include employees who only work on weekends or seasonal hires you regularly hire during certain times of the year.

Medical bills
Lost wages
Disability Payments
Death Benefits

Workers' Comp Insurance For Employers

Accidents happen, but workers' comp helps give your business a safety net. In addition to helping cover medical bills and lost wages, the coverage may help with:

Vocational rehabilitation services to help get your employee back to work
Employee legal liability
Protects business owners by paying legal expenses if sued for a workplace injury.

Workers' Comp Insurance For Employers Part B

Everything mentioned above falls under Workers' Comp Coverage A. Workers’ Comp Coverage B, often called Employers Liability Coverage, provides vital protection when an employee is injured on the job due to employer negligence or other wrongdoing. This coverage helps pay for medical care, lost wages, and rehabilitation expenses. However, Coverage B benefits typically come into play only after the employee successfully sues the employer and proves negligence or misconduct.

Stuart Cytron ● stuart@cytrongroup.com ● 314.757.8079 ● Sitemap

Types Of Workers' Compensation Insurance

Fully Insured vs Self Insured Workers' Comp Insurance

A really simple way to classify different types of workers' compensation insurance (or most other types of insurance) would be Fully Insured and Self Insured. Fully Insured simply means that your insurance company is paying the claims while Self Insured means you are paying the claims. This, however, is not how we would classify workers comp insurance. There are numerous ways to finance employers' workers compensation insurance that don't fall neatly into these 2 categories.

We would instead use 3 categories:

1) Guaranteed Cost Workers Comp Insurance

2) Loss-Sensitive Workers Comp Insurance

3) Self-Funded (Self-Insured) Workers Comp

3 Types Of Workers' Comp Insurance

Guaranteed Cost Workers Comp Insurance

3 Types of workers compensation insurance

Guaranteed Cost is a form of fully funded insurance where your insurance company pays your claims. As the name (Guaranteed Cost) implies, it is supposed to have, literally, a guaranteed cost. Your Workers Comp Carrier provides you a quote, you pay it, and they pay the claims.

However, if you've explored this website, you know that the "guarantee" is not so reliable. Nonetheless, Guaranteed Cost Work Comp is easily the most common of the various types of workers compensation insurance.

Assigned Risk Workers Compensation

Another type of workers comp insurance that can also fall under the guaranteed cost category is Assigned Risk Workers Compensation Insurance. These programs can be administered by a state fund or outsourced to a traditional workers comp insurance company. Assigned Risk Work Comp is an insurance program of last resort. If you can not procure coverage elsewhere, your state's "Assigned Risk Pool" can guarantee availability of coverage and provide a fully insured (no deductible) workers' comp policy.

In general, Assigned Risk Work Comp cost a lot more than private, "voluntary market" providers; as much as 40% higher premiums!

Premiums in an Assigned Risk Workers Compensation Program are so expensive because most of the organizations that end up in "The Pool" are there because claim problems. Due to high claim frequency, high claim severity, or both these businesses can't obtain quotes from private insurance carriers.

Loss-Sensitive Workers Comp Insurance

There are numerous types of Loss Sensitive Workers Compensation Insurance. However, they all have one thing in common and that is the cost driver of the program is your losses. So, these types of policies can vary greatly in cost for even the same business from one year to the next.

However, these are still Fully Insured Workers Comp policies because the insurance company writing these policies are still paying the claims. The insured client simply repays claims costs to their Workers Comp Insurance Company up to the agreed limit of for each claim/occurrence.

Large Deductible Workers Compensation Insurance

The most common type of Loss Sensitive Workers Compensation Insurance is a Large Deductible Workers Comp Policy. In exchange for taking the Large Deductible like, say, a $100,000 per incident, you will get a very substantial credit against your premiums. So, you pay a very small amount of insurance premium to your insurance company and anything ranging from very small to very large amount in the form of deductible payments depending on your work comp claims for the year.

In addition to the Large Deductible Workers Compensation Insurance Policy there are numerous other types of Loss Sensitive Workers Comp Insurance Programs. I'll name a few here :

Retrospective Rating Programs
Group Captive Insurance
SIG (Self Insured Group or Trust)
Composite Rated Program

Self-funded plans: For companies with substantial resources and complex risks

Self Insurance

Self Insurance or Self-Funded Workers Compensation Plans are programs where you, the business pays the claims. There can be great cost saving for an organization that structures one of these programs but you must be approved by the state and retain that approval. Self insurance for workers compensation is for companies with substantial resources and complex risks.

Stuart Cytron ● stuart@cytrongroup.com ● 314.757.8079 ● Sitemap