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Like most insurance, Workers Compensation (WC) doesn’t come at a flat price – it varies according to a number of variables.

 

 

Like most insurance, Workers Compensation (WC) doesn’t come at a flat price – it varies according to a number of variables.

 

The main features affecting WC rates are :

The requirements of the state

The size of the business (number of employees covered)

The nature of the business

The claims history of the business

 

The requirements vary by state, but nearly all states require WC of some kind. The exception is Texas, where WC is not compulsory.  In Oklahoma they have an opt-out provision if an alternate benefits plan is in place. However, this has been legally challenged and may not survive.

 

In North Dakota, Ohio, Washington, and Wyoming  - known as “the monopolistic states” – WC is required and must be obtained from state monopoly providers.

 

In California many business owners’ policies include WC.

 

The key rating factor for business size is the payroll bill – a rate will be applied to payroll to get a WC rate. However, not all employees carry the same risk. Generally speaking, an office worker faces fewer and less serious on-the-job risks than a construction worker, so that the National Council on Compensation Insurance (NCCI) maintains a table of codes for different types of jobs – almost 800 of them.

 

The final part of the premium formula is the claims history. Just like your auto insurance, if you’ve had a number of claims, you’ll find that the premiums increase to represent the increased risk perceived by the insurer.

 

With all these variables, it’s difficult to say WC is “expensive” as it’s almost impossible to compare policies on a like-for-like basis.  Insurance operates on the basis that by sharing similar risks everyone can benefit from lower costs, so it’s reasonable to assume that the cost of WC is cheaper than the alternative of funding employee sickness and injury absences.

 

So what do you get for your WC dollar? WC covers situations where employees are off work sick or with a workplace injury. The policy covers medical expenses and some of the lost wages. In more serious cases, employee rehabilitation may be needed and WC covers this. In fatal cases there is a death benefit payable under the policy.

 

Not surprisingly, WC doesn’t cover injuries sustained out of work, self-inflicted injury or injuries resulting from alcohol or drug use.

 

These are factors that affect the individual business WC policy, but there are other wider considerations that affect the basic WC rates on which insurers base their premium calculations. 

 

A large part of WC claims cost is medical costs, which are rising. In 2018 healthcare represented 17.7% of GDP and this is projected to increase to 20% by 2025. Over time, healthcare tends to improve – we can treat more things and treat them better. However, better nearly always means more expensive in this context.

 

Industry experts are hotly debating whether the Affordable Care Act (Obamacare) has pushed costs onto WC insurers and there is meantime no firm answer. However, there is some indirect evidence suggesting that WC insurers may be facing greater costs in relation to soft-tissue injuries. What is clearer, but not yet certain, is that the Supreme Court seems unwilling to strike down Obamacare and it is likely to remain substantially in force.

 

Also, as living standards rise, the level of earnings also increases. As a chunk of WC claims goes to pay lost earnings, this is on an upward curve and affecting the base rates insurers use.

 

WC has an important part to play for both business owners and their employees. Failing to have the right cover could be a very costly mistake. Here at Mid Valley Insurance we have the expertise to make sure you get the cover you need and we have the connections to ensure you get it at a fair price. 

 

Call us toll free on 888.626.3255 or use the Contact form to find out how we can help you.