Workers Compensation

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What Is Workers Compensation Insurance?

Workers' compensation insurance covers medical care expenditures, lost wages, and rehabilitation for injuries sustained during the course of employment. It also gives state-required benefits to families of workers who passed away as a result of an accident on-the-job.

Workers' compensation insurance is also called workman's comp insurance, or just work comp. This insurance policy pays claims for work-related accidents in situations like:

  • A staff member is hurt in an automobile accident while conducting business duties. (Work Comp is primary and pays for employee injuries before the business auto policy.)

  • A co-worker develops carpal tunnel syndrome by spending long hours on the computer at work.

  • A worker gets injured falling off a ladder in the process of restocking.

Insurance For Workers Compensation & Its Basic Functioning

Worker's Compensation Insurance and Employers Liability insurance provides coverage for employees injured while performing their job. Employee illness may be compensable if the illness is directly related or exacerbated by conditions in the workplace. The employer is liable to pay for the employee’s medical care and a percentage of lost wages, regardless of who is at fault for injury or illness.

The rules for insurance are established by the statutes in each state therefor coverage can vary from state to state.  Each state's laws govern the following:

  • Amount of loss wage benefits owed to the entitled employee (and minimum and maximum loss wage amounts)
  • If exemptions are permitted for owners or officers
  • Level and cost of medical care to be delivered
  • When a workers compensationpolicy is statutorily required
  • If workers compensation insurance is provided by a state-run program or private insurers
  • How disputes are handled
  • If credits are given for workplace drug free or safety programs
  • If deductibles and coinsurance are permitted on policies

Who needs Workers Compensation Insurance?

A business owner must get  Workers Compensation Insurance type of insurance if:

  • The company is about to hire their first employee
  • Company’s owners or officers want to be covered by compensation
  • If worker compensation is statutorily required in their state
  • The business is in a high-risk industry
  • Coverage is contractually required for a job or project
A construction worker helping an injured worker

Workers Compensation Insurance Coverage offered

Medical Costs

Immediate and ongoing medical care costs are covered by the workers compensation insurer for the injured employee. The cost of surgeries, physical therapy, rehabilitation, prescriptions, medical equipment and prosthetics are all included under medical care. You can imagine that costs incurred can be exorbitant. Since there is no limit cap for payment of medical care and expense, the insurer is liable to pay for all of these expenses when a catastrophic claim occurs.

Lost Wages

If an injured employee is advised by their doctor that they are physically unable to return to work in any capacity (including “light duty work”) the employee will be reimbursed for their lost wages. The workers’ compensation carrier will pay , after a waiting period, which is typically 7 days, for a percentage of their wage loss, the percentage amount is typically 66 2/3% but this can vary by state statute.

Ongoing Care

In certain cases, the trauma of the injury or disease may be so severe that the employee is permanently disabled and will be unable to ever return to work. They will require ongoing care such as replacement services for care, 24 hour nurse care, transportation and ongoing medical treatment for the rest of their lives. By buying workers’ compensation coverage, the business owner transfers the responsibility for these payments to the workers’ compensation insurance carrier. the employer's liability is limited in the policy, the insurer would continue to pay for care.

Death Benefits

If an employee tragically dies due to a workplace injury, the business owner is liable to cover the funeral experiences. Your workers’ compensation insurance covers the ‘death benefits’ such as support payments to the dependents of the employee. Offering this can help you retain quality workers for your high-risk business.

Legal Costs

If an employee injures themselves and thinks that the company is to blame, they might file a lawsuit. The costs involved in a lawsuit can be huge. If your workers’ compensation policy has Employer’s Liability Coverage, it will save the cost of attorney fees, court costs or settlements.

Hypothetical Instances of Workers’ Compensation Insurance Claims

Following are some common instances of  Workers’ Compensation Insurance Claims:

Factory workers working on site

Work Exertion

Construction employees working on a site are reaching the completion deadline. They thus work day in and day out. An employee suffers from ligament tear in the muscle. He ends up missing weeks of work and needs medical care and lost wages all of which would be Covered by the Workers’ Compensation Insurance.

Exposure to Harmful Environments

Testing professionals and researchers are required to be surrounded by several harmful chemicals. In case of a chemical spill, the employee may suffer from severe burns and rashes. Employees who are exposed to harmful environments require safety masks and bodysuits, helmets, gloves and goggles. The employer is required to pay for the employee’s hospital visits and medical expenses. The insurance covers the amounts when the bills are produced.

Slips and Falls

A majority of the slip and fall claims at workplaces happen on wet floors and snowy walkways. When an employee falls on the wet floor and injures themselves, they may sue the employer because the floors should not have been wet during work hours. The workers’ compensation insurance covers the employer for the attorney fees, court cost and judgment if awarded.

Hanging worker window washing a high rise building

How can we help you get workers’ compensation insurance?

Read up about the overview of workers’ compensation insurance on our website. Contact us by phone or email for more queries. We patch you up with a suitable insurance provider on our platform. We understand your needs as a business owner and provide you with a platform to browse from some of the best insurance deals.

Workers Compensation Classifications

What are workers’ compensation classification codes?

Class codes, also known as workers' compensation classification codes, are four-digit codes used by insurance providers to determine premiums. Some states have their own workers' comp class codes, but many use the National Council on Compensation Insurance (NCCI) codes. The National Council on Compensation Insurance is an independent organization tasked with maintaining an actuarial and underwriting database on workers’ compensation insurance. States may subscribe or not, and if not each state takes care of the record and rate keeping for workers compensation coverage.  North Carolina, Pennsylvania, California, North Carolina are some of the states that don’t subscribe to NCCI.

How are workers’ comp class codes used?

Insurance companies use class codes to classify a business’s operations which then helps determine the probability that a job will cause injury. Every code defines a specific occupation and the actuarial claim cost data that each carrier uses with their own company modifiers to determine a rate per $100 of payroll by job class. Remember that the workers' compensation classification codes are crucial in determining compensation rates.

Employees in high-risk industries are charged higher rates. An office clerical worker (class code 8810) is less susceptible to injury than a roofer, (code 5403) on a 2 story home. It's less expensive for workers compensation to insure a clerical employee than a construction worker.

How are workers’ compensation premiums calculated?

Three primary variables are used in calculating the worker's compensation rate equation.

Workers’ compensation classification code

The workers' compensation class code denotes the type of work performed. This classification is a marker of a risk level that determines the rate. The insurer will use the class code to determine the amount of your workers' compensation premium that accounts for the business's hazard level. Your rate will be adjusted depending on your firm's risk level compared to the industry average.

Payroll

The annual amount of your payroll (by class code) also determines your workers' compensation cost. Make sure you accurately report your payroll as it will impact your premium. An insurer that's responsible for providing your work comp insurance requests an estimate of payroll by job duty for the coming year and will use this estimate to calculate your premium.

Too-low or too-high estimated payroll can affect your company's cash flow during your annual premium audit. Insurers use a yearly premium audit to evaluate your intended policy premium correctly.

Experience modification factor

Workers' compensation insurance providers consider your history of workers' comp claims. NCCI for most states calculates the experience modification factor for each business based on prior premiums and claims.  In non-NCCI states, the state itself performs this service.  There are limitations for mod calculations, some small businesses under certain premium thresholds may not be assigned an experience modification factor and this will vary by state. 

The insurance carrier utilizes the experience modification factor when determining your workers' compensation insurance price. This may be a reflection of your company’s excellent workplace safety and loss control program where you may have a credit mod of .80 vs a company with bad loss experience has a mod of 1.5. In this example company A pays 80% of the rate while employer B pays 150% of the rate.

When it comes to workers’ compensation insurance, having a strong safety program, good loss prevention, adequate employee safety training and an assigned member of staff responsible for safe work practices will reduce your workers’ compensation premiums for the long term

Frequently Asked Questions (FAQ) about Workers Compensation Insurance

1. How to choose a good workers' compensation insurance company?

To choose a good workers’ compensation insurance company, you should check their financial rating with company such as AM Best which provides a snapshot of the carriers rating, try to stay with an “A” rated carrier. You can also check with your state insurance commissioner’s site to make sure the insurance company is authorized to do business in your state. Aside from these factors, consider what is important to your company. Are you in a business that has a higher injury rate than most? If so, an insurance company’s loss prevention and risk management services available are worth checking into. Your agent can provide links to each carrier’s divisions so you can check out what they offer. Some insurers may offer free safety training or videos that you can show at a staff safety meeting. 

2. What are workers' compensation insurance requirements by state?

Each state has different workers’ compensation insurance requirements. To know more about it, check out your state on InsuranceAdvisor.com.

3. Which type of workers' compensation claim is easy to process?

Medical-only type of claim that is the simplest to file and easiest to process.

4. How much is workers compensation insurance in Florida?

In Florida, rates are set per $100 of payroll, there are over 500 different job classifications with a specific rate set for each. The FL rates for a clerical employee in 2022 is $0.16 while a roofer’s rate is $11.41 per $100 of payroll. Payroll and loss experience are two of the main factors that determine your premium.

5. Is workers compensation insurance compulsory in the USA?

Workers' compensation insurance is required in nearly every state, requirements are different depending on the industry and the number of employees a business has. Workers’ compensation is governed by state law. There are some industries in which federal requirements and benefits come into play, these are railroad work, longshore and harbor workers, and work subject to the Jones Act (ocean going vessel workers), there may be more.

Click here for more Frequently Asked Questions on Workers' Compensation Insurance.

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