History of Workers Compensation Insurance
Workers compensation insurance has evolved over the course of nearly a century and a half. As Europe went through the Industrial Revolution in the nineteenth century, many factory workers were in danger of becoming injured on the job. Ultimately, when workers did face job-related injuries, in many cases they attempted to take legal action against their employers. Often, the workers won. When other workers realized that this was an option, the number of these lawsuits greatly increased. The increase in lawsuits was more than European courts were equipped to handle, and soon they were overwhelmed. Because most of the lawsuits ended up favoring the workers, laws were established to protect the workers rights while at the same time eliminating the need to file a lawsuit. Workers in industrialized Europe had the peace of mind that their expenses would be covered in the event of a job-related injury, employers had the peace of mind that they would not be financially crippled by an employee's lawsuit, and the courts were freed up to concentrate on other matters.
The United States adopted workers compensation policies a few decades after much of Europe did. At the turn of the twentieth century, courts in the United States were experiencing a similar increase in the number of cases brought by workers against their employers for work-related injuries. As in Europe, workers won many of these cases, and as the trend caught on, the courts overflowed with cases of this nature. In the first decade of the twentieth century, many states passed employer's liability laws. These laws essentially confirmed an employee's right to sue his or her employer in the event of a work-related injury, but they did not guarantee that the employee would win the lawsuit or protect the employer from a devastating financial loss if the employee did win.
The federal government enacted an employer's liability law in 1908. Three years later, in 1911, the first workers compensation insurance laws were passed in Wisconsin. These laws took employer's liability one step further. The Wisconsin workers compensation insurance laws guaranteed that employees would receive money if they became injured on the job, and that they in turn would forfeit their right to sue their employer. With this manifestation of workers compensation insurance, both the employees and employers were financially protected. This arrangement is what most workers compensation insurance laws are based on today.
Understanding the Workers Compensation Insurance Policy
Workers Compensation Insurance Policies
Your workers compensation insurance policy includes the amount you will pay in premiums for your insurance as well as what your employees are eligible to receive as benefits when they file claims. You can purchase a workers compensation insurance policy from a private company or from the state government, depending on which state your business is located in. In some cases, businesses may choose to self-insure rather than purchase a workers compensation insurance policy. Whether or not your business should self-insure depends on your state's workers compensation insurance regulations as well as on the risk classification of your employees.
When an employee files a claim through your workers compensation insurance policy, that employee's medical treatment is paid for by your insurance company. In most cases, the insurance company will also reimburse your employee for a percentage of lost wages due to a work-induced illness or injury. Some policies also include benefits for an employee's dependents if the employee is killed on the job or rendered permanently unable to work.
A workers compensation insurance policy will dictate the rates you pay for insurance coverage. A number of factors come together to determine your rates, including how many claims your employees have previously filed while employed by your business and the severity of those claims. Your rates will also depend on how hazardous your employees' job duties are; employees in riskier work environments will have higher insurance premiums than employees who do not perform physically challenging or otherwise dangerous work.
Before deciding on a workers compensation insurance policy, you should review quotes from different companies and from the state government if your state offers a public workers compensation insurance option. Different quotes will spell out different scenarios of how much you will have to pay to insure your employees and what benefits they will be able to collect if they become sick or injured due to a work-related incident. For example, some policies may cover different percentages of an employee's lost wages. Other policies may place specifications on the medical treatment received by employees who file claims. Different policies may define risk differently as well. Some will provide you with more options to make your workplace safer and reduce your rates. If you have any questions about the terms in your workers compensation insurance policy, be sure to ask your insurance agent.
Workers Compensation Insurance Rates
The rate you pay for your workers compensation insurance will depend on many factors. Premiums are influenced by the risk classification of your business, which is determined by the nature of the industry you are in as well as by the number and type of claims previously filed by your employees. The greater the frequency of claims filed by your employees and the greater the severity of these claims, the higher will be the rates you pay for workers compensation insurance, whether you purchase your workers compensation insurance through a public option or a private plan. If your employees are performing tasks that place them in inherently dangerous situations, such as transporting materials or washing windows on tall buildings, their risk classification will be high.
Workers compensation insurance rates are determined as a percentage of each employee's wages. For workers who do not perform dangerous tasks, the percentage you pay will be low, likely 0.25-1 percent of wages. For workers who are at a greater risk of injury or illness, you will likely pay 10-15 percent of their wages. Because rates are based on an employee's wages, the higher your employees' wages are, the more you will have to pay for their workers compensation insurance. Also, since you will have to pay to insure each of your workers, the more employees you have, the more you will pay for workers compensation insurance. However, keep in mind that not all of your employees will be charged at the same rate. For example, your clerical workers have lower workers compensation insurance rates than drivers or employees who perform work that is more physically taxing.
Some businesses may be able to reduce their workers compensation insurance rates by self-insuring rather than purchasing workers compensation insurance from the state or the private sector. Small businesses with a particularly low risk rating can join together and invest in a pool of workers compensation insurance funds. Each employer contributes to the pool, and if an employee of one of the businesses files a workers compensation claim, he or she can receive the funds needed through the self-insurance pool. If a business's employees are unlikely to become ill or injured on the job, the business will save money by self-insuring. However, if many workers compensation claims are filed, the employer could actually lose money if the resources in the self-insurance pool cannot cover all of the claims.
Workers Compensation Insurance Quotes
When you shop for workers compensation insurance for your business, your insurance agent will offer you a quote. A quote is a document that states the amount you will pay for workers compensation insurance premiums and what benefits you will receive from your policy. This includes the amount of medical expenses and lost wages your employees will be eligible to receive if they file a claim. A quote is not a contract. Neither you nor the workers compensation insurance company is bound to the terms stated in the quote; rather, a quote is a document for both you and the insurance company to review as you determine the terms that will be put in your contract.
You should seek out multiple quotes from multiple insurance companies before you decide on the workers compensation insurance policy that best meets the needs of your business. That way, you can see the costs and benefits of various scenarios concerning your employees' potential claims.
An insurance agent will take into account many factors when drafting a workers compensation insurance quote. The rate that it costs to insure each of your employees will depend on what kind of work the employees do. Your employees will be classified based on the riskiness of their jobs. Employees who perform riskier tasks will require higher workers compensation insurance premiums than employees who perform less-risky work. Your quote will include the rates for each classification of employee you need to insure, as well as the number of employees in each classification. Your quote will also include the percentage of each classification of employees' wages necessary for workers compensation insurance premiums.
The workers compensation insurance rates in your quote will be influenced by any past claims for workers compensation benefits your employees have made while they were employed by your business. A large number of severe claims will raise your rates. However, there are things you can do to decrease the amount you will have to pay for workers compensation insurance.
When you receive a quote for workers compensation insurance, you should ask your insurance company's auditor to furnish you with a copy of the audit report. The audit report will include potential safety hazards in your business. You can address these hazards in order to receive a lower rate on your workers compensation insurance. After updating your workplace to improve safety, request another quote for workers compensation insurance.
Workers Compensation Insurance Companies
While several states require businesses to purchase workers compensation insurance through a state-funded program, many others offer a public option for businesses to purchase that competes with the private sector. In states that do not have a public option, most businesses are still required to purchase workers compensation insurance through the private sector or else self-insure in order to protect their employees from costs and financial losses associated with a work-related illness or injury.
As you decide whether a public option, self-insurance, or a private insurance company's policy is the best way to provide workers compensation insurance for your employees, you will need to consider many factors. Purchasing workers compensation insurance through the same company from which you purchase health or auto insurance has its advantages and disadvantages. There will be fewer obstacles to navigate as you learn the procedure for filing claims with an insurance company that you have already worked with. However, just because an insurance company offers competitive rates for other kinds of insurance does not mean that it necessarily offers the best rates for workers compensation insurance.
When choosing a workers compensation insurance company, research companies that have experience in your industry. These companies will likely be able to find ways to reduce your insurance premium costs by increasing safety in the workplace and making sure you take advantage of any and all workers compensation insurance credits you are eligible for. Also be sure that the company is familiar with the workers compensation insurance laws in your state. Since legal requirements for workers compensation insurance vary from state to state, you may want to go with a workers compensation insurance company that is local to your area. If you decide to go with a national chain instead, be sure that the company has a comprehensive understanding of your state's legal requirements. Whether you go with a small, independently owned insurance company or a large national company, choose an insurance company that will assign one claims adjuster to handle all of your claims. That way, you will have personal contact with someone who will become familiar with your business and can use that familiarity to be sure that you are not being overcharged.
Consult trade organizations in your industry when looking for a workers compensation insurance company. Many trade organizations provide information and recommendations on both public and private policies for businesses in your industry and in your state.
How to Negotiate the Best Rate for Workers Compensation Insurance
When you are ready to negotiate a rate for workers compensation insurance, be sure you are well informed about your needs. Be prepared to discuss these needs with your insurance agent. Your agent will need to know how many employees you have and what wages you pay these employees. This information is one factor that will determine your workers compensation insurance rates. For each employee, you will need to spend a small percentage of that person's income on workers compensation insurance premiums. Also be prepared to discuss the job duties of your various employees with your insurance agent. Premiums for employees at minimal risk of injury or illness in the workplace will be much lower than premiums for employees at a high risk. Discuss with your agent any potential hazards your employees may encounter in the workplace and any safety precautions you can take to eliminate or reduce these hazards. Minimizing potential workplace accidents will help you get a better rate for workers compensation insurance.
As you negotiate your workers compensation insurance policy with your agent, be sure that you understand what scenarios are and are not covered under your policy. You will likely have several options for the level of coverage you wish to purchase; you and your agent just need to make sure you meet the minimal state requirements for workers compensation insurance. Many policies cover employees' medical expenses and a percentage of lost wages, and, in some cases, pay benefits to employees' dependents in the event that an employee is killed on the job. Work with your agent to determine what level of coverage is necessary and appropriate for your employees' level of risk.
Before committing to a workers compensation insurance policy, shop around and get quotes from different companies. This will give you an understanding of what the average rates are for a business in your industry and in your state. Some workers compensation insurance companies will offer options not available from other workers compensation insurance companies, so reviewing multiple quotes is necessary to understand what all of your options are.
Check with trade organizations in your industry for referrals on workers compensation insurance companies. Many trade organizations offer reviews and advice on which policies are best for businesses in your industry. Trade organizations can also help you decide between a public or a private plan.
Workers Compensation Insurance Directory