You’ve always been an honest and dedicated business owner, doing as much research as possible to ensure you make the right decisions, enter the right contracts, and invest in the right ideas. And the same applies to managing your workers, respecting their rights, and supporting their overall wellbeing.
As a part of your commitment to your employees, you want to thoroughly understand all the options available to you regarding workers’ compensation insurance. You want to know what’s out there so you can compare rates and benefits to provide the best possible care for your workers at the best possible price.
Understanding Your Options
Depending on which state or states you operate your business in, you have different options for purchasing a workers’ compensation insurance policy.
States with a Monopolistic State Fund
Wyoming, Washington, North Dakota, Ohio, Puerto Rico, and the Virgin Islands all have a monopolistic state workers compensation insurance fund. If you run a business in any of these states, you must purchase coverage from the state insurance fund and cannot get workers’ comp from a private provider.
States With a Competitive State Fund
California, Pennsylvania, New York, Minnesota, and Rhode Island are among the many states with this type of fund. In these states, employers have the option to purchase a workers comp policy from either the state fund or a private insurance company.
States Without a State Fund
Some states, such as Florida, Kansas, and North Carolina, don’t offer state-funded workers’ compensation insurance. If you run a business in one of these states, you must secure coverage from a commercial insurer. To ensure all businesses have at least one option, these states all have a designated insurer of last resort.
Reasons Employers Use State Funds
Sometimes, employers choose state-funded insurance policies over their commercial counterparts even if they do business in a state that allows purchasing a private policy. There are many reasons why employers make this decision, including:
You’re in a High-risk Industry
In some instances, your business might be a high-risk investment for commercial insurance providers, making them more likely to reject covering you or charge a rate you can’t afford. That is particularly true if you’re working in a high-risk industry where accidents are frequent and often expensive.
Not Meeting Private Insurance Standards
Private insurers often have strict standards for qualifying employees, such as age and preexisting conditions, along with heavily-regulated work conditions. Not being able to meet all of their standards is also why your business might get denied private insurance coverage.
Hiring Out-of-state Employees
Business owners have to provide workers’ comp for out-of-state employees, and sometimes, the employee’s home state has very different coverage requirements. In this situation, a business owner may opt to use that employee’s state’s fund out of convenience.
How Insurance Companies Choose Their Clients
As stated above, insurance companies have the right to deny your business’s application for any insurance, including workers’ compensation insurance policies, even in states where it’s required. Generally, when an insurer looks over your application, they look for signs that you’re either an unreliable client to deal with or won’t have a good return on investment for them. Some red flags insurance companies look out for in applications include:
- Poor claims history
- Previous legal problems
- Troubled financial history
- Previous violations of workers’ comp laws
- Operating in a high-risk industry with minimum regulations
- Providing incomplete information
Still, there are many ways you can make your business more insurable without having to use the insurer of last resort. For example, you can try:
Implement Employee Training
Trained employees are less likely to make mistakes in the workplace that put them at risk of injury or illness.
Enforce Strict Security Measures
The higher your security standards and the more strict your security measure are, the less likely an accident would occur that would require coverage from your insurer.
Gain Regulation Compliance Certificates
Gaining certificates for safety and strict regulations by a third party makes your business more trustworthy.
Complete Regular Risk Assessments
Just because you had acceptable risk levels 10 years ago doesn’t mean the standard is still the same today. Perform regular workspace risk assessments to prove that you’re working in a low-risk environment.
Your employees’ history of workers’ comp insurance claims sometimes plays a role in your current business insurance. Hiring responsible staff who are knowledgeable and cautious is better for your business in general, and your insurance policy in particular.
Running the Numbers
Just because some of your competitors or businesses you look up to take on a particular type of insurance policy doesn’t mean you have to follow along. Run the numbers, calculate the risks, and plan for the likely future before investing in an insurance plan, whether state-funded or private. The more evidence and numbers-based your decision, the better.