Workers Compensation Insurance Helpful Buyer's Guide

Business Week Online: Small Business                            March 22, 1998


Employee perks like dental insurance and 401(k) plans are great to have - but you do have a choice in the matter of whether or not it makes sense to pay for them.

When it comes to workers' compensation, though, you have no choice; it's the law. In fact, You could be hit with heavy fines and face jail time if you don't provide this coverage.

Workers' compensation insurance is a valuable investment. It protects both you and your employees in the event of a job-related injury or sickness by providing medical and disability coverage.

About coverage

Any policy you buy must cover all employees. In most states, this includes part-time employees as well. Since workers' comp is state-regulated, you will need to check with your state Department of Labor to see exactly how "employee" is defined in your state and to confirm coverage requirements.

One provision offered in some workers' compensation insurance packages is employee liability coverage. This provision covers expenses related to any lawsuits your employees may file as a result of a work-related injury.


Keep in mind that your employees won't be contributing to premiums. Business owners are responsible for 100 percent of the cost. Even if rates in your area are predetermined, you should still aim to receive at least three quotes. Since calculating rates is not a cut-and-dried process, you may still have differing quotes depending on the broker's approach.

This may not be the easiest task, especially if your business has had a high rate of filed claims in the past or if your employees are in high-risk positions, but it is one that can translate to substantial savings.

To obtain coverage, turn to a business insurance broker.

Premium calculation

The National Council on Compensation Insurance (NCCI) sets basic standards using hundreds of industry classifications. The classification of your business and employees in addition to your records and state regulations affect the final premium figure. Premiums are all over the map - for example, a roofing company with 10 employees could easily pay a yearly $100,000 premium, while a bank with 100 employees could pay half that.

Some factors do exist that will allow you to lower your premium prices. If you have certain safety policies in place, for example, or if your record is clean and workplace accidents and claims are below the industry average, you could receive a discount.

Avoid being overcharged

Once you do have coverage, be watchful of errors. It's not uncommon for you to be mistakenly overcharged on premiums. Also, make sure your business as well as your employees are classified correctly. And keep an eye out for aberrations: If your premium inexplicably increases, ask for an explanation that makes sense.

Workers' compensation is meant to protect your business, as well as your employees, in the event of an accident. But the best approach is to prevent injuries from happening in the first place by keeping a safe and healthy workplace.

Preventing workers' comp fraud

The National Insurance Crime Bureau estimates that workers' comp fraud is the fastest-growing insurance scam in the nation. These incidences can range anywhere from an employee feigning a back problem only to be seen lifting heavy items into a delivery van for his home-based courier business to an employee passing off an injury from a weekend softball game as a workplace injury Monday morning.

And since fraudulent claims can add up quickly, you'll want to take precautions to try to combat fake claims. According to the Coalition Against Insurance Fraud, these are a few steps you can take to protect your business:

  • Verify references and background information carefully.
  • Publicize your workers' compensation policy to all your employees, and provide them with updates at least once a year.
  • Educate supervisors on workers' comp issues: How injuries decrease productivity and how costs affect the bottom line.
  • Display fraud awareness posters and the National Insurance Crime Bureau's hotline number.
  • Work with your insurer to implement a safety-management program that can eliminate as many safety problems as possible.
  • If you suspect a fraudulent claim - and you have evidence or witnesses to back up your suspicion - contact your insurer's special investigation crimes unit immediately.
  • Pay attention to employee complaints and concerns about their working conditions. The strongest predictor of fraud is a chronically disgruntled work force.
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