Work Comp Insurance Options for Small Business

Sunday, October 13, 2002 | 0

When it comes time to buy or renew your workers' compensation insurance, there are several options. Work comp will be available through a state insurance pool or fund, a commercial insurance carrier or self-insurance. The differences are:

State insurance pool - Most states have at a minimum a "state fund", an insurance carrier created by legislative fiat. Some of these compete in the open market against regular insurance companies, and in other states they are the only work comp carrier.

Commercial insurance carrier - While many commercial insurance carriers offer workers' compensation insurance, some of the largest names in insurance do not offer these policies. To buy insurance through a commercial carrier, you would work with an agent.

Self-insurance - Only the largest, most solvent employers typically are able undertake this highly risky route, and the state requirements for self-insurance are typically as rigorous, if not more, than for an insurance company. For example, Alabama requires a company to have $2.5 million in net worth to qualify for self-insurance. Certain states may allow employers in the same industry to form a group for self-insurance purposes.

Not all of these options are truly available to all businesses, and in fact, in this insurance market, the choices are very limited. For example, most small businesses in California are basically limited to the State Compensation Insurance Fund as no other commercial insurance carrier will write small business presently.

Typically an insurance agent is in the best position to help you to purchase the proper coverage for your small business. Quite often the agent who handles your other business insurance needs can find coverage for you, but you will also want to talk to other businesspeople about options they have encountered. Obviously you can also check the yellow pages for listings and if you are part of a trade organization or professional association there may be special programs available. You can also post to the workcompcentral Agents & Brokers forum as this is visited by many insurance professionals that can assist with insurance placement.

There are two categories of agents:

An independent agent can offer policies from several insurance companies.
A captive, or tied, agent only offers the policies of one insurance company.

An agent should be able to answer all of your insurance questions, help you assess your needs, and offer you appropriate products.

Some useful sites in finding and assessing agents include the Independent Insurance Agents Association (www.iiaa.org), the Insurance Information Institute (www.iii.org), and the National Association of Mutual Insurance Companies (www.namic.org).

You can also search for individual insurance companies' sites on the Web. In addition to describing the company's products and services, these sites often offer a way to find agents in your location and sometimes provide online applications for customers to receive insurance quotes.

You should also check insurance company ratings, which are opinions based on both quantitative and qualitative analyses of a company's financial strength, operating performance and market profile. Workers' compensation insurance is just like other insurance - if a company is not financially sound, then what you purchase may not even be worth the paper its written on. Much of what happens with a claim when one happens depends on the carrier's financial soundness and savvy of claims department management. Getting a cheap policy up front with poor claims service will cost you big time down the road.

Better-rated, more secure insurance companies often charge higher premiums, but it is important to remember that your goal is to minimize your risks. You want the insurance company you select to be able to cover your losses should you have occasion to make a claim.

Some useful ratings guides are Standard and Poors (www.standardandpoors.com) and A.M. Best (www.ambest.com).