Kimberlee Leonard

Ever wonder why your general liability premium is more than your buddy’s business insurance costs? It’s not an unreasonable question to wonder this and try to determine how general liability insurance is calculated. Depending on the unique factors of your business, insurance companies will rate the risk and determine your premium. Here are some insights into how that is done. Key Components of General Liability Rating Systems Every insurance company rates risk, and most of them do so based on uniform industry classifications found in one of the common coding databases, such as the Insurance Services Office’s (ISO) Commercial Lines Manual. The purpose of the manual―or any classification tool―is “to group insureds into classifications so that the rate for each classification reflects the hazards common to those insureds.” In other words, based on what your company does, there will be a standard rate defined as the starting point for insurance carriers to use. It’s important to note that it is just a starting point since every carrier prefers certain industries over others and will price policies accordingly. Most carriers start with the ISO rating or one of the other common databases, such as: North American Industry Classification System (NAICS) National Council on Compensation Insurance (NCCI) Standard Industrial Classifications (SIC) Classifications Industry classifications can be found on the declarations page of your insurance policy. It’s wise to review the classification assigned to your business to make sure you are not overpaying for insurance based on a riskier industry. Classifications start with the industry and then get more granular with sub-classifications for specific types of businesses within the industry. With the ISO, the classification code that defines the industry is a five-digit code. For example, the following five-digit codes pertain to common industries with the ISO: 10000-19999: Mercantile 40000-49999: Miscellaneous 50000-59999: Manufacturing or Processing 60000-69999: Building or Premises 90000-99999: Contracting or Servicing NAICs codes start with a two-digit code and expand the category up to six digits depending on how granular you want to get. For example, Construction is code 23, with Residential Building Construction being code 2361 and New Single-Family Housing Construction being code 236115. Rates The rates are defined based on the classification code. These are generalized rates and serve as the starting point based on the risk that the industry has. This is referred to as the “premium basis.” Premium Basis The premium basis, sometimes called an exposure basis, is based on a value per $1,000 of gross sales, payroll, or another defined metric. For example, the premium basis in the manufacturing sector is based on gross sales while the premium basis in contracting is based on payroll. Mercantile classifications might be based on the square footage of the business. Every business classification has its own premium basis determined once the classification code is established. Additional Factors in General Liability Rating Each insurance carrier will also incorporate its own proprietary rating of other factors used in the calculation of premium. Premises and Operations The premises and operations will play a role in your premium calculation. This includes where the building is, how big it is, the amount of foot traffic to your establishment, and the hours of operation. This is important in determining general liability costs because it speaks to the potential claims that may occur. For example, a bigger facility with more foot traffic is at a higher exposure for slip-and-fall accident claims. Another example of how operations will affect your rate is if you run something like a car wash that might lead to damage of personal property—the more likely you are to have a claim come from damaging someone’s property, the higher your premiums will be. Business Size While the physical size of your business likely is covered in the premises portion of the rate calculation, how much business you do and how many customers you serve will affect the rate. This might be defined by business revenue or gross sales. The higher your revenues, the higher your risk classification will be. The rationale behind this makes sense. A new business without much in revenues isn’t selling many products or services and is, therefore, less likely to have more interactions that can lead to a claim. As revenues grow, so does the exposure. Additionally, big companies tend to be targets for those who want to make fraudulent claims or go after larger dollar amounts to settle real claims simply because of the perception that the company can afford it. Experience One of the questions that many underwriting applications will ask is how many years the company has been in business and what is the industry experience of management. Newer companies or those with management that is less seasoned suggest a higher risk since the company may not have the resources or understanding to avoid claims. Simply put, the more experience a company has, even by virtue of its management, the less risky it is seen by the insurance company, and premiums reflect that. Claims History There is no secret that the insurance industry uses claims history to rate insurance policies. Those with no claims often get a claim-free discount. The fewer claims a company has, the more favorable of a rate it will get. Conversely, the more claims a company has, not only is it more expensive, but it may be hard to find an insurance carrier willing to underwrite the risk. Policy Terms The price of the policy will be related to the type of coverage you have included in the policy. This means that if you choose to double liability coverage, you can expect to see the premium increase―although double coverage does not equal a double premium. You may also have added coverage, such as an increase in coverage for something like money and valuable papers. All the little inclusions will add to the policy premium. Talk to your insurance representative about whether or not a specific coverage is necessary for your business. If it isn’t, you can eliminate that additional cost. Bottom Line While you won’t be able to estimate your general liability premium, you can get a good idea of the costs that affect the premium. Understanding why something affects costs helps you manage risk better in your business to reduce liabilities and, as a result, the premium. All premium calculations start with the class code and then factors things like location, revenues, and claims history.

There is more than one way to buy a commercial general liability insurance policy. You can buy it directly from the carrier, through an agent, or via a broker. The carrier is responsible for maintaining the terms of the insurance contract, also known as a policy. An agent works on behalf of an insurance carrier while a broker works on behalf of the client to find the best policy for the best possible rate. It’s important to understand how you’re shopping for insurance because it could mean significantly different options are presented to you. What Is an Insurance Broker? An insurance broker works for you, the client. This means that they take the relevant information needed to find you a policy and will shop that information among various carriers to get what’s right for you. The job of the broker is to help you evaluate the best policy for your needs. They become trusted advisors who understand the risk of your business and find a policy that best addresses that risk. Unlike a carrier or agent, a broker cannot bind coverage, which means they have to submit an application on your behalf to the carrier to get the policy approved and effective. Pros & Cons of Insurance Brokers As with anything, there are pros and cons to consider when thinking about whether or not you want to use a broker or go directly to a carrier. For small business owners who know the company they want to work with because they trust the reputation, it might be easier to go directly to the carrier since you’ll get a policy faster in many cases. However, because brokers are working for you, it could be worth the wait to see if the broker can find an equally strong carrier with a cheaper policy for your needs. What’s the Difference Between Insurance Agents & Brokers? The terms insurance agent and insurance broker are often conflated, but they are different. Agents are paid a commission by the carrier to act on their behalf. The agent can bind coverage, making getting a policy quick and easy. However, the agent is not going to compare that policy with other carriers like the broker will. The insurance broker seeks the best carrier for his client’s needs. This means that the broker is not limited to one or two carriers he has an appointment with. Brokers also get paid a commission, but the commission can come from any number of carriers, depending on where the policy ultimately is sourced. This gives brokers a more objective approach to helping business owners find the right insurance. It’s important to know that some brokers do charge a fee when placing the business with a carrier, and this fee is not refundable if you cancel the policy early, although your premium would be. What Is an Insurance Carrier? An insurance carrier is a provider of specific types of insurance policies—like general liability insurance. It generally employs representatives and agents to solicit and sell insurance. Agents can work directly for the insurance carrier, or they can be independent agents that are appointed by the carrier. As an independent agent, they maintain their own costs of doing business and are considered self-employed but serve as extensions of the carrier. The carrier is responsible for all aspects of the insurance policy that include underwriting, servicing, and claims. When a business owner has an issue, they will likely be getting help directly from the carrier, as is the case during the claims process. Even independent agents will defer the processing of claims and many other issues directly to the carrier. Pros & Cons of Insurance Carriers When a business owner works directly with a carrier, it is usually because they have a strong respect for the brand. They trust that the policy and its subsequent coverage will take care of them properly during a loss. It’s also possible that people go directly to the carrier thinking that they will save money by doing so. The reality is that the carrier’s rates are fixed, and they won’t provide any discount because you go with them directly. How Carriers Sell Insurance Insurance carriers sell insurance through four different means. At the end of the day, the policy will be priced the same no matter how you get the policy unless you have a broker who tacks on an additional fee. The four ways carriers sell insurance policies include: Direct sales: Use representatives to fulfill policy orders but rarely solicits business via representatives Captive agents: These agents work with only one insurance carrier but are independent business owners themselves and get paid a commission to solicit and sell for the carrier Independent agents: May have multiple appointments with various carriers to solicit and sell insurance based on limited shopping capabilities Brokers: Are small business owners that shop policies among various carriers to find the best deal for clients When to Use an Insurance Broker Use an insurance broker if you are unsure where to start when it comes to getting your business insurance or want someone to help you find the best price. They’ll take the pertinent details about your business to help you identify your exact needs. Then, they’ll fulfill those needs by getting quotes from multiple carriers to see which option best suits your business. CoverWallet is an online insurance broker that does just that. They utilize smart technology to help small business owners identify their needs and then recommend a policy—all within a few minutes. When to Use an Insurance Carrier Go directly with an insurance carrier if you want to be sure you get a policy with a provider that you trust. Perhaps you have had a good prior experience with the carrier or are interested based on a trusted recommendation. Either way, going directly to the carrier can save you time in the long run since the carrier can bind coverage at the end of the phone call. The Hartford is a small business insurance expert and direct carrier. You can get a policy quoted within minutes and have a bound policy just seconds after that. Best of all, The Hartford is a competitive carrier that many brokers use because their pricing satisfies most industry needs. Don’t hesitate to get a quote today. Bottom Line It can be overwhelming to get a business insurance policy. Understanding the resources offered by both insurance carriers and brokers can make a world of difference in simplifying the process. Whether you go direct or through a broker, always make sure the carrier you use is rated highly with a good reputation.

Texas workers’ compensation laws are unique because they don’t require employers to have coverage. Businesses that do buy policies are covered for their obligations after a worker is injured, including the workers’ medical expenses, prescriptions, and partial weekly wages. Texas employers can expect to pay an average of 55 cents for every $100 of payroll on workers’ comp insurance. Texas Workers’ Compensation Insurance Requirements Workers' compensation laws vary by state, but Texas is the only state that doesn't require coverage. Instead, a business can either be a subscriber or nonsubscriber to workers’ compensation insurance. Companies that subscribe to workers’ comp plans are covered for injuries regardless of fault. Nonsubscriber companies are considered “bare” and may be sued by an injured worker. Subscribers and nonsubscribers have certain requirements to fulfill. Subscribers, for example, must: Notify new hires of their subscriber status using Notice 6 Post the same notice in a prominent location and in the languages of their workforce Inform new hires they have five days to waive their right to workers’ compensation benefits Avoid “benefits stacking” where workers’ comp and other health and disability benefits in a manner that provides more than 100% of the employee’s regular weekly wages Report work-related injuries that cause more than one day of lost time and all work-related illnesses and injuries to their insurance carriers Nonsubscribers must: Inform the Division of Workers’ Compensation (DWC) of their status using Form DWC005 Notify new hires of the nonsubscriber status using Notice 5 Post the same notice in a prominent location and in the languages of their workforce Report work-related injuries that cause more than one day of lost time and all work-related illnesses and injuries to the DWC Industries Required to Carry Workers’ Comp in Texas While workers’ compensation is considered voluntary in Texas, it is required in some industries, including: All public employers, including city, county, and state agencies State universities Construction contractors for public entities Motor carriers Liquid propane and natural gas dealers Those employing inmates in work furlough programs Risks for Texas Workers’ Compensation Nonsubscribers A company that opts out of purchasing workers’ compensation insurance in Texas is subject to civil lawsuits brought by their injured employees. Moreover, Texas laws restrict the defenses available to nonsubscribers in these lawsuits. Should a claim arise, the Texas Department of Insurance must be notified, and the company must take care of all medical and legal costs along with wages for injured parties. Many major corporations like Walmart and Hobby Lobby elect to save on workers’ compensation insurance cost and not subscribe. These companies choose to settle claims internally when employees get injured at work. Smaller companies may not be able to offset both the cost and distraction from work to survive workers’ comp claims. How Much Does Workers’ Compensation Cost in Texas? Workers’ compensation insurance premiums are based on payroll costs and the riskiness of the work employees perform. The average cost for workers’ comp in Texas is 55 cents per $100 of payroll, according to the National Academy of Social Insurance, but there are many factors that impact premiums. Additionally, many carriers charge a minimum premium of $250 annually for a workers’ compensation policy. The formula to determine business premium base costs is: Premium = (Payroll / $100) x classification code rate x experience modification rate (EMR) The first part of the formula is the company’s payroll, which is divided by $100 and then multiplied by its classification code rate. A workers’ comp class code is a four-digit number insurers use to categorize businesses with similar operations. Each code is assigned a rate with riskier operations seeing higher rates. Sample Texas Workers’ Compensation Rates by Class Code The next part of the formula is the EMR, which is a number based on a company’s claim history. A company with more claims than similar businesses has a higher EMR, so when it’s factored into the rate calculations, the company’s premium goes up. Carriers also adjust rates based on their appetite or desire to take on certain types of business risk. So, while the baseline formula is essentially the same for every carrier, rates can vary significantly, making it important to shop around for the best rate. Texas Workers’ Comp Cost Example To understand how insurance companies price a workers’ compensation policy better, let’s look at an example. Assume a home healthcare company has seven employees: one clerk and six home care workers. We’ll use the low rate in the table to estimate this company’s workers’ comp premium: Clerk: Class code 8810; rate 7 cents Home care workers: Class code 8828; rate 84 cents Furthermore, assume that the clerk earns $35,000 annually, the total payroll for the home care workers is $200,000, and the company is assigned an EMR of 1 meaning it is exactly at the industry standard. Now, we plug this data into the workers’ comp equation: Clerk: ($35,000 / $100) x 7 cents x 1 = $24.50 Home care workers: ($200,000 / $100) x 84 cents x 1 = $1,680 By adding the two job classifications together, we get $1,704.50 in total estimated premium. Texas Workers’ Compensation Audit Insurers have to use a payroll estimate to charge workers’ compensation premiums at the start of a policy. Because payroll is hard to predict, insurers conduct premium audits where they review the company's payroll records when each policy ends. This allows them to determine if the company paid the appropriate amount. For example, assume a bookkeeping company in Dallas applies for workers’ comp and estimates its payroll to be $120,000 per year. The insurance carrier plugs this number into its workers’ comp formula and charges a premium. If one person leaves the bookkeeping company, the company’s payroll is reduced, but the premium has already been collected. The premium audit reconciles this difference and results in a refund for the bookkeeping company. However, the reverse can also be true. If the company hires another person, that payroll cost is added in and the bookkeeping company is billed for the missing premiums. Top Workers’ Compensation Insurance Insurers in Texas Texas workers’ compensation providers include private insurance carriers and the state fund, The Texas Mutual Insurance Company. One of the most important things to consider when choosing a provider is the price for your industry. Not every provider is the “best priced” for every type of risk. Some workers’ compensation insurance providers serve riskier industries or small businesses better than others. Top Texas Workers’ Compensation Insurance Companies *Liberty Mutual quote provided by our partner, Commercialinsurance.net. The Hartford is a national name when it comes to small business insurance. It keeps the client’s interests in mind when building policies that have more inclusion for a lower cost. The Hartford is an ideal choice for small businesses serving consumers in day-to-day life. These are low- to mid-level risk companies like offices, retail locations, and health and fitness providers. Texas Mutual Insurance is the largest workers’ compensation insurance carrier in the state with almost three times the market share as the next largest provider. This carrier is the state insurance fund but operates as a private carrier in the market. Texas Mutual covers the widest range of risks in the state, handling industries other carriers refuse to insure. Travelers As the leader in Texas workers’ compensation policies nationally,  is a competitive provider of workers’ compensation insurance for Texas companies. The company is competitive, comprehensive, and the ideal workers’ comp option for businesses that want to improve safety and lower workers’ comp costs. Policyholders can use Travelers’ Risk Management Information Service portal to access data and analytics they can use to create a safer work environment for their employees. AIG is a leader in commercial insurance throughout the country, offering both insurance and financial services to its clients. Its coverage is available in all 50 states, as is its claims processing and account servicing, making AIG the perfect insurance carrier for Texas companies with workforces in multiple states. Liberty Mutual* is the second-largest Texas workers’ compensation insurance provider behind the state fund. The insurer specializes in mom-and-pop businesses, particularly those with a few employees. While Liberty Mutual does cover a wide range of risk classifications, it serves professional and personal service companies like accountants or plumbers best. *Liberty Mutual quote provided by our partner Commercialinsurance.net. How to Self-insure Workers’ Compensation in Texas By self-insuring, a company can bypass lengthy legal battles when there is a claim. According to the Texas Department of Insurance, a company can self-insure once it: Has an estimated unmodified manual insurance premium of at least $500,000 in Texas or $10 million nationwide Provides audited financial records Posts a $300,000 security deposit Gets excess insurance of $5 million Pays a nonrefundable $1,000 application fee Maintains either a: 3A1 Dun & Bradstreet rating or higher BBB Standard & Poor’s rating or higher Baa Moody’s rating or higher Have a minimum net worth of $5 million or a 1.5 to 1 or better long-term debt ratio As you can see, self-insurance is really for the very large, high-net-worth companies. What Does Workers’ Compensation in Texas Cover? Texas workers’ compensation insurance covers costs associated with work-related injuries, such as medical bills and partial lost wages. The key benefits provided by Texas workers’ compensation insurance policies are: Medical expenses: Pays ambulance, emergency room, hospital, and all medical expenses pertaining to the work injury or illness Rehabilitation expenses: Pays for physical therapy as prescribed by the attending doctor to restore the patient to the best possible condition Occupational therapy: May pay for occupational therapy and retraining so that the employee can return to work in a new capacity Wages while out injured: Provides employees wages up to 88% of the average weekly wage for up to 104 weeks; benefits start after the seventh day of missed work; waiting period is covered retroactively after a disability lasts more than 14 days Long-term disability: Settles long-term disabilities based on the level of injury up to 75% of employee’s average weekly wage with a 3% annual increase Death benefits: Pays dependents up to 75% of the deceased workers’ average weekly wage and up to $10,000 in funeral expenses Workers’ compensation policies come in two parts. Part one is what most people think of as workers’ comp while part two, employer’s liability, covers the business owner’s legal bills if they’re sued for a workplace injury. Part two has coverage limits, with most policies capping at $1 million per injury claim and $2 million in total claims paid by the policy per year. Employers may be held liable for benefits exceeding the policy limits. Texas Workers’ Compensation Coverage Example Jose works for an Austin florist as a delivery driver. He is involved in a car accident that leaves him unconscious for a week. His employer has a workers’ comp policy, so Jose and his family won’t have to sue to get benefits. The policy pays all medical bills immediately. Once Jose regains consciousness, he has six months of rehabilitation to help him recover. All of his medical benefits continue to be paid. Additionally, Jose meets the seven-day waiting period for wage benefits while still in a coma. He can get 88% of his average weekly wage paid retroactively from day one of his injuries since he was out of work for more than 14 days. How Do I File a Workers’ Compensation Claim in Texas? It’s important that employees notify their employer of an injury as soon as possible. This ensures the timely processing of benefits. Employees should tell employers what happened, where it happened, what the circumstances were around the accident and anyone who witnessed it. Employers then complete the Employer’s First Report of Injury or Illness. This is filed with the insurance company and sent to the Texas Department of Insurance Division of Workers’ Compensation. During the course of the claim, employees typically receive paperwork from the insurance carrier. Often, these are progress reports that must be completed by doctors and care providers. Employees should be diligent to meet each form’s deadline as dictated in the correspondence accompanying the form. Failure to do so could result in an early termination of benefits. Texas Workers’ Compensation Insurance Deadlines There are no real deadlines to consider when looking to purchase a workers’ compensation insurance policy in Texas. However, there are a couple of timelines to understand when filing claims and stopping workers’ compensation. Some timeline issues to consider with Texas workers’ compensation insurance are: Ceasing coverage notification: Business owners who want to stop coverage must notify the DWC. The language states notification must happen “as soon as possible” but should be done within days of stopping coverage First impairment appeals: Employers have 90 days of a workers’ comp claim issuance to file a formal appeal if they feel the claim is not due to a work-related injury; the 90 days begin when the first issues of injury were noticed Statute of limitations: Injured parties have 30 days to notify employers of an injury; the claim must be filed within one year with the Texas Department of Insurance Failure to meet deadlines could result in the denial of claims or appeals of claims depending on the responsible party. It can even lead to civil lawsuit judgments. Even if an employer is not covered by workers’ compensation, filing claims with the Department of Insurance is required to preserve all parties’ rights. Texas Workers’ Comp Resources Contact Information Texas Department of Insurance: Workers’ Compensation 7551 Metro Center Dr., Suite 100 Austin, TX 78744-1645 800-252-7031 TXCompHelp@tdi.texas.gov Key Forms Employer’s First Report of Injury or Illness Notice to Employee Concerning Workers’ Compensation in Texas Notice 5 Notice to Employees Concerning Workers’ Compensation in Texas Notice 6 Employer Notice of No Coverage or Termination of Coverage Injured Employee Checklist Useful Links Employer FAQs Employer Rights and Responsibilities Your Guide to Workers’ Comp video series Bottom Line Even though workers’ compensation insurance isn’t required in Texas, it is an important protection for every business owner that can’t pay employee claims. When employees get hurt at work, workers’ comp pays for medical attention, medications, physical therapy, and weekly wages. Pricing varies among insurance companies. Get competitive pricing for the right workers’ compensation coverage in Texas by visiting . In a few minutes, you’ll be able to get all your business insurance needs quoted. Its experienced small business agents will help you classify your risk and get you protected today.

The United States Bureau of Labor Statistics (BLS) says private industry employers pay 45 cents per hour worked for workers’ compensation or approximately 1.3% of employers’ total compensation costs. However, every state runs its program differently, and that causes variations in workers’ compensation costs by state. Rates can be as low as 7 cents per $100 of payroll or exceed $80 per $100 of payroll depending on a business’ industry, location, and claims history. Select State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Cheapest and Most Expensive Workers’ Compensation Rates The map above shows the most recent data compiled by the National Academy of Social Insurance (NASI). Its report lists Washington, D.C., as having the lowest average workers’ compensation rates at 51 cents per $100 of payroll, same as in the 2019 report. Alaska is still listed as the most expensive state at $2.25 per $100 of payroll, down 2 cents from the previous year. 5 Most Expensive Workers’ Compensation Rates By State Alaska: $2.25 Montana: $1.84 California: $1.70 Hawaii: $1.67 South Carolina: $1.66 5 Least Expensive Workers’ Compensation Rates By State Texas: 55 cents Ohio: 64 cents (tie) Arkansas, Indiana, and Michigan (tied): 70 cents Notes: Although not a states, Washington, D.C., has the lowest rates in the country at 51 cents. Average premiums are listed as cost per $100 of payroll. Biggest Increases and Decreases in Workers’ Compensation Costs By State Several states saw workers’ comp rates fluctuate between 2019 and 2020, with Wyoming seeing the biggest difference with a 72 cent decrease. The state with the biggest rate hike was Kentucky, where rates increased from 91 cents to $1 per $100 of payroll. Rate increases may reflect an increase in overall risk or a greater number of catastrophic claims while decreases are often reflections of better work safety protocol and fewer claims. States With the Biggest Increases Kentucky: 9-cent increase Kansas: 8-cent increase Louisiana: 6-cent increase Hawaii: 5-cent increase Nevada: 4-cent increase States With the Biggest Decreases Wyoming: 72-cent decrease Montana: 17-cent decrease Missouri: 15-cent decrease (tie) Iowa, Florida, and California: 13-cent decrease Factors Impacting States’ Workers’ Compensation Costs There are many reasons for the different workers’ compensation rates by state. Probably the most significant factor is that each state governs workers’ compensation insurance differently. For instance, some cover nearly every employee, such as Wisconsin, while others exclude large numbers of workers from coverage. One state―Texas―only requires employers to carry workers’ comp when they have government contracts. Each state also regulates how much an injured worker receives in benefits. Alaska covers 80% of a workers’ wages if they suffer an injury that temporarily leaves them disabled. Most other states cap wage replacement at 66.67%. How long the benefits last impacts costs too. Massachusetts, for example, stops permanent disability payments after 156 weeks. In contrast, Wisconsin covers certain permanent disabilities for up to 400 weeks and others for a percentage of 1,000 weeks based on a doctor’s estimate of the disability. A state’s top industries can also affect the overall workers’ compensation costs, especially when the industries have several high-risk jobs. Every type of job is assigned a class code based on the risk of injury by either the National Council of Compensation Insurers (NCCI) or the state’s workers’ compensation rating board. Each class code is then given a base rate. Riskier jobs tend to have a higher base rate than less hazardous jobs. Compare Washington, D.C.’s top industry, the federal government, to Alaska’s top industry, oil and gas. While not all oil and gas workers have risky jobs, a number of them do, and that increases the likelihood that insurers will have to cover injuries. This often results in higher premiums across a state. How Workers’ Compensation Rates Are Calculated Class codes and state rates are only part of figuring out how much workers’ compensation insurance costs. The other two parts are your payroll and claims history. These three numbers make up the basic workers’ compensation formula: Your experience modification rate (EMR) is a number, created by the NCCI or state worker’s compensation ratings bureaus, that represents your claims history. Depending on your state, this number is multiplied by either your business’ or your individual employees’ class codes to determine your workers’ compensation costs. Improving your EMR is just one way to lower your workers’ compensation premiums. Other tips include hiring the right people, getting quotes from multiple carriers, and asking for discounts. Workers’ Compensation Trends for 2021 According to the NASI report, there are several key trends to note regarding workers’ compensation for 2021. Wages, for one, continue to rise, leading to higher payroll costs being factored into workers’ compensation insurance premiums. So, while the overall average rate has gone down for workers’ compensation, employer costs continue to rise. Key data that illustrates these trends are: 3% growth in wages between 2016 and 2018 Covered wages grew 10% between 2016 and 2018 Total paid benefits declined 1.3% from 2016 to 2018 5.01% increase in workers’ comp costs since 2014 It is important that employers pay attention to the growth in wages as it pertains to overall increases with expenses like workers’ compensation. Bottom Line The bottom line when shopping for workers’ compensation insurance rates by state or among multiple states is to understand that there are many factors affecting cost. Every state, company, and small business plays a role in defining the final rate. No two companies will have the same premium costs.

An experience modification rate (EMR) is a multiplier insurance companies use to help set workers’ compensation premiums. Insurers determine your EMR by looking at your workers’ comp claims history and potential for future injuries compared to your others in your industry. Businesses with lower EMRs pay less for their workers’ compensation insurance. EMRs commonly range between 0.48 and 1.00 but can be 1.25 or higher. It’s important to control workers’ compensation costs by keeping control over the EMR. With the average coverage costing $1.21 per $100 of payroll, employers have an opportunity to reduce their premiums by keeping the EMR below 1. This is best achieved by having strong loss control measures that help prevent injuries. How the Experience Modification Rate Works Your EMR compares your losses to what’s expected in your industry. The formula for determining your EMR is complex but, essentially, it increases if you have more claims than similar businesses and decreases if you have fewer. For example, electricians face a high rate of injury, but as long as their injuries aren’t more frequent or more severe than other electricians in their state, their EMRs should remain close to 1.0. Once insurers know your EMR, they plug it into an equation to determine your workers’ compensation premium: The formula starts with a class code rate, which is the amount you’re charged based on how much risk you and your employees face on the job. Most states use job classification codes based on the ones created by the National Council of Compensation Insurance (NCCI), but some states use their own system. Your class code is then multiplied by your payroll costs divided by $100, and that is multiplied by your experience modification rate. The result is your ultimate workers’ comp costs. How the Experience Modification Rate Affects Workers’ Comp Costs Your experience modification rate impacts your workers’ comp costs because it’s a multiplier that’s applied to your base rate. When your base rate is multiplied by an EMR higher than 1.0, your costs increase. An EMR lower than 1.0 causes your workers’ comp costs to go down. If your business had more workers’ compensation claims than the industry norm last year, you should expect your EMR and your costs to go up accordingly. For example, let’s say you originally paid $100 per employee, per year, for your workers’ comp insurance, but those claims caused your EMR to go from 1.0 to 1.2. Now, your annual per-worker cost is $120 (1.2 EMR x $100 = $120). Your experience modification rate may go up if you have several workers’ comp claims or a single expensive one like a worker who needs back surgery and was out for months. However, the rating formula most states use places greater emphasis on frequency over severity. The idea is that one severe loss may represent a freak accident, but more injuries over time may indicate poor safety protocols. New Employers vs Existing Employers New employers are usually assigned an experience modification rate of 1.0. In essence. that means their class code rate isn’t modified, and the EMR has no effect. Once employers have three years of claims history, most states adjust the business’s EMR, which means their workers’ comp premium will probably change. After three years, you’re no longer new, so you receive an experience rating that impacts your costs just like the other employers in your state. Few and infrequent claims will most likely cause your workers’ comp rate to be lower than businesses similar to yours, and claims that are more frequent, more serious, or more costly may raise your EMR above 1.0, resulting in higher premiums. Finding Your EMR Business owners usually get their experience modification rates when they get their initial payroll classifications or renewal statements. Every insurance company uses a slightly different format, but all disclose it to you after your annual premium audit. If you cannot find your EMR, call your insurance agent to locate it within your renewal paperwork. 9 Factors Affecting Workers’ Comp Experience Rating Specific details about your claims history, such as the type and number of claims, have the biggest impact on your experience rating. However, other factors, such as state laws and industry expectations, can change it too. Below is a list of nine factors that most carriers consider when calculating your workers’ compensation premium. Number of claims: Experience ratings rise above or fall below 1.0, depending on the number of claims you have. Claims costs: Most states consider small claims that cost less than your deductible when determining the EMR. Additionally, medical-only claims have a limited impact on EMR. Claims frequency: Multiple claims, even small ones, can have a negative effect on your EMR. Claims severity: While most states place a greater weight on frequency, one huge claim can still increase your experience rating. Open vs closed claims: Usually, only closed claims impact your EMR. However, getting claims filed and closed quickly means lower claims cost and, ultimately, less impact on your experience rating. Expectations for industry: Your EMR compares your claims history against what other businesses in your industry experience. Years in business: Generally, new businesses operating for three years or fewer start with an experience modification rate of 1.0. State minimums: Some states only apply an experience rating to certain employers. For example, Oregon businesses qualify for an EMR if they’ve paid workers’ comp premiums of $2,500 for two years, or $5,000 for one year. Employer size: Larger employers often receive experience modifiers based on their own company’s claims experience without incorporating state average losses. How Long Do Claims Affect Experience Ratings? Insurance companies work on a three- to four-year rolling claims cycle, meaning claims stay with policies from year to year and typically fall off in year four. New claims are incorporated into the claims cycle as they occur. A company that is completely claims-free for three years typically sees experience modification rate reductions. Business owners want claims to be off the three-year cycle as soon as possible, which is why reporting claims promptly is important. The sooner the claim is filed and closed, the sooner it will fall off the EMR books. This can help bring rates back down sooner than later. Construction Industry Considerations Controlling the EMR in construction is imperative. Employees constantly are in high-risk scenarios because of the manual labor, dangerous heights, and heavy equipment. In addition to concerns about high insurance premiums, contractors should note that governments―and many private companies―won’t work with businesses with experience ratings above a certain number. Being above the maximum EMR keeps a contractor from getting lucrative contracts. Ultimately, there is a lot of incentive to limit claims and keep a lower EMR in the construction industry. While employers cannot prevent every injury from happening, they can put in place a series of safety standards and create a culture of safety that limits injuries. How to Improve Your Experience Modification Rate Improving your experience modification rate can go a long way toward lowering your workers’ compensation insurance costs. The steps you take now may not cause an immediate reduction, but they can lay the groundwork for lower costs and, more importantly, better safety. Make Safety a Top Priority Reducing accidents is essential to minimizing workers’ compensation claims and improving your EMR. Even inexpensive changes to your business practices, such as monthly or weekly inspections of your facilities and vehicles, can reduce accidents. Many small business owners create safety committees and regularly train employees on how to avoid injuries and what to do if there is one to help prevent losses. Safety programs can reduce your EMR if they reduce the number of claims you file. Some insurers require policyholders to set up safety programs and may give premium credits to companies that have them. More comprehensive training programs often receive larger credits. Depending on your state, you may earn a discount or a premium credit for implementing a formal safety plan. Because the state issues the discounts, carriers must offer you the discount if you meet the state-specific requirements. Many contractors and construction companies have what are called “toolbox” meetings. These are weekly meetings that cover the biggest risks based on the job of the week. This could be working with trenches one week and moving on to dealing with scaffolding the next. These meetings serve as reminders of safety protocol to help keep employees focused and safe. Consider a Loss-sensitive Policy Insurance carriers have two methods to price workers’ comp policies: guaranteed cost and loss sensitive. Guaranteed-cost policies are what you typically think of when you think of insurance. You pay a fixed premium, and all of your risk transfers to your insurer. Loss-sensitive policies, like a workers' comp dividend or small deductible plan , are different. You keep some of the risk, but your ultimate premium reflects your actual losses during the life of the policy. This adjustment can reduce the premiums you pay significantly while incentivizing you to improve safety. Set Up a Return-to-Work Plan Getting injured, disabled, or sick employees back to work quickly once their physician releases them can help lower your experience rating, but it takes some forethought. Return-to-work plans typically require job modifications that are specific to the injured worker’s position and may include reorganizing their work station or changing their daily tasks. Plus, you need to identify essential functions the employee must be able to perform before coming back to work while balancing legal requirements outlined in the Americans with Disabilities Act (ADA). That’s a lot of competing priorities to coordinate, so most employers look for help. Luckily, many insurers and workers’ compensation boards offer assistance in setting up return-to-work programs. The Office of Disability Employment Policy also has a return-to-work toolkit that is a great resource for figuring out how to retain injured employees. Ask Your Agent to Talk to the Underwriter You may be able to get a break on your EMR if you’re in a unique situation. For example, say you inherited a business from a family member that has an experience rating of 0.75. However, now that the business is in your name and has a new employer identification number, it’s treated as a new business and assigned an EMR of 1.0. In that case, you should ask your agent to contact the underwriter, the insurance company employee who evaluates your business’ potential for losses, to see if you can keep the old EMR. The underwriter may be able to help you but will most likely want to know what measures you’re taking to maintain the previous owner’s safety record and address any new risks. Bottom Line When it comes to their experience modification rate, there are many things a business owner can control. The bottom line is to set safety practices for your business and keep claims to a minimum, both in frequency and severity so that you can maintain a low experience rating and keep costs down.

When you have a work-related injury covered by workers’ compensation, you typically cannot file a lawsuit against your employer. Workers’ comp laws in every state include an exclusive remedy provision that protects employers from employee lawsuits as long as their business has a valid policy in place. However, there are situations that override this protection and can result in workers’ compensation lawsuits. What Is an Exclusive Remedy? Exclusive remedy is the provision in workers’ compensation laws that says that injured workers cannot sue their employers for a work-related injury as long as they receive workers’ compensation benefits. When an employee collects these benefits, they essentially agree to the exclusive remedy provided by state law. Why Is Workers’ Compensation an Exclusive Remedy? In the history of workers’ comp, this idea of an exclusive remedy and no-fault insurance is part of what’s known as the “grand bargain.” Employers promise to create safe workplaces and cover injuries and partial lost wages while injured workers give up their right to sue. To make this possible, workers’ compensation insurance is a no-fault coverage. This means workers do not have to show that their employers were at fault to receive benefits. Workers can be responsible for an accident that causes their own injury and still have their medical bills covered and collect disability payments. When Can You Sue for a Workplace Injury? There are exceptions to the exclusive remedy clause for injured workers. Because workers’ compensation laws vary from state to state, so do the situations where workers’ comp lawsuits are allowed. Some states are more lenient when it comes to exceptions than others. If in doubt, consult with a workers’ compensation attorney to determine your rights within your state laws. Your Employer Doesn’t Have Workers’ Comp Insurance The first example of a situation where many states allow you to seek compensation for your injuries is when your employer does not have a workers’ compensation policy in force. When this happens, you can sue your employer for your medical expenses, lost wages and, in many states, pain and suffering. Keep in mind that while most states require all employers with only one employee to have a valid insurance policy in force, there are exceptions. For example, workers’ compensation is optional in most situations in Texas. Other states, such as Alabama, only require insurance once a business has five employees. Moreover, almost every state has exceptions to its workers’ comp requirements and let certain employers opt out of coverage. In many of these cases, employers may still be held financially responsible for their employees’ injuries, and their injured employees usually have the right to sue for damages. Your Employer Intentionally Harmed You Exclusive remedy may be waived if you believe that your injuries were induced intentionally like your employer punching you in the face. If this or something similar occurs, then you may be able to file a civil lawsuit for an intentional tort. Some of the most common intentional torts include: Battery Assault False imprisonment Intentional infliction of emotional distress Fraud Defamation Invasion of privacy Conversion Trespass Civil torts are not limited to physical injuries so that employees can sue for nonphysical injuries like emotional abuse. You Were Injured by a Third Party You may claim workers’ compensation benefits and file a civil lawsuit if you were injured on the job by a third party. One example of this is a delivery driver who is hit by another automobile and hurt. Because the driver was hurt while working, he can file for workers’ compensation, but he can also sue the individual who caused the accident. While the injured delivery driver has rights to both workers’ comp benefits and civil damages, he may have to return a portion of his benefits to either his employer or his employer’s insurance company. Another option for the insurance company, which has the right to make sure the responsible party pays, is to join the driver’s civil suit to recover the benefits it paid. Either way, getting benefits through workers’ comp ensures faster payments than waiting for a decision in court. Your Employer Has Dual Capacity Dual capacity is when an employer has a relationship with a worker outside of the employer-employee relationship like being the manufacturer of goods the employee consumes or the provider of a service the employee uses. If this secondary injury is the source of an employee’s injury, then the employee may be able to sue his employer. Let’s say, for example, that an employer produces air fresheners using a toxic chemical, and chronic exposure to the chemical leads to an employee’s respiratory illness. That employee may file a workers’ compensation claim for medical costs and lost wages but can also file a personal injury suit against the air freshener manufacturer, who may also be his boss, for civil damages. Your Employer Concealed the Source of Your Injuries Some states permit workers to sue employers who conceal workplace risks from employees or the extent of a worker’s injury from the state or their insurer. Florida, for one, allows workers’ compensation lawsuits when an employee was not made aware of a hazard but can show their employer knowledge of the potential for injury or death and concealed that information. One typical example of this is working with a hazardous substance. If a business owner fails to tell employees about the risk or doesn’t mention it after a worker falls ill from exposure, the injured workers can sue. Your Employer’s Actions Were Grossly Negligent Business owners in a few states may face workers’ comp lawsuits if their behavior is grossly negligent and leads to an employee’s death. While definitions of gross negligence vary by state, it generally involves a person being aware of the severity of the risk but choosing to act conscious indifference to the others’ safety and welfare. Texas is one example that allows beneficiaries to sue for gross negligence. However, an employee in Texas may also be able to sue if they can show the accident that caused their injury was “substantially certain to occur.” This is a much higher standard to hit because the injured worker must prove their employer’s actions would almost definitely cause harm. Bottom Line Under most circumstances, employees cannot sue employers for work-related injuries––these injuries are paid for by workers’ compensation insurance benefits. If you feel that your employer intentionally harmed you or concealed injury risks, you could be eligible to open a lawsuit. Of course, everything is contingent on the state you live in. Talking to an attorney in your state could help you best understand what your rights are.

A workers’ compensation dividend plan, also known as a workers’ comp participating plan, is a policy that allows employers to take part in the profits earned by their insurers. At their core, dividend plans reward employers for having fewer claims. Many employers choose dividend plans to save on their workers’ compensation insurance. How Workers Comp Dividend Plans Work As far as insurance, a workers’ compensation dividend plan works like any other workers’ compensation policy. A business owner purchases a policy and pays the premium, and the insurer covers injured workers’ medical expenses and lost wages. What makes a workers’ comp participating plan different is that policyholders may get a dividend back. Essentially, the process is the same. The business owner buys a workers’ compensation policy from an insurer that offers dividend plans and pays the premium. When the policy expires, the insurer audits the policy as it would with a regular workers’ comp policy. Part of this audit is an evaluation of the policy’s loss ratio. The business owner needs to have a good loss ratio to be eligible for a dividend. Once the insurer determines the policy was profitable and its board of directors approves a dividend, it sends a dividend to the business owner. This can take up to six months after the policy’s expiration date. Qualifications for Workers’ Compensation Dividend Plans Each state’s legislature and the department of insurance control how dividend plans function, but employers usually have to meet certain requirements to buy a policy and receive the dividend. While the rules vary by state and insurer, there are several qualifications a business usually must meet. The most common eligibility requirements include: The policy must stay below a maximum loss ratio—usually under 50%. The policy must remain in force for the entire policy year. The employer must pay the premium in a timely manner and be up to date when the dividend is due. The employer’s earned premium meets a minimum amount. Types of Workers’ Comp Participating Plans Most workers’ comp dividend plans have one of three payout structures. It’s important to note that not all insurance carriers offer dividend plans, and those that do offer them do not guarantee dividends. The payout of dividends is contingent strictly on meeting the eligibility parameters and overall profitability of the provider. Flat A flat dividend pays a defined percentage of the total premium for the policy period no matter what sort of losses occur. For example, if the premium is $10,000 for the policy period with a 4% flat dividend, the business owner receives $400 regardless of what the losses were during that period. Variable This is also called a sliding scale dividend structure. It is based on the losses the policyholder incurs during the policy term. Generally speaking, a higher premium and lower loss ratio translate into a higher dividend. For example, if your premium is $10,000 and your loss ratio is under 10%, then your dividend might be 5%, or $500. A loss ratio of 50% might drop your dividend down to just 2%, or $200. However, remember the amount of premium paid also plays a role in your dividend. So if your premium is $20,000, your dividend could be 12% with a low loss ratio or 3% for a higher one. The specifics depend on how your insurer structures its plan. Combination The combination dividend structure uses elements of both the flat and variable structures. You must meet a loss ratio otherwise lose dividend eligibility but will also be rewarded for fewer losses. The Problems With Dividend Plans There are some things to keep in mind when considering a dividend plan. First of all, not every insurance company has them, so you may have to do quite a bit of shopping around to find a carrier that offers one in your state. Plus, once you find one, you should review the carrier’s history of dividends to understand the payouts. You can’t rely completely on past performance, but you can get an idea of what to expect. Second, insurance carriers can’t guarantee dividends because they are a participation in profits. Any number of events outside of your control may cause your insurer to withhold payouts, including a severe uptick in claims or downturn in the insurer’s investment portfolio. Moreover, payouts are authorized by the insurer’s board of directors. If the board is displeased with the carrier’s financial performance, it can veto the dividend. How to Increase Your Dividend The reason insurance companies like dividend plans is because it incentivizes small businesses to implement safety standards that reduce the likelihood of claims. While employers can’t control every injury that happens, they can control the work environment’s overall safety. By reducing claims, employers improve their loss ratios and ultimately increase their potential dividend payout. Alternatives to Workers’ Compensation Dividend Plans Business owners have two alternatives to a workers’ compensation dividend plan that ultimately serve the same purpose. The first is the retro plan that looks retroactively at your policy to determine if you meet a low loss ratio. If you do, your premiums moving forward can be lowered. You don’t get a dividend, but you do pay less for insurance. The other alternative is a safety group. This pools employers that are similar in industry, size, and loss history. Premiums are pooled together with an aggregate evaluation determining if the group as a whole had a favorable loss experience. If it did, the entire group is eligible for a dividend. The problem with a safety group is one business might have no losses and still be ineligible for a dividend because of other members in the group. Bottom Line Workers’ compensation dividend plans allow a business to participate in the profits of its insurance carrier if it can keep claims down. When loss ratios are below an established threshold for the policy period, the insurance carrier sends the company a dividend upon completion of a policy audit. While dividends are not guaranteed, these types of plans are a great way to incentivize business owners to create better business safety programs.

Stop gap coverage is an insurance product that covers a business owner’s liability if their employee sues over a workplace injury. Most workers’ compensation insurance protects employers in that situation by paying their legal bills. However, some policies don't have this protection, leaving the business owner with a “gap” in their coverage. Stop gap insurance covers that gap. Workers' compensation coverage is split into two parts.The first part is the portion most people understand as workers' comp, the policy that pays for employees' injuries. However, there is a second part that pays when an injured employee sues, and it's called employer’s liability insurance. States that require businesses to purchase workers’ compensation insurance through a state fund typically do not include employer’s liability coverage. Employers in these monopolistic states are left exposed to an employee’s accusation that the business is responsible for their injuries. Businesses with employees in one of the four monopolistic states―North Dakota, Ohio, Washington, and Wyoming―need to make sure they have the appropriate protection in place. As one of the leading workers’ compensation insurers in the United States, can evaluate your situation and recommend the right coverage for your business. What Stop Gap Insurance Covers Workers’ compensation typically is considered “no-fault” insurance, meaning it provides protection regardless of who is at fault: the employer or employee. There are instances, however, where an employee may claim they’re entitled to additional damages. For example, an employer may face a lawsuit from: Employees claiming gross negligence caused their injuries An injured employee’s spouse claiming loss of consortium Employees who have opted out of workers’ comp coverage Like employer’s liability insurance, stop gap coverage is designed to protect a business from allegations like these by paying for the employer’s legal expenses, such as lawyers, investigators, and court fees, as well as settlements and court awards. The amount an insurer pays in a claim depends on the coverage limits set in the policy. Common Stop Gap Insurance Exclusions Stop gap insurance isn’t standardized, so the specifics can vary from insurer to insurer. However, like all insurance policies, stop gap coverage has notable exclusions, including: Injuries intentionally caused by the employer Fines and penalties assessed by regulatory agencies on the employer for dangerous working conditions Injuries or illnesses arising from illegally employing a worker Fines assessed for an employer’s noncompliance Contractual liabilities assumed by the employer Emotional injuries and damages based on managerial actions like assessments, demotions, termination, or harassment Illnesses or injuries resulting from working on a vessel or aircraft The employer’s court-ordered punitive damages It’s important to read through the stop gap coverage to understand fully what is covered and what isn’t. Who Needs Stop Gap Coverage Many employers don’t need stop gap coverage because their workers’ compensation insurance policies automatically come with employer’s liability insurance. However, policies from monopolistic states do not include employer’s liability, and that means those business owners have exposure to employee lawsuits that require stop gap insurance. The states where employers should look into stop gap coverage are: North Dakota Ohio Washington Wyoming Moreover, business owners in nonmonopolistic states may also need stop gap insurance if they have employees working in a monopolistic state. For example, let’s say an Oregon-based company has a permanent satellite office in Seattle. Not only is the company required to get a primary workers’ compensation policy for all Oregon workers, but it may also need a policy from the Washington state fund for its Seattle employees. Because Washington is a monopolistic state, its policy does not include employer’s liability. This leaves the Oregon-based employer exposed to lawsuits from its Washington-based employees. Getting stop gap coverage protects the employer from that exposure. How to Get Stop Gap Coverage Stop gap coverage can be purchased from a private carrier either as an endorsement or a standalone policy. When sold as an endorsement, coverage is usually added to your general liability policy if your business operates exclusively in one of the states with monopolistic workers’ comp funds. Businesses that operate in monopolistic and nonmonopolistic states may need a stop gap endorsement added to their workers' compensation policies. Bottom Line When operating a business in a monopolistic state, you need additional protection against employer liability lawsuits in case employees are injured on the job. Rather than fight these liability lawsuits on your own with your own capital, stop gap insurance provides the necessary protection. Talk to your insurance agent about adding this to your insurance coverage. If you’re looking to add stop gap coverage, you may want to talk to an agent with . The Hartford is a leading workers’ compensation insurance provider, and its agents can establish the right coverage within minutes.