Assigned risk plans are a way for business owners to get workers’ compensation insurance when private carriers refuse to offer coverage. States created these plans, sometimes called “markets of last resort,” because businesses are legally required to carry workers’ comp but may not be able to get it if carriers think they are too risky to insure.
How Assigned Risk Plans Work
Almost every state that requires employers to carry workers’ compensation insurance has an assigned risk plan where businesses can purchase policies after private carriers decline to cover them. A few states use their competitive state-run funds as markets of last resort for hard-to-insure businesses. Some designate a single carrier to cover these businesses while others have a pool of carriers that share the financial burden.
Who Runs Assigned Risk Pools
Most states have a plan administrator that runs its assigned risk pool. The majority of the 46 states that offer assigned risk plans work with the National Council of Compensation Insurers (NCCI), an organization that collects and analyzes data to provide workers’ comp rating recommendations. The rest either administer the plan for themselves or work with another third-party organization. You can use the drop-down menu below to find who runs your state’s assigned risk plan.
North Dakota, Ohio, Washington, and Wyoming do not have assigned risk plans because they are monopolistic states. That means business owners can only get workers’ comp insurance from the state, and the state has to cover them.
Why Businesses End Up in Assigned Risk Pools
Businesses end up in an assigned risk plan when standard workers’ compensation insurers can’t underwrite their risk. Essentially, that means there is something about the business that private carriers find unacceptable. For example, insurance companies tend to decline:
- New businesses: Insurers base their premiums on what they think it will cost to cover any claims you have, and that’s hard to predict for businesses that have only been around for a few years.
- Small businesses: The workers’ compensation premium calculation is based partially on payroll, so exceptionally small businesses may not generate enough premium to balance out the carrier’s risk of paying claims.
- Businesses in high-risk industries: Some businesses face greater risk simply because it’s the nature of their industry—think loggers or roofers. However, that means the risk could be outside many insurers’ underwriting guidelines.
- Businesses with poor claims histories: Insurers often refuse to cover businesses that see more than their fair share of workers’ comp claims, whether that’s in terms of frequency or severity.
Sometimes business owners end up in an assigned risk pool because they work with captives rather than independent agents. Captives can only sell insurance from one carrier, so if a business doesn’t fit that carrier’s underwriting guidelines, then the business may end up on an assigned risk plan.
Comparison shopping is a good way to avoid being in the assigned risk pool. Online brokers like CoverWallet make that easy to do by giving you quotes from multiple carriers after filling out a single application.
How to Get Workers’ Compensation With an Assigned Risk Plan
Sometimes you have no choice but to get your workers’ compensation insurance from an assigned risk plan. Before you can do that, however, at least a couple of private carriers have to refuse to write your policy―the exact number depends on the laws in your state. Once you’ve hit that threshold you can apply for coverage with your state’s assigned risk plan administrator. Business owners often work with insurance agents to complete the application, but this is something you can complete on your own too.
Disadvantages of Workers’ Compensation Assigned Risk Plans
An assigned risk plan has one major advantage: gives businesses the ability to secure the workers’ compensation insurance they’re legally obligated to carry. However, many business owners see a lot more disadvantages, such as:
- Higher premiums: Policies from the assigned risk pool generally cost more than those from private carriers. In part, this is because the carriers aren’t competing for your business, but it’s also because the businesses in assigned risk plans have more risk for claims.
- No carrier choice: When you’re in the market of last resort, you don’t get to choose which carrier will write your policy—even if the state has multiple carriers in the pool. The plan administrator determines which carrier gets your business.
- Assigned risk adjustment program (ARAP): States with plans administered by the NCCI may also apply an ARAP rating factor that can increase a business’ workers’ comp premium. The NCCI developed this factor to penalize businesses that do not improve their loss records over time.
- Upfront payments: Private carriers offer lots of different payment options, including monthly installments and pay-as-you-go workers’ compensation. Businesses in assigned risk plans usually have to pay between 50% to 100% of their premium at policy inception.
- No premium credits or discounts: Insurers who offer coverage through assigned risk plans do not offer discounts or premium credits.
- Limited coverage: Assigned risk plans usually only cover accidents that happen in the state where the policy is issued.
How to Get Out of the Assigned Risk Pool
As we noted in a previous section, there are more disadvantages to being in the assigned risk plan than there are advantages. Unfortunately, getting out of the pool can be difficult because it usually involves improving your experience modification rate (EMR).
Your EMR is a number insurers use in premium calculations to represent your claims history. Businesses with claims that are more frequent or more severe than other, similar businesses see their EMRs, and therefore their premiums go up. Improving your EMR takes thoughtful planning and consistent effort over time. You can start by:
- Analyzing your claims: Are workers suffering injuries because they don’t have the correct safety gear? Are there certain situations or areas that seem to have more accidents than others? Once you know why accidents are happening you can address them.
- Develop a safety program: Use your analysis to help you create safety procedures that reduce workplace accidents. You can look for outside help, such as the small business resources offered by the Occupational Safety and Health Administration (OSHA).
- Train your employees: Creating safety procedures is a good first step, but you also need to make sure your employees are following them. Training can be held regularly to reinforce and update protocols.
- Start a return-to-work program: Even with a safety program, accidents can happen. However, a return-to-work program can minimize the impact by reducing the number of days injured employees are away from work. This, in turn, reduces the cost of the claim for your insurer.
Improving your experience modifier can’t happen overnight, but it is possible. Plus, the steps you take have the added bonus of keeping your employees safe and healthy, which can boost morale and productivity.
Bottom Line
Without assigned risk plans, many businesses would be unable to get the workers’ compensation policies the state requires of them. The high premiums and limited options means business owners should try to get away from the market of last resort sooner rather than later. One way to do that is to reduce their EMRs by improving workplace safety.
