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We know you aren’t a fan of your workers’ compensation policy.
How did we guess? First of all, the fact that you’re reading this article is probably a good indication you’re struggling to understand or manage workers’ comp. But we also know because we are also a business with workers’ comp, and we help many of our business clients navigate their workers’ comp frustrations.
Between paying for it, managing it, and having to use it, workers’ compensation isn’t without its share of problems.
But that’s what we’re here for! In working in commercial insurance for 100 years, Berry Insurance sure has seen a lot. We know some of the most common problems with workers’ compensation insurance, so we want you to be prepared for what could become an issue for you. More importantly, we want you to know how to prevent these issues before they happen.
So in this article, we will explain 5 common problems with workers’ comp insurance, and let you in on their solutions.
1. You could be rated incorrectly by a carrier
When getting a workers’ comp policy, your insurance carrier will classify the work your company does with classification codes.
Some types of work are obviously riskier than others, so these classification codes (which each have their own rates) help determine your premium.
But because not all employees do the same type of work within most companies, most workers’ compensation policies have more than one type of classification code.
For example, an ornamental iron contractor may have class code 5040 (for iron erection), 5606 (for the executive supervisor), 8742 (for sales people), 8810 (for clerical people), and maybe even a few others.
Because classifying can get complex, it isn’t uncommon for insurance carriers to make mistakes when it comes to classification codes. This could mean you are paying more than you need to for insurance, or that you may need to pay for additional premium all at once rather than throughout the year.
The solution:
You should always work with a thorough insurance agent who reviews your policy to make sure you don’t have these types of classification errors because it happens more than you would think.
In fact, here at Berry insurance we’ve had cases where we were able to save companies thousands on their workers’ comp premiums because their prior agent had them misclassified.
2. Your EMR could be incorrect
For workers’ compensation, something called an experience modification rating (EMR) (sometimes called experience modification factor) plays a key role in determining how much you’re paying.
The EMR is a metric used to calculate a company’s workers’ compensation risk, based on their number of claims and the claim costs over a three-year period. (the last four years, minus the most recent).
The number represents a ratio of a company’s cost of workers’ compensation claims compared to companies of similar size and industry. Essentially, it portrays the risk of insuring or working with your company, compared to your competitors.
But, due to the complexity of the calculation, there is a lot of room for error. And EMR errors may mean you’re paying more than you should be for workers’ comp. Or, you could lose out on jobs or partnerships if you have to show proof of your EMR.
The solution:
To make sure your EMR is accurate, you will first need to obtain a copy of your experience mod worksheet from your insurance carrier or state rating board. Once you have that, you should take several steps, including:
- Determine if correct rating periods are used
- Check accuracy of payroll from audit
- Check accuracy of claims from Valuation Date loss runs (6 months post policy)
- Look for subrogation opportunities and other recoveries (you can correct current and 4 mods back)
- Make sure legal fees, etc. are not included in claim totals
- Make sure there are no ownership change issues
- Make sure there are no duplicate claims
Checking on these factors will ensure your EMR is accurate, which could save you money and ensure you won’t have any surprises during your audit.
Again, a good insurance agent will be able to help you check on these items to make sure your EMR is correct.
3. Carriers may require an audit
When you have workers’ compensation insurance, you are subject to an audit.
At the start of your policy, your worker’s compensation premium is estimated based on your projected exposures for the policy term. When the policy expires, you’ll be asked to provide your actual exposures for the policy term. This is your audit.
The problem with this? Getting audited is kind of a pain.
You will need to take the time to prepare for and navigate the audit. On top of that, the audit problem often involves mistakes. Through human error, the auditor could assign the wrong code to an employee, forget to take out overtime, charge for a subcontractor they shouldn’t have, etc. So you will also need to be prepared to check for errors.
The solution:
Be prepared for the fact that you could be audited at the end of your policy period. Work with an agent who will educate you on your carrier options, make sure you are with the right fit, and help prepare you for a potential audit.
4. Workers’ comp is expensive
Did you know that workers’ compensation isn’t really a standard insurance in the sense that it doesn’t actually pay for your claims? It simply finances them.
And in fact, it actually finances them at a high cost. So workers’ compensation never actually really saves you money. It just ends up costing you more, which makes workers’ compensation one of the most expensive types of business insurance you will have.
While costs vary significantly from business to business, annual workers’ comp premiums can range anywhere from $218 for a basic nanny policy or to $100,000 or more for large corporations with higher-risk operations.
For some businesses, these costs can be a big problem.
The solution:
In order to keep your workers’ comp prices as low as possible, you will need to give your policy a lot of attention and perhaps even change some of the ways your company operates.
Being aware of what goes into your workers’ comp policy, preventing and managing injuries, making sure your EMR is correct, and properly navigating your audits are a few of the ways you can keep your workers’ comp costs down.
For more detailed information about how to save on your policy, read this article: How to Avoid Being Overcharged for Workers’ Compensation.
5. Claims handling is difficult
As a business, you never want to experience a workers’ compensation claim, but if and when it does happen: it’s not a fun process.
Workers’ comp claims are more complicated than other types of business insurance claims, and often take a long time to sort out.
You may not agree with how a claim is handled, how quickly it takes to resolve, or what should be paid out on a claim, even though the claims adjusters are complying with Massachusetts rules and regulations.
Due to the claim process’ complexity, it could take years, and hundreds of thousands of dollars to settle what you would think to be a small claim.
The solution:
Work with an agent who can help you navigate the claims process, and educate yourself by reading this article: What to Do When an Employee is Injured (and How to File a Workers Compensation Claim).
6. Workers’ comp is complex
There are several other potential issues you could experience with workers’ comp, but they can all be wrapped up with this overarching statement: workers’ comp is just complex.
At Berry Insurance, we’ve been managing business insurance for decades and we are still always coming up with new questions and discovering new scenarios and nuances to workers’ comp.
So if you’re trying to understand your policy on your own, you’re probably going to struggle. And because each carrier has their own rules and processes, if you think you have an answer with one carrier, it may not be the same with another carrier.
The solution:
Not to sound like a broken record, but we really want to stress working with a reputable independent insurance agency. Your agent should be thorough, attentive to your business and its needs, and be willing to educate you. A great agency will be proactive about educating you and thoroughly answering all your questions so you can feel confident that your insurance is adequately protecting you.
And we can help with that! Check out our Learning Center, which we update several times a week with the answers to questions our clients are asking us about business and personal insurance, as well as tips on finding the right agency for you.
Avoid workers’ compensation problems with the help of an experienced agency
Like with anything in life, workers’ compensation has problems. But fortunately, it’s not entirely your job to deal with these problems -- it’s your insurance agent’s.
That’s what we do at Berry Insurance! We take a thorough approach to help our business insurance clients prevent common business insurance problems, or manage them.
But it shouldn’t entirely be your job to manage all of these details -- that’s something your insurance agent should really be doing for you.
To learn more about what you should expect from your commercial insurance agent, check out this article: 7 Things your Workers’ Compensation Insurance Agent Should be Doing for You.