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Most Common Workers Compensation Mistakes - Part 1

An Article About Workers Compensation Insurance By Randy Sieberg, CIC, ARM, CRM

Most employers fall victim to the idea that they have no control over their workers compensation costs. While it's true workers compensation insurance may in most jurisdictions be a mandated coverage, that doesn't mean an employer who exhibits proper control and gains a working understanding into the premium producing aspects of workers compensation insurance has no control over the cost. In fact just the opposite may be true. With professional guidance and a willingness to implement a few basic business management techniques, an employer can take control of his workers compensation program and begin to see the benefits of lower overall cost.


  • Payroll
    • There are two common workers compensation payroll mistakes an employer may make. Both have an associated cost that affects the employer in different ways. The first is underestimating the projected annual payroll. Underestimation of payroll will result in a potential large additional premium due after audit. The second is overestimating payroll. Overestimation of payroll results in the employer having overpaid his workers compensation premium. While the employer may recoup the overpayment after audit he has actually allowed the insurance company to hold his premium during the policy period. Not a very efficient use of funds.


  • Change of Business Operations
    • Any change to an employers business operation may have an impact on the classification of their workers compensation insurance program. For example, there are two common workers compensation payroll mistakes an employer may make. Both have an associated cost that affects the employer in different ways. The a carpentry contractor, who specializes in residential remodel work, decides to start performing roofing work there would be a significant increase in his workers compensation premium due to the higher rate class of roofing being applied to his workers comp policy. An employer who decides to add another work process, such as a metal goods manufacturer adding a wood working process, would also incur a change to his workers compensation rating simply because he has changed what his company does. So keep in mind, if you change your business operations, you need to modify your workers compensation policy to reflect that change.


  • Subcontractors and Certificates of Insurance
    • Subcontractors and workers compensation! What a combination! In a nutshell, uninsured subcontractors are treated as employees from a workers compensation standpoint. If your business uses subcontractors implement these basic control techniques to avoid being charged on your workers compensation policy for the work they perform.
      • Always secure valid certificates of insurance from subcontractors
      • Make sure certificates provide workers compensation coverage for the time period the sub worked for you
      • Make sure you secure the certificate prior to the sub starting any work on your job
      • Always secure new certificates for each policy period


  • Workers Compensation Claims
    • If your business qualifies for experience rating, each and every claim dollar will ultimately affect your workers compensation insurance cost. The most direct link of claims and increased cost is through the experience modification factor. Basically your business claims and payroll experience is compared with similar businesses and a factor is assigned to your business.Your workers compensation premium is then multiplied by the experience modification factor to develop your premium. So you may have better or worse experience than others in your experience group but the premium you pay will reflect your individual experience.

      So as an employer you should;
      • Report claims to your insurance company as soon as possible;
      • Pay close attention to all open claims;
      • Work towards the goal of closing claims as soon as possible;
      • Stay in touch with your insurance company claims adjuster;
      • Do all that you as an employer can to get your injured employee back to work as soon as possible.


      It's a fact that workers compensation claims occur. There are many steps and employer can take to help keep workers compensation claims under control but possibly the single most important step is to stay involved in the claims process.


  • Using Inexperienced Agents
    • As in all professions, you will find a wide variety of knowledge and expertise among insurance agents. Selecting the proper agent, one who has good knowledge, practice and understanding of the workers compensation process, is very important. An agent should be able to assist you in placing workers compensation coverage with a company who understands your type of business operation and who is financially stable and committed, as shown with a positive track record, to remaining in the workers compensation market place.

      Keep these items in mind when selecting an insurance agent;
      • A direct writing agent is an employee of the insurance company and will be limited to providing only the coverage his company offers;
      • An independent agent represents different insurance companies and should be able to provide you with a variety of carrier options;
      • An agents primary job is to sell insurance, not to spend "selling" time looking for ways to reduce or return premium to your business;
      • Few agents have real experience or desire to review your payroll audit worksheets or review your experience modification worksheets and make complicated corrections;
      • Many agents are not educated in the complicated rules and regulations as set forth by NCCI or other regulatory bodies.

      When you need help with incorrect workers compensation audits, premium verification or audit disputes, seek the services of a professional independent workers compensation consultant.


    Continue to Part 2 of this article >>>>>>


    Publication Date: 03-14-08
    Copyright © 2008 All rights reserved

    Randy Sieberg, CIC, ARM, CRM, has over 27 years experience in risk management and property and casualty insurance, is with Workers Compensation Consultants, an independent workers compensation consulting firm and works with business oweners to discover and return workers compensation premium overcharges by reviewing insurance audits, job classifications, payroll class assignments, experience modification factors and credit applications. Please contact Randy at rks@workcompconsultant.com

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