Workers' comp coverage is a necessity for most employers, but are you sure you're getting the best deal for your business?
Workers' compensation is a state-regulated policy, so it's going to work a little differently in each state. Most states require that business owners carry a workers' comp insurance policy, which affords payments for medical care, ongoing treatment and lost wages should an employee be injured on the job in any way.
Obviously, you'll want to take measures to make your workplace as safe as possible, but accidents are still going to happen. Workers' comp guarantees workers some protection from those injuries in exchange for limited rights to sue in such an event. Injuries are covered by workers' comp regardless of who's at fault – and depending on the insurance policy you have, you'll likely pay a monthly or semiannual premium to maintain your coverage.
Why shop for workers' comp?
Because workers' compensation insurance is mandated in most states, you may assume that all policies are the same. But while most policies will afford you the protection you need to remain legal in your state, different policies may offer different advantages. In some states, you'll be required to get a workers' comp insurance policy through a designated state offeror, but in others, you'll be allowed to shop among private insurance companies.
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Shopping allows you to find insurance policies with different terms, premiums or types of coverage. For example, you may be able to find a pay-as-you-go plan that better suits your business's cash flow and adapts to your changing payroll, or you may be able to find a provider with lower premiums, saving you thousands of dollars per year.
Who needs to do it?
Some types of businesses are not required to have workers' compensation insurance. For example, sole proprietorships and partnerships generally don't need this coverage so long as they don't have any non-owner employees. In some states, you're forced to go with a state provider. Obviously, you'll have no need to shop around for insurance if you don't have a choice (or aren't required to get it).
Most businesses that need workers' comp insurance and have the ability to shop among different providers should take the opportunity to see what's on the table.
Creating an RFP
The easiest way to get a list of quotes for a new workers' comp policy is to create a blanket RFP (request for proposal), which is relatively simple to make. Gather as much information as you can on your current policy, and let your prospective insurance providers know what you're used to paying, who you're with, and what type of coverage you're getting. If you're looking for any changes, be sure to specify them.
Beyond that, you'll need to create a list of insurance providers you want to contact, set a return date, and mail the RFPs out with instructions on how you'd like them returned. By your deadline, you should have multiple proposals to choose from.
Factors to include and consider
When you mail out your RFPs, make sure you include the following information:
- Loss runs. Include loss runs from the last several years.
- Payroll information. Include any information about how your payroll has changed in the past and may change in the future.
- Job descriptions. Include detailed job descriptions for your core employees, including any hazards they may face on a regular basis.
- Ownership and entity data. This is basic information, but necessary to generate an accurate quote.
- Inspection results. Include any formal inspections your business has undergone or passed in recent years.
These tips should make your job of shopping for new workers' comp insurance much easier:
- Provide the same information to each provider. If you want consistent quotes, you'll need to provide consistent information to each provider.
- Consider working with a consultant. Some consultants specialize in helping businesses find the best insurance policies. Hiring a consultant could make your decision much easier.
- Be wary of changes to your classification codes. Your business's classification codes will have a significant bearing on the premiums you pay. However, falsely changing those codes can be considered fraudulent. Before you comply with a code change, make sure you understand the ramifications.
- Research each company before doing business. As with any service provider, you'll want to do some background research before making a final decision. Look up reviews of the insurance company, and if you can, talk to another business that has done work with it in the past.
No business owner likes the process of shopping for and committing to new workers' comp insurance, but it could better protect your workers from injury and save you money in the process. With the right approach, your investment of just a few hours could afford you thousands of dollars in cost savings – and better care for your employees.