Workers’ compensation insurance is mandatory and complex. It is a type of commercial insurance policy that provides coverage for wage replacement and medical benefits to employees injured in the course of employment. In exchange for such coverage, employees are deemed to have waived their right to sue their employer for the tort of negligence.
A workers’ compensation policy is unique in that it provides insurance to both the employer and the employee. The standard workers’ compensation policy provides two types of coverage to the employee. The first is medical expense coverage for an employee’s injury or disease. The amount of coverage that an employer must provide is generally mandated by the state in which the employee works. The laws of the states can be different. Some states limit the amount that the employer must provide, while other states have no dollar limit. RMC Group can help you navigate the laws of the different states. Generally, payments for medical expenses are made to the provider.
The second part of the employee coverage is wage benefits. When an employee is injured and cannot return to work, workers’ compensation insurance will pay the employee’s wages on a post-tax basis. Generally, the insurance company will pay two-thirds of the employee’s gross wages. This benefit is not taxable. Most policies have a waiting period of seven days before the insurance company will pay benefits. If an injured employee returns to work after 10 days, the policy will pay wages for days 8 through day 10. However, if the employee is unable to return to work for a period of 14 days or longer, most policies will pay benefits retroactively to day one. Again, this is subject to state regulation, and different states have different laws. Please contact RMC Group for help.
The cost of a workers’ compensation policy is based on classification and experience. In addition, any policy with premiums in excess of $9,900 will be subject to an experience modifier. A policy establishes classifications for different types of labor, and a specific premium rate is applied to each classification. The rate will then be adjusted by experience. Experience rating is based on a rolling four years of claims to premiums paid. This experience rating is further subject to the modifier. An employer with good claims experience will have an experience modification factor of less than 1.00. An employer with adverse experience will generate a higher modification factor. The lower modification factor is a more desirable risk for an underwriter and will result is lower premiums. In order to determine an employer’s loss experience, underwriters typically ask for loss runs or claims experience for the last three to five years.
As you can see, workers’ compensation is very complex. RMC Group can help advisors and business owners navigate the process of obtaining the right workers’ compensation coverage. For more information or a quote, please contact your regional representative or our home office at 239.298.8210.