The workers compensation policy consists of 3 parts.  The three parts of the policy are the workers compensation portion, the employers’ liability portion and other states insurance.

Coverages

Part 1 – Workers compensation:  The intent of the part 1 of the workers compensation policy is to “Pay Promptly When Due the Benefits Required by Law.”  This is the heart of the workers comp system.  Part 1 of the policy pays benefits to an employee who was injured or suffered death during the course of employment. Benefits included are continued compensation, medical care, and rehabilitation to employees for illness, injury, or death arising out of, and in the course of, their employment whether or not the employee was at fault.

Part 2 –  Employers Liability Insurance:   Employers’ Liability Insurance protects employers against lawsuits due to employment-related injuries or illnesses. This includes liability imposed by law for injury to employees during the course of employment that is not compensable as an obligation imposed by workers comp, occupational disease or any similar laws.  The lawsuits can come from the employee, his/her family members, relatives and third parties. 

Part 3 Other States Insurance:  This section of the policy provides automatic temporary coverage for employees for new operations and incidental exposures in other states as listed in Item 3C – Other States Insurance of the declaration or information page of the policy. It is important to list the states where workers are location for Other States Insurance to apply.

Rating the Policy

Classifications (the type of jobs performed) are used as a rating factor.  Classifications are driven by the type of business the insured operates and is often referred to as the governing class of business. A policy may be rated on multiple classifications however, the governing class best describes the type of business of an employer’s business.

Payroll is used as a rating component in workers compensation.  Carriers will want to know the estimated gross annual payroll of the business, broken out by classification.

Owners and officers can either be included or excluded on a policy.  Each owner is subject to a minimum and maximum payroll and this can vary by state.  Percentage of ownership can also come into play in whether an owner or officer can be excluded or must be included, and this too varies by state. 

Experience Modification is a modifier used in workers compensation.   For a business to quality for this, they must meet the term and premium thresholds set by the state they are working in. Once a business qualifies their workers compensation premiums are adjusted based on loss experience.  If the loss experience is favorable, the experience mod will reflect in a policy discount.  If the loss experience is unfavorable it will result is a debit to the workers compensation policy.

Minimum premiums are the minimum charge a carrier will charge for a specific policy.

Workers compensation policies are subject to audit.  The initial policy is based off anticipated or estimated payroll for the coming year.   This is called a deposit premium.  At year end the carrier will ask for the actual payroll and the final premium will be based off this.  If the actual payroll is more than the estimated payroll this will result in an additional premium for the difference being billed to the business.  If the actual payroll is less than the estimated payroll a return premium will result.  The difference will be refunded to the business if it is above the minimum premium charged for that policy.  It is important not to under estimate payroll at the beginning of the policy term to avoid a large audit premium due at the end of the year.  If this occurs the carrier will adjust current payroll to match that of the audit and now the business is subject two large additional premiums one for the audit itself, and one for the current term.