Workers' Compensation Insurance - What Employers Should Know

All U.S. employers, with very limited exceptions, are required to purchase Workers' Compensation insurance. This state-regulated insurance provides state mandated medical and lost wage benefits to employees injured during the course and scope of their employment.

 Exceptions to purchasing this mandatory insurance include very small companies that do not meet the number of employees requirement, or in some cases, very large companies that prefer to self-insure this risk.

 An employer's failure to comply with a state's requirements will trigger economic penalties and possible criminal prosecution.  A variety of Workers' Compensation insurance programs are available from the employer's risk finance perspective.

Exclusive Remedy & Employers' Liability

Although each state's regulations differ, they all share a common purpose. They provide an "exclusive remedy" in the form of a "no-fault" program for compensating employees in the form of medical benefits and lost wages in connection with injuries that arise in the course and scope of their employment.

While Workers' Compensation insurance responds to the "no-fault" consequences of workplace injury, Employers' Liability insurance, which is typically joined with Workers' Compensation policies, provides coverage for common law claims against the employer by the employee, their family or third-parties, if the claimant or plaintiff can meet the legal standard in their jurisdiction for establishing that the injury was caused by the employer's negligence, gross negligence, recklessness or willful conduct.

The Broad Landscape of Special Funds and State Programs

Many states provide special funds to pay workers' compensation benefits to injured workers employed by companies that failed to purchase insurance. Assigned risk pools or insurers of last resort are also available for employers that commercial insurers consider too risky.

Insurance Premium Calculation - The Loss Experience Mod Factor

This is a complex and often misunderstood concept that has a major effect upon a company's Workers' Compensation insurance premiums. On a general level, it is essentially a comparative analysis of your company's Workers' Compensation loss history for the prior three years against companies within the same or similar industries.

The standard Experience Mod, which is explained below, is calculated by the National Council on Compensation Insurance (NCCI). Employees are classified by standard identification codes depending upon their occupation. Depending upon an employer's size and diversity of operations, many classification codes may be involved in the analysis.

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