Understanding Alternatives for Workers’ Compensation

Insurance providers face a rough market, and their responses – higher rates, cutting benefits, being more selective in clients or leaving markets entirely – are putting pressure on businesses. With high rates further increasing in the workers’ compensation market, employers often seek alternative coverage options to ensure that workers’ claims are manageable both legally and financially.

How Alternative Policies Help Businesses Save

Most alternative coverage plans take into account the client’s loss ratio during the policy period when determining costs, rewarding responsible businesses by lowering premiums or offering dividends. A few such policies include:

Retrospective Workers Compensation Rating: the plan starts with a standard premium at the beginning of the policy year, which will change retroactively, within a minimum and maximum range, based on losses. Low losses mean a potential return dividend instead of additional premium.
Profit Sharing: the plan considers a business’s loss control and claims experience to determine upfront premiums. Typically this requires a three-year commitment from the insured, but can be especially helpful to businesses working to improve their loss ratios from prior history.
Large Deductible: the client must be able to reimburse the insurer based on a specified deductible, verified by an escrow account. However, the insurer will handle all claims otherwise, taking the deductible afterward; this includes managing different states’ legislation on workers’ comp.

By contrast, the traditional guaranteed cost plan remains static and does not offer the benefits that alternative coverage can to well-performing businesses.

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