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What is workers’ compensation insurance? And why you need it…

Workers’ Compensation Insurance Background and Beginnings

Workers’ compensation insurance originated in Germany in the late 1800’s to address the social costs of workers’ injuries arising from the industrial revolution. Back then, workers who had been injured on-the-job often had to take legal action against their employers to receive compensation. This made it difficult for workers to obtain timely compensation for workplace injuries, and also exposed businesses to potentially devastating lawsuits.

Starting in 1911, individual U.S. states began implementing laws requiring businesses to carry workers’ compensation insurance. Wisconsin was first, but other states quickly followed to enact a no-fault system intended to help workers receive fair and prompt medical and wage replacement benefits for workplace injuries and occupational diseases. In exchange, the system also established limits on the ability of workers to file civil lawsuits against their employers for work related injuries and occupational diseases, making costs more predictable and affordable.

Workers’ Compensation Coverage is Required in Most States

Business owners often ask if they’re required to carry workers’ compensation insurance for their businesses. In most jurisdictions and with limited exceptions, businesses are required to provide workers’ compensation benefits to employees. Failure to meet your state workers’ compensation system requirements can potentially lead to severe regulatory penalties. Speak with your local independent insurance agent about specific requirements in your jurisdiction and how they may apply to your business.

Beyond any applicable statutory requirement, it’s generally a good idea to have workers’ compensation insurance to provide protection for both your employees and your business in the event of a workplace accident. By not carrying workers’ compensation insurance, you may leave your business exposed to the full cost of work-related injuries and occupational diseases. Your employees could also suffer potential delays in receiving adequate medical treatment following a worksite injury or occupational disease. Workers’ compensation insurers can also work with medical providers to help injured employees get healthy and back to work more quickly.

Workers’ Compensation Premium Influencers

Premiums can vary from business to business, and there are many variables that determine premium. Four factors include:

  1. Industry and job classifications – workers’ compensation classification codes are used by insurance companies to categorize the exposures experienced by a business. Industries and jobs that carry a higher potential risk for work-related occupational disease or injury will be assigned higher rates.
  2. Location – because benefits owed and losses experienced vary by jurisdiction, rates also vary by jurisdiction.
  3. The size of the company payroll – for every $100 of payroll, a rate is applied that takes into consideration the industry and job classifications. For example, if payroll grows, premium will reflect this fact.
  4. The experience modification factor – this is a number that represents a business’ claims frequency and severity relative to other businesses with similar industry and job classifications. If accidents occur frequently at the business, this number will generally be higher than for similar businesses with less-frequent occurrences of similar severity.

As a business, the factor you have the most control over is workplace safety. Luckily, some insurance carriers provide important value-added services like loss control support, which can help keep your employees safe and may assist in keeping your insurance premiums lower.

When a business establishes a safe work environment, workers are less likely to experience injuries or occupational diseases that may cause workers’ compensation claims. A safe workplace also helps business owners avoid the potential for an increase in workers’ compensation insurance premiums based on loss experience. Your insurance carrier should provide guidelines on effective safety practices, which can help protect your employees and your business. Download our whitepaper, “Loss Control: Creating a Culture of Workplace Safety,” for specific steps you can take today to help create a safer workplace.

Workers’ Compensation is More than a Statutory Requirement

Workers’ compensation insurance is not only a statutory requirement in most states, it also helps protect your employees and your business. By taking advantage of value-added services such as loss control support and implementing a culture of safety, you may help keep your premiums lower.