Graduating from Guaranteed Cost to Large Deductible
Workers' Compensation Program Options
Recently, I attended a graduation ceremony. While I sat there listening to over 600 names get called (only one of which I truly cared about), I started daydreaming about work. I watched a line of people walk across the stage, entering the next phase of their lives, and thought about how this process is similar to what staffing firms go through as it relates to their insurance program. Yes, I’m an insurance nerd.
Typically, when a business opens, it’s on a traditional guaranteed cost workers’ compensation program or first dollar $0 deductible program. This means if your staffing company has a claim, your insurance carrier is responsible for paying that claim starting dollar 1.
As time goes on and the firm continues to grow, most business owners want to share some of that risk in return for lower premium. One way of solving this is by “graduating” from a guaranteed cost program to a loss sensitive plan. Just like your auto or homeowners’ insurance, the higher the deductible, the lower the fixed cost (premium) will be. On the flip side, you’re responsible for paying a portion of the claim, up to a specific deductible, claim threshold, etc.
Deductible levels vary, but typically start out as low as $1,000 and can go all the way up to $1,000,000 and sometimes higher for large corporations. One question frequently asked is: “How do I know when to make the switch from a $0 deductible program to a loss sensitive plan?”
Here are the top four indicators you might be ready to look at a deductible type program:
1. Premium size does matter.
- What type of loss sensitive program you enter into is predicated upon your premium size. Companies that generate roughly $175,000 to $750,000 per year on their WC program may start their loss sensitive journey by considering a group captive. Firms that generate over $750,000 in annual premium may want to consider a large deductible program.
2. You are familiar with the term “loss pick”.
- You need to be familiar with your loss history and how that will translate into future claim activity. Although it’s difficult to guess the exact amount, past claim history is a good future indicator of what your “loss pick” or “loss projection” will be for the coming year(s).
3. Risk management and safety programs are in check.
- Again, since you’re now paying for part of the claim, risk management and safety need to be top priorities to reduce claims from happening in the first place.
4. Your company is financially sound.
- Virtually all loss sensitive plans require some form of security or collateral. Carriers will base their collateral requirements not only on your loss history, but also on the strength of your financials. The stronger your financial position, the more comfortable the carrier will be in taking on the credit risk associated with a loss sensitive plan.
If you have a good grasp on these aspects, you’re likely ready to have a conversation with your insurance broker on the pros and cons of “graduating” from a guaranteed cost to a loss sensitive plan.
- Utilizing Guaranteed Cost for Workers’ Compensation
- That’s What She Said: A Guaranteed Cost Case Study
- Going Large with a Deductible Workers’ Compensation Program
- Workers’ Compensation E-Book
- Workers’ Compensation Videos
- Staffing & PEO Blog
- Staffing & PEO Industry Page
- Staffing & PEO Webinar Replays
- Staffing & PEO Library Resources
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