Jump On Board the Guaranteed Cost Train for Workers Compensation
A guaranteed cost plan is the most widely available and commonly purchased workers' compensation program. Premiums are based on payroll, specific classification codes and premium rates per $100 of payroll. In exchange for the payment of premiums, the insurance company agrees to pay for all work-related injury, disease and illness claims.
The PlatformAt the start of the policy, a staffing firm submits to the carrier an annualized payroll projection broken down by state and classification code. Once the annual policy term has expired, the carrier conducts a payroll audit to determine what that actual audited premium will be for that policy term. If payroll is higher than anticipated, an additional premium will be due. If payroll is lower than anticipated, a return premium or refund will be issued back to the staffing firm.
Guaranteed cost coverage is generally written for companies seeking first dollar coverage - meaning full coverage for the entire value of a loss without a deductible - or firms that prefer more of a predictable insurance premium with less risk tied to actual loss experience.
Reasons to Climb Aboard
- Pay a standard amount of premium even if losses exceed that amount
- Simplest plan to budget for and administer
- Low experience modification factor translates into lower premiums
- Minimal risk associated with the plan
Reasons to Leave the Station
- No immediate cash flow benefit for good claims experience; these plans are not adjusted due to losses that occur during the policy term
- High experience modification factor translates into higher premiums
- Claim services cannot be unbundled to a third party administrator
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