Breaking down Excess (or stop-loss) Workers’ Compensation insurance and how it could safeguard your self-insured business.
Businesses benefit greatly from insurance policies that protect them against costly claims stemming from workplace accidents. One such policy is Excess Workers’ compensation Insurance. It is a type of coverage that can limit a self-insured employer’s liability for both a specific accident and all accidents that occur during the policy term. Read on to learn more about this type of insurance and its benefits.
What Is Excess Workers’ Compensation Insurance?
Excess Workers’ Compensation Insurance (also called stop-loss insurance) is for employers who are approved by a state to self-insure the cost of employees’ work-related injuries. The Excess Policy limits the employer’s out-of-pocket cost for an individual occurred loss and costs for all injuries occurring during the policy term.
Specific vs. Aggregate Coverage
There are two main categories of Excess Workers’ Compensation coverage: Specific and Aggregate. Specific coverage (also called specific stop-loss or individual stop-loss) applies to just one claim and mitigates financial hardship by placing a cap on how much the employer must pay in a single loss occurrence.
Aggregate coverage caps the amount the employer must pay for all losses that occur during the policy period, thus protecting the business against numerous claims.
Usually, self-insured employers will want to consider purchasing both coverage limits to limit their financial exposure per loss and put a maximum on the financial liability for the policy term. Both are paid through reimbursement from the insurance company.
Why Purchase Excess Workers’ Compensation Insurance?
Although self-insured employers gain greater control over claims management and financial flexibility in funding workplace injuries, it comes with a potentially unlimited financial liability. Buying Excess Insurance coverage serves two basic purposes. First, it puts limits on the liability the self-insured employer retains and must account for on their financial statements. Second, it may make the difference in getting a state to approve an employer to become self-insured, by limiting the potential financial burden.
In some states, Excess Insurance coverage is a requirement for self-insured employers.
Is Excess Workers’ Compensation Insurance Right for My Business?
Not every business will qualify to self-insure their Workers’ compensation exposure. Prescient National will conduct an in-depth analysis with your agent or broker to determine if self-insuring is an appropriate strategy for your organization. This includes assessing management’s perspective on risk appetite, the organization’s financial condition, the expenses of internal and external support systems, and the specific characteristics of your exposure.
In addition, note that there are specific requirements for self-insured employers that vary from state to state — you may be required to purchase a particular type of plan, such as one that covers the cost of a claim to the state’s Workers’ Compensation statutory limits. This can also add to overall costs. However, most businesses applying to be self-insured must carry Excess Workers’ Compensation coverage to limit the potential claim cost. States want self-insured employers to keep the financial burden manageable based on the employer’s ability to pay.
Prescient National Insurance Company, rated A (Excellent) by AM Best, can provide self-insured employers with Excess insurance coverage using lower attachment points than most carriers, as well as TPA services to round out a successful program.
