Workers’ Compensation insurance policies are written on an annual basis. Business owners, however, for several reasons, may decide to change carriers before the renewal. Owners need to consider the impact (if any) of changing carriers before making a move.
Going from Assigned Risk to the Standard Market
Challenging classes of business, including start-ups with no Workers Comp experience, might not find a home in the standard market. Their only option may be to obtain Workers’ Comp coverage through the assigned-risk market (the market of last resort through a state fund). These assigned-risk policies tend to carry higher premiums than you’ll find in a standard market. At some point during the year, the business’s independent agent may find a standard market for the business with better pricing, coverage, and value-added services. At Prescient National, we experience this often, and, as a provider of Workers’ Comp insurance for hard-to-place risks, we work with independent agents to help insure their clients.
Additionally, no penalties are involved if a business can move from the assigned risk to the standard market midterm.
Going from One Standard Market to Another
Businesses in the standard Workers’ Compensation market that move from one carrier to another midterm should be aware that they will face a short-rate penalty. The earlier in the policy term a business decides to make a move, the greater the penalty. The penalty amount is determined by a table of factors and could be steep in the early days of the policy, gradually tapering off as the policy approaches its expiration date. If a business is looking to move – for example, because it found a program with better pricing – the employer must weigh the cost/benefit of making such a move against the penalty issued.
The reason behind the penalty is that carriers base insurance premiums on a business’s loss history over a three-year period. Moving a renewal date leads to moving an insured’s anniversary date, which leads to confusion and problems regarding the experience periods used to calculate a business’s experience modification rate.
If a business is sold or shuts down for good and cancels coverage, there is no penalty involved.
Before Making a Move
Prior to exploring whether to change carriers, here are some factors to keep in mind:
- Make sure the business change is for the right reasons – i.e., savings and service. For example, a business may be able to move to a deductible Workers’ Comp program that will help save money and provide the benefit of the new carrier’s risk management and consulting services to help mitigate losses, contain costs, and improve the firm’s risk profile.
- Work with an independent agent who is familiar with the business’s industry. Changing carriers and agents can result in issues with a new carrier that might not properly understand and classify the business.
- Verify that the new carrier applies the correct classification codes to the policy.
- Make sure payroll records are in order. Ensure that payroll for the upcoming policy period is accurately projected by class. If the projected payroll has changed throughout the year, make sure to include that information when providing numbers for a premium quote.
Prescient National works with clients and independent agents to provide businesses with the right Workers’ Compensation program. In some cases, that means being able to move a business currently in the assigned-risk pool to one of our programs. In other cases, we may be able to provide a better product, such as a loss-sensitive program, to deliver savings to clients.
