Skip links

Blog

Workers’ Compensation Insurance Explained

Article by Annete Herman, CIC, CRM, CRIS,
Insurance Operations Manager, PIAG Insurance

Workers’ compensation insurance provides medical and wage benefits to people who are injured or become ill at work. The coverage is mandated by each state and the wage and medical benefits vary by state. Workers’ compensation is considered a social insurance because it relies on a social contract between management and labor, wherein exchange for purchasing workers’ compensation insurance, business owners are protected from civil suits from their workers who become injured on the job. Yet each party benefits has limitations. Workers’ compensation insurance is purchased by businesses, and is underwritten by insurance companies and, in some states, underwritten by publicly supported state funds.

What Does it Actually Cover?

There are two parts to the Workers’ Compensation policy which are commonly misunderstood.

EMPLOYEE BENEFITS
Part A of the policy is what we usually think of when we talk about Workers’ Comp.  This is the part of the policy that covers medial expenses, rehabilitation expenses and lost wages as a result of an employee injured on the job.  It also pays out a death benefit to the employee’s dependents.

Employee benefits generally have no limits and no exclusions.  The insurance carrier will pay out the claim to cover any medical bills necessary to treat the employee’s injury, illness or rehabilitation.  Additionally, claims cannot be declined or denied, unless there is proof of fraud or if offered, the employer participates in a “Drug-Free” Workplace Program.

The state of Georgia offers such a program. The Georgia State Board of Workers’ Compensation certifies employers as a drug-free workplace. An employer must give notification that their workplace has a zero tolerance for drug use and provide a manual to their employees as to what a drug free work-place means. In the event of an accident, the employee receives immediate care but is also tested for substances that could have possibly impaired the employee. Those certified receive a 7.5% reduction of their workers’ compensation premiums.  Research has shown a significant reduction in claims and lost time in workplaces that follow the Drug-Free program.

PIAG is happy to help design and walk any employer through the steps to become a certified Drug-Free Workplace.  Please call us for more information.

EMPLOYER’S LIABILITY
Part B of the policy is what protects you as the employer. It addresses the employer’s liability in case the employee claims negligence and sues for damages in addition to receiving work comp benefits.  In this case, Part B would cover the employer’s legal defense, plus any monies awarded to the employee. This portion of the policy does have limits, or the maximum amount the policy will pay out.
Limits are often represented as three numbers; the most common limits are:

100/500/100
500/500/500
1,000/1,000/1,000

Amounts are in U.S. dollars and 100x the number shown on the policy. For example, “100/500/100” is actually $100,000/$500,000/$100,000.  The first number is the amount paid out per accident; the second, the maximum per disease per policy year; and the third, the amount paid out per employee.

How is the cost of workers’ compensation insurance determined?

Similar businesses in each state, that exhibit comparable workplace injury patterns and costs, are grouped into “classes.” Rates are determined for each class based on the prior five years of loss costs for all businesses within that class. This provides an equitable system where rates are charged commensurate with the actual loss experience of the class of business. Economic factors for each state are then overlaid onto this data to determine the rate for each class in a given state.

A system called “experience rating” allows for modification of the class rates based on the loss history of an individual business. This system provides business owners a significant amount of control over the cost of their workers’ compensation premium – safe businesses are rewarded with lower premiums and unsafe businesses are penalized with higher premiums.

Who is required to carry workers’ compensation insurance?

All states, with a small number of exceptions, require businesses with employees who are not owners, to purchased workers’ compensation coverage for those employees. Businesses that fail to provide workers’ compensation coverage can face severe and costly repercussions including payment of claims out of pocket, fines and possible imprisonment, as well as possibly losing the right to conduct business in the state.

How workers’ compensation claims work

The injured parties must visit a healthcare professional immediately so a doctor can provide medical reports to support any claims. Employees can then begin the claims filing process with Nationwide, being sure to include any state-mandated paperwork or forms. Once these claims are approved, the recipient will receive their compensation payments and can return to work when they feel they are ready.

The Importance of Management Liability for a Small Business

Article by Annete Herman, CIC, CRM, CRIS,
Insurance Operations Manager, PIAG Insurance

As the owner and operator of a small business, a lot of responsibilities are on your shoulders. Not only do you have employees, suppliers and clients relying on the success of your business, but you may also be held personally liable for allegations of mismanagement, wrongful dismissal, employee fraud, non-compliance with workplace health and safety (WH&S) requirements, and even the costs of a tax audit.

The vast majority of small business owners and directors run their companies with the noblest of intentions and would never knowingly engage in fraud, harassment, discrimination or any other dishonest management practices.

However, even an allegation of mismanagement could come with a heavy legal defense bill – and unfortunately your innocence doesn’t necessarily excuse you from those costs. It’s possible that in the instance of court proceedings a judge could order your false accuser to cover your legal costs, but that’s far from guaranteed – and may not apply to matters that don’t make it into a court of law. In reality, the best protection is a good management liability insurance policy.

While management liability policies differ slightly between insurance providers, they generally cover the legal costs associated with defending yourself against allegations of mismanagement of your company, harassment, wrongful dismissal and fraud.

The four areas usually covered by management liability insurance are:

  • Directors and Officers Liability – Cover for loss in respect of any claim for an error, act, omission or negligence committed by your Directors & Officers
  • Employment Practices Liability – Cover for employment related wrongful act
  • Statutory Liability – Cover for formal or official investigations by regulatory, governmental or authorized institutions
  • Company Liability – Cover for loss to the company for claims due to an error, act, omission or negligence by the company

MLP also covers you against criminal and fraudulent activity. Companies are often the main target of sophisticated criminal networks and disgruntled employees. A crime cover extension can offer valuable protection against an increasing threat of both random and targeted criminal activity. Covid-19 has resulted in many people working from home with increasing opportunities to gain access to unprotected systems. Since lockdown, fraud has increased by 66%, in particular due to people falling for online scams.

It’s important not to confuse management liability coverage with professional indemnity insurance – they are two different types of insurance and play different roles.

Management liability essentially covers you against allegations of mismanagement, while professional indemnity insurance covers against damages arising from professional services or advice you have provided.

Think of it like this: professional indemnity insurance covers the services and advice provided by your company, while management liability insurance covers you in running your business.

MLP insurance is your best protection against mismanagement allegations made against you as the owner and operator of your small business. Importantly, it will help keep your personal assets safe from any claims against you.

Without management liability insurance in place, any claims of mismanagement successfully upheld against you could not only cost you your business, but also put your personal assets under threat.

Please feel free to contact PIAG at 770-433-3050 to see how we can help you and your business.

Did You Know?

Workers’ Comp Insight

Article by Annete Herman, CIC, CRM, CRIS,
Insurance Operations Manager, PIAG Insurance

When discussing Workers’ Compensation with my clients, their reaction is usually the same, “I don’t understand why we are required to have this, the rates are outrageous and it’s too hard to understand.”

Workers’ compensation insurance, also known as workman’s comp or workers’ comp, gives your employees benefits if they get injured or become ill from their job. These benefits can help the employee:

  • Cover their medical care
  • Replace most of their lost wages if they take time off from work to recover
  • Provide disability benefits
  • Give death benefits, like helping pay for a funeral if they lose their life in a work-related accident

If you are in compliance with having Workers’ Compensation in place, the policy is designed to protect you, the employer, if the injured worker or their family sues you for negligence.

Don’t be fooled by advertisements that promise low rates for your workers’ comp. The rates in all states except for the few that run a state program are set by an organization know as NCCI or the National Counsel on Compensation Insurance.

There are ways, however, to discount your premiums if your agent is aware of how your modification factor can impact your rates, and that most businesses are eligible for a 7% discount for a drug-free and safety program that can be written by your agent.

These credits can be applied at any time during your policy. Please feel free to contact PIAG at 770-433-3050 to see how we can help your bottom line.

Let’s get you covered.

No matter how big or small your insurance needs are, PIAG Insurance can find the right amount of coverage for you.

Prefer paper? We get it.
Business Insurance Quote Form

Get Free Quote