Workers Compensation

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Workers Compensation
The purpose of workers compensation insurance is to help employees recover from work-related injuries and illnesses and get them back to work. Workers compensation insurance pays for the cost of medical care, as well as lost wages and death benefits for the dependents of those killed in work-related accidents. It also covers the cost to defend and possibly pay liability claims made against a business by one of its employees with a bodily injury. It is the largest segment of business for commercial insurers.

9 out 10 people in the nation's workforce are protected by workers compensation insurance and coverage is compulsory for full-time workers in all states except for Texas.

Some states, such as Colorado and Utah, have state-run Workers Compensation Funds that are competitive with private insurers.

Click the links below to learn more:

•	Market Trends
•	Benefits
•	Cost to Employers

Market Trends
The National Council on Compensation Insurance (NCCI Holdings) reports that for every dollar workers compensation insurers took in during 2006, they spent $0.97 on claims and expenses - the first profitable year since 1995. Loss costs, the amount spent to pay and adjust claims, are driven by rising medical care costs and payments for lost wages. The number of claims filed also affects cost. NCCI reports claims frequency - the number of claims filed per 100 workers - is down from 1.7 in 1997 to 1.1 in 2006. However, the amount paid per claim has risen, impacted both by medical costs and lawsuits. Annual increases in medical care costs per claim have averaged 8.5 percent over the past five years.

The Bureau of Labor Statistics (BLS) reports the lowest workplace injury rate since the 1970s, at 4.6 private workplace injuries and illnesses per 100 full-time workers in 2005. The BLS also reports that about 25% of on-the-job deaths are caused by highway crashes.

Benefits
Workers compensation insurance pays for medical costs, rehab costs, and disability costs resulting from an employee's work-related injury. It also pays death benefits if necessary.

Disability benefits are paid after a set waiting period (typically 3-7 days). It is paid as a percentage of an employee's weekly wages with minimum/maximum limits set by states.

State's workers compensation laws typically recognize a disability as meeting one of the following classifications:

•	Temporary partial disability - a worker is unable to perform some of their job for a limited time.
•	Temporary total disability - a worker is unable to perform any of their job functions for a limited time until they recover.
•	Permanent partial disability -a severe injury that is permanent, such as the loss of sight in one eye, but where the worker will be able to resume some job functions.
•	Permanent total disability -a severe, permanent injury, which prevents an employee from performing any work. Many state laws define these injuries as total blindness in both eyes or loss of both limbs.

How to Purchase Business Interruption Insurance:
Business interruption insurance is not sold as a policy by itself. It may be added onto a property insurance policy or included in a package policy, such as a business owner's policy (BOP). Check with agents for different options.

•	Make sure your policy limits cover a sufficient amount of time to rebuild your business. It can take more time than anticipated after a major disaster to get your business functioning again. Generally, there is a 48-hour waiting period before the coverage kicks in.
•	The policy price is related to the risk of a fire or other disaster damaging your business premises. Factors that affect this are location, the nature of your business, and how easily your business could operate out of a temporary location.

Cost to Employers
Employers pay premiums as well as deductibles. Those that self insure also incur the costs of benefits and administration. On average, workers compensation cost 1.73% of payroll as of 2003 according to the National Academy of Social Insurance. However, costs vary between states, industries, work locations, and business' own safety track records.

Last Updated:
March 2, 2010 9:06 AM

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