Workers compensation is a familiar refrain in the insurance world, but what exactly does it entail and who is required to carry it? Chuck and Grant dive into the intricacies of work comp in this episode of Your Insurance Connection Podcast.
Below is a transcript of the episode, modified for your reading pleasure. For more information on the topics discussed in the episode, see the links at the bottom of this post.
* * *
Grant FINLEY: Welcome to another edition of Your Insurance Connection Podcast. I'm your host, Grant Finley and joined by the President of CLH Insurance, Chuck Hembree. Chuck, how are you today?
Chuck HEMBREE: I'm doing fine, Grant. Thanks for working on this topic because there's lots of questions about work comp in the market place.
FINLEY: "Work comp", you hit it. So, it's a familiar term. People know about it, if you get injured and work comp and all that, but what exactly is it, how is it structured in the insurance world, and how does it work?
HEMBREE: Well, a little bit of history: we used to be an agrarian society, so we were working on farms and most of them were family farms so you were on your own resources. As we moved more and more to the cities, there was this phenomenon that would happen. Now we've got employers and didn't they owe some kind of liability? Well, that's a threatening thing if you're an employee and you get hurt, now who are you going to go and talk to about your injury? It's the person who writes your check and that can be kind of daunting. On the other side, employers said, "wow, we have to spend our time defending it when actually this was a work-related injury that the guy or the gal could have prevented from happening had they used our procedures and so forth, but it was just an accident and I don't want to be held liable for that." So, the states came up with - and these are state centered legislation, "here's how we can handle it. We're going to establish a work comp statute where it is the only way that work comp can be resolved for work related injuries and that takes away the animosity between the employee having to sue the employer or the employer having to defend against a claim of an employee and they can continue their work relationship and it's taken care of by work comp." So, that's how it was established and it is just for work-related injury.
FINLEY: It sounds like it is a state mandated thing, so it certainly sounds like it's a requirement. You can't - or do you have to have a certain amount of employees for it to take affect, or how does that work?
HEMBREE: Well, great question, and because it's different from state to state and it is a state statute, they all have different little requirements and benefits. Missouri says that if you have five or more employees, we don't distinguish between part-time and full-time. Five or more then you must have workers comp. There are some exceptions to that, and those are some contractors codes where the state of Missouri says even if you're one employee for a corporation you must have workers comp insurance, and we can help you with that. But it differs, for instance, Kansas says, "we don't care if you have one employee or two employees that have a combined amount of payroll of $20,000 or more, you must have workers comp." So, state to state decides what those eligibility requirements are. So if you have other questions on states outside of Missouri and Kansas, you can call us and we'll be glad to help with those.
FINLEY: "$20,000", so if you have one employee and they're making $19,000 then you wouldn't need it, $20,000 is the -
HEMBREE: Then you wouldn't need it. Now, that's for the state of Kansas.
HEMBREE: Over in Missouri, it's just the number of employees and payroll is the cost determiner. You'll always be asked for, "what do you estimate is the annual payroll?" and then the cost will be dependent on that.
FINLEY: You mentioned different benefits from different states. What are the benefits for an injured worker? What would they receive in Missouri or Kansas for example?
HEMBREE: This is where I see a lot of confusion. Most people think, it's just medical insurance and so why do I need work comp? I've got a major medical policy, in fact, the Affordable Care Act requires that I have it. Well, this is for, again, work-related injury, but it also takes care of some other things besides that. It takes care of disability, it takes care of rehabilitation costs, it has a death benefit, and when we talk about disability, it is very, very complicated. There are costs that are actually on file with the state for loss of a thumb, loss of a left hand or the hand that you do most of your work with, loss of a leg, loss of a toe. It's that specific and they're all written down so that you're not differing from company to company or anything else. It's a state mandated, a state legislated amount. But there are some other coverages beyond that. It also takes care of lost wages, which we know major medical doesn't take care of. In addition, there are some other parts of the policy that come into play for third party injury. So, if for instance, I'm injured and now I can't be the dad to my kids that I need to be, then there is a third party amount that can be secured and those are the limits that you normally see on the work comp policy. $100,000 per accident, or $100,000 per sickness, $500,000 per disease limit on the policy. But medical, the part that is applied to the injured worker is unlimited, at least in most states.
FINLEY: So who measures whether or not you can be an effective father to your kids like you were talking about? Is that a state thing?
HEMBREE: There is a work comp board. The individual insurance companies have to determine part of that but it's just like any other liability case, a court will decide.
FINLEY: So, obviously in business, one of the main tenants is to reduce your costs. I imagine if I'm an employer and I've got workers comp, that's something I'm going to be considering, so are there different ways an employer can go about reducing that cost, or since it's state mandated you don't have much control over it?
HEMBREE: Well, there's several level of questions there, which are really great. First of all, we used to be in a situation, particularly in Missouri, where no matter where you went, the cost was the same and the benefits were the same. But we're now in a competitive state. This happened several years ago and so the national council on insurance will put out what is suggested for your particular industry or your class code and then each company can decide whether they're going to be more competitive or less competitive than that rate. If a company says, "hey, this is really where we shine. We've got lots of experience here. This is the type of business we want." they may decide their rates are going to be very competitive because they want that work comp business. But as far as reducing our costs, there's different things we can do and number one is realize there are different costs of rates. For instance, a carpenter or roofer will have pretty high rates because their exposure to work related injury is pretty high, but if I'm an insurance guy like you and I, or we're clerical, or we have a desk job most of the time, our rate is very inexpensive. We need to remember that when we're thinking we have to have insurance. We're not always talking about a big, huge burden or cost. It can be very low cost, under $500 a year. So, what are some of the things we can do to reduce that cost? Well, number one is being very proactive. We don't want to get charged more than the going rate, which we can if we have poor experience. So, we want to work really hard to make sure we've got proper procedures in place, and proper safety equipment so people can focus without distractions. That, right there, will help us on the experience one because if we get in a situation where we're having more claims than the normal person in that industry, we're going to pay more. Likewise though, if we can perform at a better level than people across the nation in that particular class code, we can receive discounts and that's something we want to strive for. All companies have to provide those discounts and all companies must use that debit if we have poor experience. So, we can't say, "well, I've got really poor experience here, I'll go switch to this company and maybe they'll be cheaper." They might have a cheaper rate but they'll have to use the same experience code that everybody else is using. There are a couple of other things that we can do too. If we're larger, we can enter into what we call a Loss Sensitive Program, where there's more incentive for us to put in plans that will keep losses down. Risk management is the best way to approach reducing our costs and then just making sure we're accurate on our payroll that we're reporting, or as accurate as we can be, and second of all, that we're properly classed and that the agent has put us in the proper classification.
FINLEY: One working class that came to mind with this topic that I wasn't sure where it fit in was the freelancer - the independent contractor. I know it seems as a society companies are hiring more and more outsourced work, independent contractors, etc. Where do they fit into this whole paradigm of workers comp?
HEMBREE: So, now, at least in the state of Missouri, we have less than five employees and if I'm just an independent contractor, a sole proprietor working out there on my own, there's two things that I need to think about. If somebody is going to hire me, they're going to have to figure out whether they're going to cover the exposure that I bring to the risk or whether they're going to require me to. So, just because I'm not required to have workers comp insurance doesn't mean that I can't have it and in a lot of cases it might make sense. If i'm a sole proprietor and I'm just a consultant, that's a really low cost thing and if I'm hurt on the job I'd want that taken care of anyway. So, I may spend that $500 a year that it might cost me for workers comp and build that into my rates. And, when somebody hires me, they're going to want to see that either I have my own work comp insurance or I'm going to have to be added onto their policy. Of course, they'd prefer me to take care of it as opposed to them but they can add it on to their insurance. Now, let's talk about if I'm a sole proprietor or an independent contractor and I am building contractor. I may be required to have it and a lot of times our folks just aren't up on work comp codes so they may think that they are exempt from the state program. I'll see, for instance, sometimes plumbers will say, "I don't need it because I work all by myself." Well, I have yet to see a lot of these folks who are toting the big water and tank heaters up and down the basement stairs that didn't need somebody to help him. Right there, even if we're a sole proprietor, we utilize the services of someone else on our behalf, we've got to provide them with work comp because there are big penalties that the state will impose upon a person or a business if they don't comply with the state statute.
FINLEY: Well I think this was a timely episode, Chuck because the economy is on the uptick and people are getting back to work and this is certainly going to be something that only gets more and more attention as the workforce increases, so I certainly want to thank you for taking some time today to sit down with me and discuss this topic. Unless you have any quick, final thoughts, I think we can probably wrap it up there.
HEMBREE: No, just inquire if you have any questions about it. Better to know about it than be in the dark about it and hopefully we can help you. Thank you, Grant for asking me speak on this topic.
FINLEY: Absolutely. Again, if you do have questions, give us a call: 636.391.0700 and we'll be happy to work with you through this. Thanks for listening. We'll catch you on the next episode.
Your Insurance Connection podcast can be heard on iTunes and Stitcher or by visiting clhins.com/content/podcast. If you like what you’ve heard you can support this podcast by rating and/or sharing it on your social platforms. CLH Insurance is a “Trusted Choice”, independent agency servicing Missouri, Kansas and Illinois. For more information on CLH Insurance, visit clhins.com or call 636.391.0700 to speak with an agent. Until we connect again, thanks for listening.
* * *
Show Notes - Where you can learn more about the people and ideas discussed in this episode.