Different Types of Commercial Insurance for Contractors

Commercial General Liability Insurance

Commercial General Liability (CGL) insurance protects business owners against claims of liability for bodily injury, property damage, and personal and advertising injury (slander and false advertising). Premises/operations coverage pays for bodily injury or property damage that occurs on your premises or as a result of your business operations. Products/completed operations coverage pays for bodily injury and property damage that occurs away from your business premises and is caused by your products or completed work.

Excess liability insurance pays for covered losses that exceed your CGL policy’s dollar limit.

Umbrella liability insurance is excess liability insurance coverage above the limits of automobile liability and CGL policies. The umbrella policy also provides liability coverage for exposures not covered under the primary CGL insurance policies and not excluded by the umbrella liability insurance policy.

Claims-Made Versus Occurrence Policies

Occurrence policies cover claims arising from injury or damage occurring while the policy is in force, regardless of when the claim is first made.

Claims-made policies cover claims that arise from injury or damage occurring during the policy period and reported to the insurer during the policy period. Claims arising from events outside the policy period or claims reported to the insurer outside the policy period are not covered unless special coverage is purchased or arranged with the insurer. This special coverage comes in two forms:

  1. Prior acts (“nose”) coverage covers claims that arise from injury or damage occurring before the policy period, but reported to the insurer after the policy period begins.

    Prior acts coverage is provided by establishing a “retroactive date” covering injury or damage occurring after the retroactive date. The retroactive date usually appears in the declarations page accompanying your policy. It may be the effective date of the policy or an earlier date. Prior acts coverage does not cover claims that were known at the time your policy began.

  2. Run-off (“tail”) coverage, also called extended reporting period, pays for residual claims made after your policy expires. A typical claims-made policy provides a short reporting period of 30 or 60 days after the policy’s expiration date to file claims that arose too late to report before the policy expired. Run-off coverage starts when the 30- or 60-day period ends and is provided for an additional premium. The extended reporting period may be one, three, or five years, or even unlimited.

If a claims-made policy does not continue (expires, cancels, or nonrenews), you should purchase either run-off coverage from your previous insurer or prior acts coverage from your new insurer to prevent coverage gaps. Generally, claims-made policies may be less expensive in their early years as the potential for claims increases as policy years accumulate.

 Workers’ Compensation Insurance

Workers’ compensation provides benefits to employees who are injured or become ill during the course of or due to employment.

In California, every employer is required to carry insurance to cover the cost of occupational injuries and illnesses. This insurance requirement is mandatory even if you have only one part-time employee. Companies based out-of-state with employees hired in California must also have California workers’ compensation insurance.

Workers’ compensation covers various types of events, injuries, and illnesses. An injury could occur by a single event, such as hurting your back in a fall at work. Injuries could also be caused by repeated exposure, such as hurting your wrist at work from doing the same motion over and over.

A workers’ compensation injury or illness is one that occurs due to employment. If you are injured you will receive help no matter who was at fault.

No. Workers’ compensation is only for injuries or illnesses that occur due to employment. State Disability Insurance (SDI) is for injuries or illnesses that are not work-related. SDI is a benefit provided by the Employment Development Department.

Workers compensation laws were created to ensure that employees who are injured on the job are provided with fixed monetary awards. This eliminates the need for litigation and creates an easier process for the employee. It also helps control the financial risks for employers since many states limit the amount an injured employee can recover from an employer.

Workers Compensation Insurance is designed to help companies pay these benefits. As a protection for employees, most states require that employers carry some form of Workers Compensation Insurance.

Workers Compensation Insurance is not health insurance. Workers Comp is designed specifically for injuries sustained on the job.

In most states, if you have employees, you are required to carry Workers Compensation coverage. Even in non-mandatory states, it can be a very good idea, particularly if you have many employees, or if they are engaged in hazardous activities.

Commercial Auto Insurance

Commercial auto insurance is a vehicle insurance policy that provides protection for a business’ vehicles and its drivers. Employees involved in on-the-job collisions will receive coverage for medical injuries as well, regardless of fault.

Commercial vehicles are any vehicles and trailers that a business or company uses to transport job-related materials, goods or equipment. Work vehicles have insurance premiums paid for by the company, unlike policies for personal vehicles that the vehicle owner pays for.

The most common type of commercial auto insurance is liability coverage, which most states require. It covers a driver liable for damaging cars or injuring others. Other types of commercial auto insurance include collision, uninsured, gap and personal protection.

Factors that can increase premiums include the type of vehicle driven, safety devices such as air bags and automatic seat belts, anti-theft devices and parking locations. A company’s previous insurance claims can also affect the cost of insurance.

Builder’s Risk Insurance AKA Course of Construction Insurance

Builder’s risk insurance is a special type of property insurance which indemnifies against damage to buildings while they are under construction.Builder’s risk insurance is “coverage that protects a person’s or organization’s insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.”

Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other force majeure. A principle of common law is that any new construction or other improvement to land becomes property of the owner of the land – the title holder – once there has been an “improvement” to the owner’s site. Builder’s risk insurance indemnifies against some of these losses.

Builder’s risk insurance usually indemnifies against losses due to fire, vandalism, lightning, wind, and similar forces. It usually does not cover earthquake, flood, acts of war, or intentional acts of the owner. Coverage is typically during construction period only, and is intended to terminate when the work has been completed and the property is ready for use or occupancy.

It is usually bought by the owner of the building but the general contractor constructing the building may buy it if it is required as a condition of the contract. It may be necessary to show proof of insurance to comply with local city, county and state building codes.

Garage Insurance

Garage Insurance

Garage insurance is a special policy aimed at covering businesses in the automotive industry. It is a crucial requirement for automobile dealers, service stations, repair and customization shop owners, and parking lots operators. It makes up for the coverage for damages to third-party vehicles, which is usually not covered in the standard commercial general liability policy.

What Does Garage Insurance Cover?

This specialized policy specifically covers your business against claims from third-party injuries and property damages resulting from accidents during garage business activities. You can choose to set your plan at basic coverage or enhance it with additional policy for better and broader coverage.

Basic Garage Insurance Coverage

Basic coverage covers lawsuits if your business is sued for the cost of treatment for bodily injury sustained on your business premises. For instance, if a customer, vendors or bystander slips and falls at your shop. It may also cover general liabilities from business activities, such as discrimination lawsuits from an employee. It also includes dishonesty coverage, which covers you against theft or vandalism done by an employee to a customer’s vehicle.

Additional Garage Insurance Coverage

You may get additional coverage which covers damages to a customer’s caused by a product sold or manufactured by your shop.

Is Garage Insurance the Same as Garage Keepers Insurance?

Both are similar kinds of policies and crucial to the automotive industry, but with some differences in the area of coverage. While garage insurance covers policyholder’s business operations and autos, the other is for damage to a customer’s vehicle. Garage keepers insurance covers incidents that occur when working on a customer’s vehicles, including damages not caused by you or your employees, such as fire, theft, extreme weather, collision and vandalism.

Which Should I Choose?

You can get any or both policies from the same insurer, depending on your services. For every automotive business, garage insurance is a must. And if you keep customers’ vehicles in your shop, either for short-term or long-term repairs or services, you should also consider complementing your general garage insurance with garage keepers policy.

How to Get the Best Garage Insurance for Your Business

You can get quality coverage and save money on your policy if you deal with the right insurer. Try to compare quotes from different insurance companies or agents and buy from the one with the best offer.  The insurance amount will basically depend on your company’s annual revenue, number of employees, type of coverage and limits of coverage chosen.

Contractors Insurance Certificates and Endorsments

What is ‘Additional Insured’ Endorsement?

Additional insured refers to a person or organization identified as an insured under an insurance declaration, in addition to whomever the insurance policy is named to. After the endorsement is signed, that entity will enjoy same benefit similar to the named insured including the filing of claims, and will be protected under the insurance policy.

What is Certificate of Insurance?

Certificate of Insurance (COI) is a document issued by an insurer to the policy holder to certify that an insurance policy has been acquired. The certificate shows specified information regarding the insurance, such as the type of insurance coverage, the effective date of the policy and the amount of the applicable liability. However, the certificate is not a substitute to the actual policy document and it is a non-negotiable document that cannot be assigned to a third party.

What are Loss Runs?

Loss runs are reports compiled and generated by the insurance company that records a detailed history of the claims information of each policy holder. Even if a policy holder has no filed claims, a loss run report should still be generated to reflect no losses. Every insured has the right to receive a copy of loss runs report from their insurance company and this is available without any additional charges.

What is Waiver of Subrogation?

Waiver of Subrogation is a type of endorsement on an insurance policy wherein the insurer waived its right to pursue any claim and take legal actions against the responsible party for the loss suffered by an insured. For instance, the landlord of an apartment signed an agreement with his tenant stating that they would not be held liable for any damages occurred to the rental unit. If any damages occur, the landlord will file claims to his insurer for the damages incurred in his property. However, the Waiver of Subrogation will prohibit the insurance company from coming after the tenant for the damages incurred in the property.

What is Primary and Non-Contributory Wording Endorsement?

Primary and non-contributory wording endorsement is commonly used in general liability insurance policy to stipulate the order on how the insurance company will respond on multiple policies. The term primary on your insurance policy means that the insurer will pay you first in the event of a claim, and the non-contributory means that the insurer will not only pay you first but will also pay the full amount of your claim.

Owner Controlled Insurance Program (OCIP)

OCIP is an insurance coverage provided by a property owner to contractors and subcontractors during a renovation or construction project. This type of insurance coverage is generally designed for big projects whose total constructions costs exceed $5 million. It covers all the liability and possible losses that may arise during the period of the project. As the project owner is acquiring all the necessary insurance coverage for the project, contractors and subcontractors do not include the cost of individual insurance in their bids for the project.

In OCIP, all the necessary insurance coverage for the whole project, including the construction, workers’ compensation, hazard, materials, terrorist and other building-related insurance coverage are acquired by the project owner as part of a single insurance policy from a single insurance company.

OCIP also provides standardized insurance coverage with high liability limits for all the contractors and subcontractors, and this can reduce the construction costs by approximately one percent to two percent compared to traditional insurance policies acquired by each contractors and subcontractors.

Most OCIPs are multi-year coverage with fixed duration, with the most typical duration is between two and five years. This insurance coverage normally applies to all the contractors and subcontractors working on the project site, which includes the main constructions site, lay down yards, storage areas and on-site fabrication.

Advantages of OCIPs for Owners

  1. Cost. The acquisition of OCIPs can result to two to three percent bid reduction. This can be achieved through premium credits for a volume purchase of insurance coverage by project owner.
  1. Scope of Coverage. Project owner has a guaranteed wide insurance coverage for their OCIPs as compared to traditional non-OCIP policies, which an owner sets minimum insurance requirements.
  1. Improved Risk Management. With OCIP’s single insurance policy, risk control management and claim handling are greatly improved, and dispute among contractors and subcontractors are easily resolved with the limits of the insurance policy.
  1. Policy Limits. In OCIPs, project owner can provide more than $800 million in insurance coverage to contractors and subcontractors, in contrast to traditional non-OCIP policy where it can only carry less than $1 million in CGL coverage.

Advantages of OCIPs for Contractors

  1. Safety and Loss Control. The implementation of a wide risk control management program can enhance existing safety programs of the participating contractors, reducing injuries and other construction hazards to employees.
  1. Claims Management. The large management program of project owner through the OCIP can result to coordinated and easy claims handling procedures.
  1. Dispute between Contractors. By covering all of the project’s contractors, disputes and subrogation issues between insurers and contractors are eliminated. In traditional non-OCIP programs, contractors/subcontractors and project owner are represented by different insurers and lawyers, and this potential source of conflict is eliminated in the OCIP program.
  1. Higher Limits. Smaller contractors and subcontractors are allowed to participate in the projects that need higher liability limits.
  1. Small or Minority Contractors. Project owners provide insurance coverage to smaller or minor contractors who do not have the capability to secure necessary insurance coverage for bigger projects.

Disadvantages of OCIPs for Owners

  1. Administrative Burden. OCIPs increased administrative burden to the part of the project owner, and if not managed competently, it could lead to additional cost to the owner.
  1. Market Risk. Premium cost for the OCIP can increase if the insurance market hardens, which could potentially hurt the project owner.
  1. Bid Preparation. Additional costs and preparations are needed in imposing an OCIP programs, which is a time consuming and brings additional work to the project owner.

Disadvantages of OCIPs for Contractors

  1. Limited Insurance Coverage. OCIP is designed to provide insurance coverage for work performed on the project. However, this coverage is normally subject to various exclusions which could lessen the coverage to the contractor compared to what they could get in traditional insurance policies.
  1. Complicated Bidding. A complicated bidding process is required to demonstrate that the insurance coverage has been removed from the contractor’s bid price.
  1. Documentation Requirements. Projects with OCIP have more paper works and report intensive, imposing additional administrative burdens to contractors and subcontractors.

Transportation Insurance Explained

Transportation Insurance

Theft, fire, and damages are some of the common devastating perils faced by distributors, wholesalers, retailers and other business owners that convey goods from one place to another. Thankfully, a customized transportation insurance policy can cover any of those damages, and help keep your business afloat. Transportation insurance covers goods and property in transit. The coverage includes transport by land, water, and air.

How Does Transportation Insurance Work?

Transportation insurance pays compensation for your damaged, delayed, or stolen goods in transit. You may choose to get the basic or go for more comprehensive coverage, depending on the kind of protection you want for your business. The cost of insurance and coverage amount will be based on some factors, such as the value and nature of goods you are transporting, and the distance, whether domestic or international.

Types of Transportation Insurance

Each means of transportation and goods has its own peculiarities, and as such, will require a customized policy that will best suit the business. Transportation insurance products include:

  • Taxi Insurance, Limousine Insurance, and Bus Tour Insurance: Needed to cover your vehicle and your passengers. It should also include a business interruption coverage, which pays for income loss when your vehicle breaks down, and require a service or repair.
  • General Cargo Insurance: This can cover both the goods in transit and the container. It comes in three basic clauses, namely, A, B, C. Clause A is the most robust category that offers the widest coverage, followed by clause B, while C offers the lowest coverage. The wider the coverage limit, the higher the premium rate.
  • Goods in transit insurance: This product provides coverage for goods against fire, accidental damage, or theft when in transit. The coverage includes when the goods are being loaded or offloaded. It has two types, which are

-          All risks, which covers goods from the loading stage till the final destination, and

-          Restricted cover, which only provides coverage if the conveying vehicle is involved in an accident.

  • Marine Cargo Insurance: Covers goods transported by water or air. It comes in different types, which include voyage policy, open cover.

-          Voyage Policy covers goods from a specific point to another and ends when the goods get the covered destination.

-          Open Cover is particularly essential for businesses that transport goods frequently. It offers blanket coverage, which covers all shipments made for one year, and as such help saves cost getting a new policy for each journey.

  • Rail Insurance: This provides coverage for those who …in rail business, such as passenger and freight operators, locomotive owners, storage facilities, etc.
  • Airfreight insurance for goods transported by air. The premium rate is calculated based on the value and nature of goods and route to the destination.

Why Your Business Needs Transportation Insurance

Casualties and theft are commonplace in the transportation business, and can sometimes bankrupt a company if there’s no reliable coverage. Transportation insurance is a risk transfer plan that can help you weather the storm of adverse financial effects capable of ruining your business.

Workers Compensation in the United States: The Background History

Workers Compensation in the United States: The Background History 

The idea of providing workers with sufficient protection as well as compensation for the injuries or illness that occurs at the workplace was first introduced at the beginning of the 20th century with the emergence of the trade union movement. The increasing awareness among the general people, poor working condition in various sectors along with the massive financial impacts caused by the injuries and illness of the workers are some of the main issues that led to the emergence of workers compensation insurance.

It is to be mentioned that the workers compensation insurance is the oldest social insurance program in US which is older than the unemployment compensation and social security.

California along with most other states adopted the Workers Compensation laws during the 1910s. The Workers Compensation law works based on the no-fault system where in order to receive the benefits from Workers Compensation for any job related illness or injury, it is not required for an injured worker or employee to come up with proves that his or her illness was caused by another individual.

In California, it is important for both the employer and employees to have a clear understanding about how the Workers Compensation insurance works and the laws involved with it as the state of California ensures protection for each and every Californian through the benefits of Workers Compensation. 

Benefits that an Individual May Receive Under a Workers Compensation Policy

The injured workers receive various types of benefits from their Workers Compensation Policies based on the circumstances of their illness or injuries. There are six basic types of benefits available under Workers Compensation in the country which includes:

-          Medical care

-          Temporary disability benefits

-          permanent disability benefits

-          vocational rehabilitation services

-          supplemental job displacement benefits and

-          Death benefits

 

Medical Care 

According to law, it is the right of an injured worker to receive all kind of medical assistance which s/he reasonably requires to overcome a work related illness or injury. Under the medical care facility, a worker may receive different types of medical cares including chiropractic treatment, dental care, hospitalization, laboratory services, physician services, physical restoration, physical therapy, prescriptions, x-ray and so on. The type of treatment that the injured worker will receive is determined by the treating physician who determines it based on the injury or illness. This can be subject to applicable treatment guidelines.

In general, the employer takes all the responsibilities of arranging proper medical treatment for an injured worker for the first 30 days calculated from the day the injury or illness is reported. Once the 30 day period is over, the employee can choose a particular physician or treating facility based on his/her preference. However, if the employee has a personal physician and wants him/her to deal with the treatment, then that particular physician can be in charge of the treatment from the date of the injury or illness. It is to be mentioned that the employee has to inform his/her employer about the physician before the injury or illness takes place. However, the choice of physician for the treatment varies if the employer and the employee go for a Health Care Organization (also known as HCO).

 

First Aid Treatment 

It is mandatory for all employers to ensure first aid treatment for their employees who gets injured or ill. The California Department of Insurance (CDI) jointly with the Department of Industrial Relations, Division of Workers Compensation want to remind all employers along with physicians, insurance carriers and self-insurers the importance of complying with the Section 6409(a) of the California Labor Code.

Under the section 6409(a), it is a requirement for a treating physician to file a “Doctor’s First Report of Injury” (DFR) for a injured employee with the claims administrator for each and every work injury or illness, even first aid cases which does not involve any lost time of work. Although “first aid” exceptions available in the labor code as far as the Employers Report (Form 5020) and the Employee Claim Form (DWC-1) are taken under consideration, no such exceptions are there for the DFR. It is the responsibility of the insurance carrier or the employer (if he/she is self-insured) to forward the DFRs to the Department of Industrial Relations and there is no “first aid” exception available to this statue.

According to the California Department of Insurance and Department of Industrial Relations, in cases where some medical providers along with the employers provides the employer with the authority to determine how the injuries are going to be classified by the physicians, possibilities are there that improper arrangements will take place. In some cases and based on the request of employers, physicians forward the DFRs to the employers only, not to the insurance carriers. This sort of arrangements may take place even when it is very much clear that the injury is beyond first aid.

Employers often find these arrangements attractive as they are advertised as a technique of reducing the premiums or keeping them at a lower level. These types of marketing activities are considered improper and can also contribute to premium fraud related possible criminal violations and the fraudulent denial of Workers Compensation benefits for injured employees.

 

Temporary Disability 

According to the law, an employee becomes eligible for receiving the temporary disability benefits if s/he is unable to report for duty within three days of the injury or illness. The temporary disability benefit allows the employee in that case to replace the wages lost due to the illness or injury. However, it is to be mentioned that the temporary disability benefits will be payable only after a physician verifies that the employee has become unfit to attend his job due to a work related illness or injury.

Usually the benefits replace as much as two-third of the lost wages, up to the current maximum prescribed by the law. Until an employee becomes able to get back to his or her job or until his/her condition turns permanent and stationary (according to the physician who is treating the employee), the benefits will be payable in every two weeks. According to the present law, the benefits are limited to two years maximum which can be extended to four years considering the type of injury or illness.

Permanent Disability

An employee or worker may become eligible for receiving permanent disability benefits if his/her job related illness or injury leads to a permanent disability. The amount (percentage) that an employee will receive in that case will depend on a number of factors which includes:

  1. extent of the injury or disfigurement
  2. the diminished income capacity of the employee for future
  3. type of work that the employee was involved in
  4. age of the employee, and
  5. the date when the injury occurred

It is to be mentioned that modifications were made to the Workers Compensation laws recently based on which the Department of Workers Compensation (DWC) may include new regulations which could play important role in determining the permanent disability benefits for the workers. According to the present law, the permanent disability benefits become payable in every two weeks until it hits the highest amount or a settlement takes place.

The assessment of the permanent impact of the injury along with the permanent Disability Rating Schedule is used to calculate the percentage of permanent disability. Details of the Permanent Disability Rating Schedule can be found in the website of the Department of Industrial Relations.

A Qualified Medical Evaluator (in short QME) or the physician who is treating the employee usually assesses the permanent impairment and limitations of the employee. It can be done by an Agreed Medical Examiner (AME) as well if an attorney represents the injured employee. The QME is appointed and regulated by the Medical Unit of Division of Workers Compensation.

Assessment of a Permanent Injury: How to Deal with Disagreements? 

When it comes to the assessment of the permanent injury, disagreement and confusion among the involved parties is not anything uncommon. The employee who is going through the assessment may disagree with the opinion of the physician. If such an incident takes place in case of an employee who is not being represented by an attorney, then DWC Medical Unit may assign a physician based on the employee’s preference who will perform a separate assessment.

Now if the worker or employee is being represented by an attorney then in that case the parties are required to take initiatives to agree on a physician who will be responsible for the assessment. If the parties fail to agree on that issue, it is the Medical Unit of DWC, which will appoint a QME panel formed by three members. Under this system, each party holds the right to stroke off one physician from the QME panel narrowing the selection down to a single physician. If the assessment turns out to be different then the amount of permanent disability for the employee will be decided based on negotiation or litigation if it is necessary.

Vocational Rehabilitation

(for employees injured prior 01/01/04) 

Injured workers, who are unable to return to the type of work they used to do before suffering the injury are eligible for receiving the Vocational Rehabilitation Services. This service includes developing an appropriate plan, the cost required for the training (if any training is necessary) and an allowance for maintenance while taking part in the rehabilitation program.

The employer and the injured employee jointly select a rehabilitation counselor who determines if a vocational rehabilitation is going to be feasible for the employee. However, the selection process can be initiated only after the employee is evaluated and it is determined that s/he is no longer capable enough to return to the previous type of work that s/he used to do. The whole idea of a rehabilitation plan is to assist an injured worker to become capable of self-reliant as much as possible within a reasonable period of time.

The maintenance allowance payable to an injured employee is designed in such a way that it covers as much as two-third of his/her income for the lost wages, something that is similar to the temporary disability benefits. It is to be mentioned that by law, the maximum for the maintenance allowance is lower in comparison with the maximum payable by temporary disability.

An injured employee may consider supplementing his/her maintenance allowance with advances from the permanent disability benefits up to a limit where s/he receives the equal amount at a weekly basis which is received by a worker under the temporary disability benefits. Currently the total cost of rehabilitation is determined by law for the employees who got injured on or after 01/01/04.

The workers who have suffered illness or injuries on or after 01/01/03 and have legal representation can settle the rehabilitation in a lump sum. It is to be mentioned that vocational rehabilitation is not applicable for workers with dates of injuries after 01/01/04.

Supplement Job Displacement benefit

(for workers who got injured after 01/01/04)

The Supplement Job Displacement Benefit is in effect a nontransferable voucher for retraining related to education and/or enhancement of skills. This benefit is payable to a school that is state approved or accredited and for an employee who got injured on or after 01/01/04. The following issues are taken under consideration to determine whether an injured worker is eligible for receiving this benefit or not:

-          Whether the injury led to permanent disability (the worker will only receive this benefit if his/her injury leads to permanent disability)

-          Whether the injured worker is unable to report for duty within a 60 day period once the temporary disability ends (if a worker is unable to return to work within this period then s/he will be eligible to receive this benefit

-          Whether the employer is offering any alternative or modified job for the injured employee. If not, then it qualifies the injured worker for the benefits.

The highest voucher amount is determined by law and the amount will vary based on the extent of permanent disability of the worker/employee.

Death Benefits

In cases where a worker encounters with fatal injuries while being on duty, the reasonable costs for the burial is paid up to the present maximum- something that is set by the law. In addition to this, for a certain period, support payments may be provided to the existing dependents that are eligible for it. Usually these benefits are paid by following the same rate structure that is followed in case of the maximum temporary disability benefit. The amount that the dependents will receive under the death benefit will be determined based on the number of dependents and their type of dependency (whether they are totally or partially dependent).

Coverage in Workers Compensation Policy: How is this Structured? 

It is the Part One of a Workers Compensation policy under which the workers compensation coverage is provided. Under the Part One, an insurance provider agrees to make payments to an injured worker for all benefits and compensations without any delay. The Workers Compensation Law or the State Laws or laws of the states that are included in the policy’s Declarations page imposes these payables on the employer.

Workers Compensations insurance is a something that is seen as the exclusive remedy for employees who suffers work related injuries or illness. This means, the employer takes the full responsibility for all worker injuries and it is the Worker Compensation benefits that turns out to be the remedy and the only source of funds for the injured workers. It is to be mentioned that an employee covered by the Workers Compensation cannot sue his/her employer for the work related damages that s/he may suffer.

Employers Liability insurance

The Employers Liability insurance may provide vital coverage as well, although the Workers Compensation is considered as the exclusive remedy for the injured workers who suffers work related damages. Employers Liability is provided under the Part Two of a Workers Compensation and Employers Liability Policy. An employer receives the necessary protections under the Employers Liability Part Two if the illness or injury of a worker is not related to his/her work. Workers Compensation law does not cover the occupational injuries, which does not take place in the course of employment. This is why these injuries cannot be compensated under the Workers Compensation Part One. Individuals are advised to contact with a licensed commercial broker-agent to learn more about the Employers Liability coverage as a part of their Workers Compensation policy.

People who are Required to Buy Workers Compensation Insurance

Under the California Labor Code Section 3700, it is mandatory for the Californian employers to offer Workers Compensation benefits for the worker/employees. An organization with one or more employees is obligated to satisfy the requirements of the law.

Workers Compensation for Sole-Proprietor

In some cases a sole-proprietor or business owner may go for Workers Compensation insurance for himself/herself. In that case it is important to make sure that the inclusion of that individual in the Workers Compensation policy is stated clearly or it has to be included in the form of an endorsement to the policy. However it is to be mentioned that a Workers Compensation policy is seen as a liability for the employers considering the fact that under this policy an employer is required to take the complete liability for an injured or ill employee. This is why Workers Compensation policy may not be the best choice for a sole-proprietor.

Alternatives of Workers Compensation insurance that a sole-proprietor may consider includes: disability income, health and/or life insurance. Those who are interested to purchase such insurance can get more information regarding this from a licensed personal lines broker or commercial broker agent.

Workers Compensation Coverage for Directors and Executive Officers

In case of the Workers Compensation coverage, the executive officers along with the directors of a company are required to be included in the coverage unless the executive officers and directors hold full ownership of the firm. In that case, the directors and executive officers may consider electing themselves out from the coverage. In case of a fully owned enterprise, the issues regarding the inclusion of the directors and officers should be discussed with a licensed commercial broker-agent.

It is clearly defined in the California Labor Code Section 3351 that who is an employee, which makes it easy to identify the individuals who may come under the Workers Compensation policy of a company. It is always recommended that a company develops good professional relationship with a broker-agent who is reliable and competent regardless of whether it is a corporation, partnership or sole-proprietorship. The right broker-agent can help an organization to have a clear understanding of various issues involving the coverage eligibility as well as the current options depending on the organization model of the business.

How to buy a Workers Compensation Insurance

In order to fulfill legal requirements, an employer needs to buy a Workers Compensation insurance from insurance company that holds the license. Another option can be the State Compensation Insurance Fund (SCIF). An employer can go for the option of “self-insure” as well under the Workers Compensation.

In order to purchase the Workers Compensation Insurance, an employer may contact with a reliable commercial broker-agent who will provide all the necessary information about the insurance, SCIF and self-insurance. In addition to this, the commercial broker-agent can assist the employer to buy the insurance from a licensed insurance company.

Information regarding the licensed insurance companies that are offering Workers Compensation insurance and online rate comparison of the top 50 Workers Compensation insurance providers can be obtained from the official website of the California Department of Insurance (CDI). The website address is: www.insurance.ca.gov.

So beside talking with a reliable commercial broker-agent, an individual who is interested to learn more about Workers Compensation policy can have access to the necessary information right from the comfort of the house simply by surfing in the internet.

State Compensation Insurance Fund (SCIF)

State Compensation Insurance Fund or (SCIF) is a state-run organization that focuses on transacting the Workers Compensation on a non-profit basis. The private insurers are the competitors of SCIF and this organization is considered as the last remedy when the private insurers refuse to provide Workers Compensation Insurance for a company. A business organization can directly contact with SCIF or through a licensed commercial broker-agent if it is willing to go for an insurance policy of SCIF.

Workers Compensation Self-Insurance Plans

It is mandatory for a firm to get a certificate from the California Department of Industrial Relations, Office of Self-insurance Plans if it is interested to become self-insured. To obtain a certificate of consent to self-insure, a private employer is required to post security. Stable and considerably large employers may find self-insurance as an appropriate option. Those who are interested about Workers Compensation Self-Insurance Plans are advised to contact the Department of Industrial Relations for more information.

Consequences of Not Purchasing Workers Compensation Insurance

Deliberately failing to provide Workers Compensation insurance for the employees can have serious consequences for an employer in the United States. In California where Workers Compensation is must for every company, failing to provide it for the employees can lead to the following consequences: 

Stop Order 

It is considered as a violation of the California Labor Code if an employer fails to purchase Workers Compensation insurance. Companies that are found illegally uninsured for the Workers Compensation can face “stop order”. The Director of the Department of Industry Relations holds the authority to issue stop order against such organizations and once an organization get a stop order, it has to suspend all kinds of business activities until it obtains Workers Compensation insurance.

Fine

In addition to the stop order, an uninsured company can be fined as well if normal investigation finds it guilty of not obtaining the Workers Compensation insurance illegally. An uninsured firm can be found guilty if an injured employee files for claim with the Uninsured Employers Fund as well. According to the law, a company may have to pay as much as $10,000 in fine if it fails to comply with the stop order while it can be fined by $1000 per worker for failing to carry the Workers Compensation insurance.

Prosecution

According to the law, an employer can be prosecuted for insurance fraud if s/he deliberately fails to provide Workers Compensation Insurance to the employees. In addition to this, the employer opens himself/herself up to the liability lawsuits from the injured employees if the firm has no Workers Compensation insurance for the workers. The exclusive remedy protection is not going to be applicable if Workers Compensation insurance was not in force during the time when a worker got injured.

Uninsured Employers Fund 

An injured employee holds the right to file claim with the Uninsured Employers Fund for his/her work related injury if the employer does not offer the Workers Compensation Insurance unlawfully. The injured worker can seek assistance from the Uninsured Employers Fund if the employer fails to pay the compensation or post a bond in order to make the payments for the injured worker. In such cases, the Uninsured Employers Fund takes the responsibilities to deal with the Workers Compensation claim. The Uninsured Employers Fund takes necessary steps to recover the amount (if any) paid on behalf of the uninsured employer.

Subsequent Injuries Fund

The Subsequent Injuries Fund may provide additional compensation to an injured worker who already has permanent disability and later got affected by a subsequent injury or illness which is related to his/her work. In order to be qualified, the combined permanent disability has to be at least 70 percent and the additional eligibility requirements must be met.

It is to be mentioned that the employers don’t have to assume the liabilities under Workers Compensation for the combined disability of an injured employee. The employer remains liable for only that portion of the compensation which an employee is eligible to receive for the injury that s/he suffered later. 

Calculating the Workers Compensation Premium

Classification

Calculation of the Workers Compensation premium is done on the basis of how an organization classifies its employees where their specific duties as well as the assigned rate with each corresponding employee classification are taken under consideration. In most cases, the Workers Compensation Insurance Rating Bureau (WCIRB) carries out the task of developing and assigning the classifications.

When it comes to rating a particular workers compensation policy, it is the WCIRB developed codes that are used by the Workers Compensation insurance providers to carry out the task. However in some cases the insurance providers may come up with their very own system to classify and send it over to the CDI for approval. But this does not happen that often considering the fact that submitting a separate workers compensation classification system requires maintaining strict standards.

Employers can get detail information about different issues regarding the workers compensation insurance including the classification and modification of experience as well as the rating from a policyholder ombudsman who is assigned by the WCIRB.

Open Rating

For each and every occupational classification code, a specific rate is assigned by the Workers Compensation insurance providers and these rates are required to be filed with the CDI. At present, there is an “open” rating system available for the Californian Workers Compensation insurers who operate under that system.

According to the open rating system, a company determines the rates to sufficiently cover the losses as well as costs in different classifications (the occupational business class) based on their capability. Open rating makes it as a requirement for all Workers Compensation insurance providers to file their rates along with all the applicable supplementary rate information to the CDI. There are various factors that are taken under consideration for approving the rate. Among them, rate adequacy is considered as a vital one. Adequate rates are also important for the insurers to obtain right surplus funds that an insurance company needs to have to fulfill the potential and continuing claim obligations.

Reasons Why the Rates May Not Get the Approval

The rates will not get approval from the Commissioner if they are found to be unfairly discriminatory, not sufficient to cover the costs and losses of the insurance company or poses the threat if establishing a monopolistic situation in the market. According to the law, the Commissioner does not have the power to disapprove rates that may be termed excessive only.

Modification of the Premium 

The first part of the rating formula is the classification code along with its corresponding rate. The rate is shown in terms of dollars and cents which is multiplied by each $100 of payroll for each classification. At first, estimation is done in order to identify the payroll for each of the classes and then multiplied (per each $100 of payroll) by the rates that are applicable. The sum derived from the equation is called the “base premium” and that premium goes through continuous modification where the rating plans (generally the judgment or schedule rating) is used and through the experience modification.

Calculating the Experience Modification

It is a requirement for an insurance provider to submit loss information to the WCIRB at a yearly basis from which the experience modification is calculated. WCIRB implies a mathematical formula (approved by CDI) to measure the experience modification for an employer.

For the calculation, the formula takes the following factors under consideration:

  • Claim loss reserves
  • Payroll amount for a certain experience period (which is generally the past three full years of workers compensation coverage)  and,
  • Reported paid loss

Experience modification helps to develop an overall picture of the average loss that the employers incur in the similar industry and is used as a tool to compare between different employers. The final rate is multiplied per $100 of payroll and premium (estimated) is developed when the experience modification along with any other modifications (like judgment or schedule) are applied to the class rate.

Prospective Rating

The formula that we discussed above is a type of basic Workers Compensation rating formula which is termed as “Prospective Rating”. Although various types of rating plans including dividend plans or retrospective rating can be used to measure the Workers Compensation premiums, it is the prospective rating that is used more often these days to serve the purpose. Firms looking to get detail information about the different types of rating methods are advised to contact with licensed broker-agents who can help them out with it. 

Premium Audit

It is simply not possible to calculate the final premium of the Workers Compensation policy for a firm until the policy term is over and the payroll records of the employers are audited. Whether the initial payroll estimate was high or low is determined by the final audits of the payroll records. The employer will owe additional premium in case the payroll exceeds the estimate. On the other hand, the insurance provider will have to provide the employer a return premium if the opposite thing happens, means if the payroll goes down the estimate.

Payroll Reporting Option

Some insurance companies come up with a payroll reporting option for a monthly basis in case of the Workers Compensation insurance because of the possible fluctuations in the payrolls which is not an uncommon thing. Now an employer may not be qualified for this option which may happen due to the payroll size. In such cases it is advised to the employer to work more closely with his/her company underwriter or broker-agent so that any significant payroll fluctuation can be reported during the policy term. The probability of a large premium audit bill or a large return premium can be reduced through corrected payroll estimates, something that can have significant impact on the cash flow of a company.

Rights of a Workers Compensation Insure: Things an Employer Needs to Know

An insurance company holds certain rights over an employer as far as dealing with Workers Compensation Insurance is taken under consideration and it is important for all employers to have clear understanding of those rights. Here we are going to have a brief discussion regarding the rights that a Workers Compensation insurer holds over an employer.

An employer needs to know that his/her Workers Compensation Company holds the right to go for auditing payroll records at anytime they feel it necessary. Although usually it is the final audit for which this right is reserved, but the insurer does hold the right to run an interim audit too. Non-renewal or cancellation of a policy may occur due to the failure to comply with an audit of the insurance company. In addition to the non-renewal or cancellation, an insurance company holds the right to apply all available legal means to collect the outstanding premium in such cases.

An employer needs to keep this in mind that intentionally underreporting a payroll is seen as insurance fraud, a crime that can be prosecuted to the fullest extent of the law. In order to collect necessary information on experience modification and the appropriate classification of categories for an employer, the WCIRB holds the right to conduct an audit of the payroll records. 

Issues regarding the Workers Compensation Claim and the Role of CDI

In most cases, the disputes regarding the insurance claims involving an injured employee and the insurer does not fall under the jurisdiction of the California Department of Insurance or CDI. However, it is to be mentioned that according to the California Insurance Code Section 1 871 4, CDI does hold the authority to conduct investigation of the falsified submissions or denial of Workers Compensation claims in particular instances.

It is the responsibility of the California Department of Industrial Relations, Division of Workers compensation to help the employers and workers when it comes to Workers Compensation claims. Any employer or employee who is in need of information regarding the Workers Compensation claim are advised to contact the Division of Workers Compensation’s Information and Assistance Unit.

The Information and Assistance Unit takes the necessary initiatives to resolve a dispute regarding Workers Compensation claim upon contact. A formal application for adjudication (dispute resolution) can be filed with the Workers Compensation Appeals Board if the Information and Assistance Unit fails to settle things down. Any involved party who is in need of filing the application may take help from the Information and Assistance Unit in case an attorney has not been retained. It is to be mentioned the exclusive jurisdiction over dispute resolution is held by that the Workers Compensation Board.

An employer should contact with his/her broker-agent regarding the general issues involving Workers Compensation claims. In addition to this, if the employer needs any help regarding a specific dispute then in such cases s/he may discuss it with a “claim adjuster” who is assigned by the Workers Compensation insurance company to deal the claim.

Workers Compensation Issues that are dealt by the California Department of Insurance (CDI) 

When it comes to Workers Compensation insurance, California Department of Insurance (CDI) mainly handles the rating and underwriting issues. CDI has to deal with consumers who get in touch with it for assistance regarding various types of Workers Compensation related rating and underwriting concerns.

Now here we are listing down the common consumers issues regarding the Workers Compensation insurance that fall under the jurisdiction of CDI:

-          Audit related disputes

-          Handling of broker-agent

-          Notice regarding cancellation and nonrenewal

-          Disputes regarding the classification and experience modification

-          Dividend plans

-          Failing to submit the loss history reports

-          Insurance fraud

-          Insurer compliance involving the filed rates

-          Errors in rating

You will find all the necessary information about the procedure for appealing regarding the experience modification and classification disputes from the California Code of regulations (CCR) 2509.40-2509.78. If you are in need of assistance to deal with any sort of difficulties regarding underwriting and rating (related to the Workers Compensation) then you can contact with CDI. However, in some cases CDI may not be able to offer the necessary assistance if it does not have the jurisdiction. In that case you can go for an appropriate state agency which is capable of providing you the assistance.

In addition to this, people are advised to inform CDI regarding possible Workers Compensation fraud if they suspect anything. It is to be mentioned that a fraud report can be filed with CDI anonymously. The chances of arresting and prosecuting an offender involved in Workers Compensation fraud can be enhanced if reliable and complete information is provided regarding the issue.

 

Some Common Queries Regarding Workers Compensation

Question: 1 

What does loss reserve means? 

Answer: Loss reserve refers to an estimated amount of fund that an insurer puts aside in order to make payments for a claim. Loss reserves are used by the insurance companies for evaluating the value of each and every claim in terms of money.

Typically it is the responsibility of a claim adjuster to determine the loss reserve. The claim adjuster utilizes his/her judgment and experience from past claims (involving similar type of issues) to set the loss reserve.

Sufficient loss reserve is very important for an insurance company considering the fact that it allows the company to have a clear understanding about how much surplus it requires in order to comply with the present, emerging and future claim obligations. It is mandatory for an Insurance company to submit both claim reporting information and information regarding loss reserve to the Workers Compensation Insurance Rating Bureau (WCIRB) as this information is required to determine the experienced modifications.

An insurance company may find itself at financial risk due to poor loss reserve practices and inappropriate claim reporting. It is important to make sure that the loss reserves are kept precise as much as possible and updated at a regular basis based on the latest available claim information since it is very much important to sustain insurer solvency. While solvency can be affected by under-reserving, over-reserving can cause problems too. The premium of an insured can increase unfairly due to the inflated experience modification which can happen due to the practice of over-reserving claims.

Question: 2 

What is the procedure for an employer to request a Workers Compensation premium and loss history report?

Answer: A policyholder or his/her authorized broker is required to submit a request in writing for Workers Compensation premium and loss history report (also known as loss runs). Under the following circumstances (according to the CIC Section 11663.5), the insurance company needs to comply with the request within 10 business days:

  1. When the policy is cancelled or non-renewed
  2. If the information is requested by the policyholder within 60 days before the renewal date of an existing policy
  3. If a nationally renowned insurance rating service downrates the current rating of the policyholder to a financial rating below secure or good or to a rating which can have harmful impact over the capability of the policyholder to contact its business operations
  4. If the present insurer of the policyholder is conserved by the department…or received the order to cease writing business…

(The accurate statement of CIC Section 11663.5 regarding this can be obtained from other sources)

You can contact with CDI for assistance in case an insurance company is not complying with request (in the written format) for loss runs under the provisions of 11663.5. 

Question: 3 

What does “minimum premium” refers to? 

Answer: Minimum premium is a fund kept by an insurance company to cover the costs that are involved in issuing and servicing policies. The premium generated from the premium calculation can be considerably low for a company with a small payroll. In cases where the calculated premium remains too low for the insurer to even meet the basic costs, it is not going to be wise to offer insurance for the risk considering the fact that the insurer will start losing money before any claim occurs.

The insurance companies calculate the smallest tolerable premium that they are willing to charge for accepting risks by setting up a minimum premium. As a component of their rating plan with CDI, it is mandatory for each and every insurance company to file their minimum premium requirements.

 

Question: 4 

Suppose an employer has cancelled a policy during the policy year, what will happen then? 

Answer: An insurance company will have to return any premium owed on a short rate basis if an employer cancels his/her Workers Compensation policy in the middle of the policy year to obtain insurance with some other company or to close down a business.

The short rate is assessed to the policyholder in such cases as an administrative penalty for failing to complete the contracted term of insurance. If the short rate cancellation amount is lower than the minimum premium, in that case the insurance company may consider charging a minimum premium for the cancelled policy to cover the costs. If any difficulty arises due to a cancellation or premium refund issue, an employer can contact with CDI regarding this for assistance. 

Question: 5 

How do the outstanding claims affect the insolvency of a company? 

Answer: Both the employers and the employees receives necessary protection in times when a Workers Compensation insurance company gets insolvent. The conservation and liquidation of an insurance company is administered by the Insurance Commissioner under appointment of the courts.

Conservation as well as the liquidation is dealt by the Conservation and Liquidation Office (CLO) of CDI. The California Insurance Guarantee Association (CIGA) and CLO work very closely to make sure that the payments of the claims are done within a reasonable period of time without unnecessary delay considering the fact that the payments of the claims for Workers Compensation can be very crucial. This eases the burden from both the employers and employees in times when the insurance company faces insolvency.

CIGA operates as a safety net which guarantees that the payments of the claims will be made regardless of whether the liquidated assets of the insurance company are sufficient to cover the claims. Those who are interested to get more information or needs any assistance regarding conservations and liquidation are advised to contact with CDI or/and CIGA.

Question: 6 

What does the dividend plan refer to? 

Answer: The dividend plan is a kind of rating plan which gives the employers the opportunity to share in the profits of their Workers Compensation carrier which comes in the form of a dividend. In such cases the dividend plans are often referred as participating policies of insurance considering the fact that the employer gets a share from the profit of the insurer.

You will find different types of dividend plans that comes with different sort of requirements as well as provisions. An employer can contact with his/her broker agent to get detail information regarding other options to prospective rating if s/he is interested about pursuing such options.

You can take a look at the information in the “Prospective rating” paragraph under the section “Calculating the Workers Compensation Premium” for relevant information. It is to be mentioned that it is mandatory to submit all the dividend plans along with all other information regarding the rating plan to CDI to get the approval.

Question: 7 

Is this possible for an insurance company or broker-agent to guarantee the amount of an upcoming Workers Compensation dividend? 

Answer: It is clearly stated in the California Code of Regulations (CCR) that neither the insurance company nor the brokers-agents can guarantee or any way pledge the payment amount of future Workers Compensation dividends. You can check out the Title 10, Chapter 5, Subchapter 3, Article 9, Section 2505 for information regarding this issue. It is to be mentioned that the policyholder dividend statement can’t imply (directly or indirectly) the amount of future dividend payments although a company representative or broker-agent may offer past dividend payment amounts as a part of illustration.

It is important for an employer to keep in mind that if s/he encounters with a company representative or broker-agent who is misrepresenting their dividend plan (particularly through promising the future dividend results directly or indirectly) then s/he should inform CDI about this as soon as possible. 

Question: 8 

Suppose a dispute on a Workers Compensation classification code has taken place, what can be done by the employer now?  

Answer: A broker-agent or company underwriter should be contacted in order to hold a discussion and/or for an explanation regarding a particular classification code if an employer raises questions regarding the assignment of the code. It is mandatory for the company to inform the employer or the broker-agent regarding any change of the classification code if the underwriter makes such changes which leads to an increased premium (unless the reclassification takes place under the authority of the Insurance Commissionaire or due to a regulation of CDI). The employer do have the right to file a written complain with CDI if a dispute arises regarding an existing or reclassified code.

In addition to this, an employer can file a written dispute with WCIRB if s/he wants to dispute a classification decision which was made by the WCIRB. A written complain can be filed with CDI in such cases if the request gets rejected or not acted upon within a 30 day period. You can check the section “Issues regarding the Workers Compensation Claim and the Role of CDI” for more information about the appeals process for classification and experience modification issues.

Glossary

Agent: Agent is a licensed individual or organization that is authorized to sell as well as service insurance policies for an insurance company.

Agreed Medical Examiner (AME): Agreed Medical Examiner is a physician who is responsible for assessing any disputed medical-legal issues. This physician is maybe selected jointly by the parties in cases where an attorney represents the injured employee.

Binder: Binder refers to the short term agreement that provides a temporary insurance coverage until the policy can be delivered or issued.

Broker: A person or an organization which is responsible for selling and servicing the insurance policies on behalf of you is termed as broker.

Broker-agent: Broker-agent is an individual who has the license to operate as an agent to represent one or multiple insurers. S/he also works as a broker who deals with one or more insurers on behalf of you, representing you interests.

Cancellation: Termination of an in-force insurance contract before it reaches the normal expiration date is termed as “cancellation”.

Claim: Claim refers to the notice that an insurance company receives regarding a loss that has taken place which may fulfill the requirements to get covered according to the terms and conditions of the policy.

Claim Adjuster: Claim adjuster is an individual who assess the damage caused by a covered loss and calculates the amount that is required to be paid under the terms of the policy.

Commercial Lines: Commercial lines represent the insurance coverages provided for the business organizations, commercial institutions and professional organizations (as contrasted with the personal insurance).

Commission: The part of a policy premium that an agent receives from the insurance company as the compensation for his/her service is called commission.

Conditions: Conditions refer to the part of an insurance contract that describes the rights as well as duties of both the insured and insurer.

Consequential Bodily Injury: Under some special situations, a work related wound can lead towards another injury that is not related to work in case of Workers Compensation- in such conditions, this term is used. (you may check out some other terms like: Loss of Consortium, Dual Capacity and Third Party for more relevant information).

Coverage: The protection that is offered under the insurance policy is termed as “coverage”.

Declarations (DEC) Page: Declarations page is normally the first page of an insurance policy that includes the complete legal name of the insurance company, the policy number, the payable premium, effective as well as expiration dates, the amount and types of coverage and deductibles.

Deductible: Deductible refers to the amount of loss that is required to be paid by an insured before the benefits under the insurance policy becomes payable.

Dual capacity: as far as Workers Compensation is taken under consideration, an employer can be accountable to a worker/employee in two ways if the employee gets physically injured while s/he is on duty by using a product or service produced by the employer. In that case first of all, the employee is eligible to receive the benefits of the Workers Compensation and secondly, s/he may sue the employer for his/her defective product or service which led to that injury.

Earned Premium: A certain part of the policy premium that is paid by the insured which has been allocated to the loss experience, expenses and profit year to date of the insurance company is called “earned premium”.

Endorsement: Endorsement is a written agreement that modifies an insurance policy through including or deducting coverage.

Effective Date: Effective date is the date when an insurance policy starts or becomes effective.

Exclusion: Exclusion is a contractual provision under an insurance policy which restricts the coverage for certain individuals, locations, perils (risks) or property.

Experience Modification: Alteration of the premium from the use of experience refers to “Experience Modification”. The past loss experience of the insured (where generally the last three years are taken under consideration) is reflected through the experience rating plans which apply the experience in order to modify and determine the premium for the current policy year.

Expiration Date: Expiration Date is the date mentioned in an insurance policy when the coverage gets terminated.

First Party: First party is the insured or policyholder in an insurance contract.

Flat Cancellation: Flat cancellation is the cancellation which occurs on the policy effective date. In such cases, other charges (like the service charge) may apply although no premium charge will be applicable.

Fraud: A deceptive act done by an individual(s) deliberately in order to gain illegal or unfair advantage (which usually involves monetary gains) is termed as “fraud”.

Frequency: Frequency refers to the number of times a loss takes place.

Hazard: An event that enhances the likelihood or potential severity of a loss is termed as “hazard”.

Indemnity: Usually the term “indemnity” refers to the compensation for a loss. As far as a property and casualty contract is taken under consideration, the goal is to secure the same sort of financial condition for the insured after the occurrence of a loss that s/he enjoyed before the loss took place.

Independent Adjuster: Independent adjuster can be an individual or an organization that operates on the basis of contracts offering claim adjustment services to different insurers.

Insurance: The method or process through which an individual, business or organization can shift their risk(s) to an insurance company for which that individual, business or organization needs to pay a certain premium to the company. Under this system, the insurance company pledges its commitment to be responsible to cover the losses.

Insured: The policyholder(s) who are eligible to receive the coverage from an insurance company under the insurance policy is known as the insured.

Insurer: A company that offers insurance and agrees to cover losses and offers covered benefits is known as an insurer.

Judgment Rating: Judgment rating refers to the modification of the rating (either by decreasing or increasing) which is done on the basis of the experience, best judgment and analysis of an underwriter in classifying as well as underwriting a particular kind of risk.

Lapse: Lapse refers to the cancellation or termination of a policy in case of property and casualty insurance because of the failure to pay the premium within the due time.

Liability Insurance: Liability insurance provides the necessary coverage for the legal liability of a policyholder which occurs due to the injuries of other people or damages to their property.

License: A certificate that CDI issues to an agent, broker, broker-agent or insurer in order to give them the legitimacy to conduct insurance business is known as “license”.

Limits of Insurance: Limits of insurance refers to the highest amount of benefits that an insurance company agrees to pay for a loss or damage.

Loss of Consortium: Loss of Consortium refers to that situation where in case of a bodily injury claim (which includes the Workers Compensation claims too) a spouse argues that the physical injury suffered by his/her partner deprives them from natural affection or spousal duty, assistance as well as the companionship of the said spouse.

Managerial General Agent (MGA): Managerial General Agent is an individual who gets appointed by an insurance company with the authorization to manage all or partial business activities of the insurer. The responsibilities of a Managerial General Agent may include: appointing and supervising other agents, dealing with the marketing, policy insurance, premium collecting as well as underwriting, dealing with reinsurance related negotiation, payments for claims and so on.

Material Misrepresentation: Material Misrepresentation refers to the factual falsification which has been conducted in such a way that if the truth was revealed to the insurance company during the time of the issuance of a policy, the company would refuse to insure the risk. An insurance company can cancel a contract if it finds any material misrepresentation in case of a policy.

Misquote: Misquote refers to the estimate of an insurance premium which is not correct.

Nonpayment of Premium: If a policyholder fails to make payment for the premium on a policy or pay the installment premium payment that is due on a policy, then it will be called as nonpayment of premium.

Nonrenewal: Nonrenewal refers to the termination of an insurance policy on its usual expiration date.

Occupational Accident: If an employee or worker suffers a work-related accident and gets injured because of this, then that accident will be termed as occupational accident.

Occupational Disease: Occupational disease refers to the illness suffered by an employee or worker due to job-related exposures or conditions.

Occupational Hazard: A certain condition of an occupation and the surrounding work environment which enhances the peril of illness, accident or death is called occupational hazard.

Occurrence: The liability insurance policy which covers the claims that arises out of occurrences that takes place during the policy period (regardless of the time when the claim was filed) is known as occurrence.

Permanent Disability Rating Schedule: Permanent Disability Rating Schedule is a schedule that is used to find out an injured worker’s percentage of permanent disability and modify it.

Personal Line: As contrasted with the commercial lines, the personal line is the insurance that is written on an individual’s (or on more than one individual’s) private and real property in order to include such policies as personal auto insurance and homeowners insurance.

Policy: Policy is the contract that includes the rights as well as the duties of both the insurance company and the insured.

Premium: Premium is a type of monetary payment that is made by an insured to the insurance company in return of a contract that indemnifies the insured against potential loss or damage. The insured makes this payment in order to keep the insurance policy in effect.

Producer: Individuals like agents, brokers, broker-agents and solicitors are referred as producer in the insurance industry.

Pro Rata Cancellation: If an insurance company returns the unearned premium to the policyholder after the policy being cancelled, then it will be termed as Pro Rata Cancellation. The returned premium is that part of the premium for rest of the time period that the policy will not be in effect.

Provisions: Provisions refers to the statement of policy conditions included in the insurance policy.

Qualified Medical Evaluator (QME): A Qualified Medical Evaluator or in short QME is appointed and regulated by the DWC Medical Unit. A QME is responsible for assessing the permanent impairment and limitations of an injured employee and conducts evaluation of a wide range of issues involving medical disputes. In many cases you will find the QME in action for conducting a separate medical evaluation where the opinion of the treating physician is disputed.

Quotation: Quotation is the estimated cost of insurance which is calculated based on the information that is supplied to the agent, broker, broker-agent or the insurance company.

Recision (or Recession): Recision is the termination of an insurance policy back to the date when it came in effect. In such cases, all premium that was charged has to be retuned.

Regulations: The CDI established requirements CDI which implements the laws that the legislature has passed falls under the term “regulations”. It is to be mentioned that the regulations needs to go through a public comment process and also needs to get the approval from the state Office of Administrative Law.

Reinstatement: The restoration of a canceled or lapsed policy is known as reinstatement.

Renewal: If a policyholder continues to go on with an exiting insurance policy (offer of renewal) into a new term with the same insurance company that offered that policy, then it will be referred as renewal.

Scheduled Rating: Schedule rating is the process through which the price for property and liability insurance is determined. Under this system, debits and credits are used in order to modify a base rate which is determined by special characteristics of the risk exposure. Considering the fact that actuarial experience shows a direct connection between specific physical characteristics and possibility of loss, the insurers develop the Schedule Rating. In most cases, the schedule rating plans are required to be filed with CDI in order to get the approval.

Second Party: The insurance company involved in the contract is known as the second party.

Self-Insured Retention (SIR): Self-Insured Retention refers to that portion of a liability or property loss that a policyholder retains.

Severity: The size of the loss is called severity. Loss severity is taken under consideration when it comes to determining the rates of the premiums.

Short rate Cancellation: In cases where the cancellation of a policy gets initiated by policyholder request, the premium that is returned becomes a subject for administrative penalty which is applied on the policyholder.

Subrogation: Subrogation is the process through which the amount of losses that are paid to a policyholder (by the party that is legally accountable for making the payment) is recovered. When the legally liable third party is persuaded by a company, in the recovery process it has to take the deductible of the policyholder into account.

Third Party: Third Party is an individual other than the policyholder and the insurance company who got negatively affected (suffered a damage or loss) and maybe eligible to obtain compensation according to the policy based on the acts of negligence or omissions of the policyholder.

Third Party Over: Third Party Over refers to the doctrine which allows an injured worker/employee to bring suit against a third party for some reason where the third party can bring an action against the employer.

Underwrite: Underwrite is the procedure through which an insurance application along with the independent sources are evaluated in an attempt to verify the provided information and also to assess the acceptability of the risk.

Underwriter: The person who is responsible for dealing with the process of underwriting in order to accept, reject or modify the risks on behalf of the insurer is known as the underwriter.

Unearned Premium: Unearned premium is that part of the written premium which is applicable to the unused or unexpired portion of the policy period for which the premium was paid. Say for example, in case of an annual policy, at the end of the policy’s first month, as much as 11/12 of the premium is unearned.

Waiver: Waiver is the relinquishment of a right which is known, something which may be implied or expressed.

Written Premium: The total premium that an insurer writes for a certain period of time for all policies-without considering which part of it has been earned- is called written premium.

ISO Releases National Building Code Assessment Report

(Jersey City, N.J. Insurance News 360) – On March 19, ISO released the National Building Code Assessment Report, ( https://www.verisk.com/insurance/campaigns/get-the-latest-information-on-building-code-enforcement-nationwide/)  which examines code enforcement efforts by more than 25,000 building departments across the U.S. It offers key insights into how building codes can help prevent losses from disasters.

“We have seen heightened incidents of natural disasters during the past few years that have put the nation’s building codes to the test,” said Robert Andrews, vice president and chief field operations officer, ISO Community Hazard Mitigation. “Hurricanes, flood, and wildfire have caused billions of dollars in losses across multiple states. Our new report provides valuable insights about building codes throughout the country and how well they are enforced, which is vital information for communities, municipalities, and insurers.”

The report was developed by the ISO Building Code Effectiveness Grading Schedule team. The report also features analyses of natural hazards and catastrophes in each state and diverse perspectives on catastrophe mitigation from the federal government, nonprofit organizations, and academia.

Source: Verisk.

Workers Compensation Insurance

Worker’s compensation insurance is mandatory coverage for business owners in most states in the United States. Apart from being a requirement of the law, it is an essential risk management plan that can help you achieve business sustainability, as it covers your business against claims for:

-          Lost wages

-          Medical treatment

-          Death benefit claims

-          Disability

-          Accidents at work

How Does Workers Compensation Insurance Work?

Regardless of how you make your business environment safe for your employee, you can’t completely rule out events of work-related injuries, illnesses, or even death. Cases like these are what Workers Comp helps to mitigate by providing coverage to any affected worker in the following ways:

Disability

Workers compensation insurance replaces a specified portion of an employee’s loss of income while recovering from a work-related injury or illness. Disability definitions under this policy are four types, namely:

-          Temporary partial disability: A short-term disability that partly makes a worker unfit to work

-          Temporary total disability: A short-term disability that completely prevents a worker from working during a short period.

-          Permanent partial disability: A permanent injury or impairment that partially limits an employee’s performance and earning power

-          Permanent total disability: A permanent impairment that completely prevents the affected workers from ever doing the same job……….

Worker compensation for disability is sold with a specified waiting period – meaning a disability must last beyond the period before an employee could be eligible for claims. The benefit payment is typically based on the specified percentage of the current income, usually 66% in many states.

Medical Expenses

Workers compensation pays for an employee’s cost of treating a work-related injury or illness. The policy covers bills for hospital visits, surgery, and necessary aids for recovery, such as crutches, wheelchair, or braces. Depending on the state, the covered expenses may also include therapies, chiropractic or biofeedback.

Rehabilitation

In some states, workers compensation covers the cost of rehabilitative therapies needed to help an employee recover from a work-related injury. The coverage could also include psychological rehabilitation for those who suffer mental injury.

Death

The policy pays death benefits to relatives of an employee if the worker dies on the job or from an illness or injury sustained at work. The death benefit is to provide the dependent children or spouse of the deceased worker with a financial safety net to help cushion the effects of their loss. It may also cover burial cost.

Employer’s Liability Insurance

Employer’s Liability Insurance

Employer’s liability is a significant component of worker’s compensation designed to protect you against damages claims from your employees. Workers comp is generally responsible for a work-related injury or illness claims. However, if employees feel the injury or illness was caused by an employer’s negligence, they may file a lawsuit for additional damages specifically against the employer. Lawsuit cost such as court costs, lawyer’s fee, and settlements are what employer’s liability arm of workers compensation will help you cover.

What Determines Workers Compensation Insurance Cost?

Number of Employees: Almost all states require a business to buy workers compensation insurance immediately after hiring the first worker for your business. The number of employees will be considered by your insurer for the policy’s price.

Payroll Size: Your payroll unavoidably increases as you hire more hands. This will mean a periodic review and increase of your worker compensation insurance needs and budget.

Your Industry: Some businesses are considered as high-risk industries due to the rate and severity of work-related injuries and illnesses they are known for. If your company operates in such, expect to pay a higher premium for your policy.

The 55+ Housing Market still strong in second quarter

(Washington, DC – Insurance News 360) – According to release by National Association of Home Builders’ (NAHB) 55+ Housing Market Index (HMI) the single-family housing market edged down from 72 to 71 in the second quarter keeping the builder’s confidence solid.

Single-family and multifamily condominiums are the two segments measured by HMI 55+ housing market. The survey measures builder’ sentiment inquiring if recent sales, potential traffic of buyers and expected sales of 6 months are good, average or poor  for traffic.

“Although the single-family HMI fell slightly, builder sentiment remains strong for this segment of the market,” said Karen Schroeder, chair of NAHB’s 55+ Housing Industry Council and vice president of Mayberry Homes in East Lansing, Mich. “The reading of 71 is just one point off from the all-time high of 72 from the previous quarter. We expect the 55+ housing market to continue on a positive path moving forward.”

For 55+ single-family HMI’s three index components, current sales remained unchanged at 76, one point raise in anticipated sales for the next six months at 78 and potential buyers traffic dropped five points to 56.

There’s an increase of two points to 59   in HMI of the multifamily condo. There’s raise in two out of three index components as compared to last quarter. Current sales increased three points to 61 and forecasted sales for the next 6 months rose to three points at 65. However, traffic of prospective buyers dropped two points and fell at 50.

There is an increase from the first quarter  in all four components of the 55+ multifamily rental market: Current production and future anticipated production both rose six points at 64, while current demand increased  12 points to 73 and future expected demand increased 10 points to 73

“Demand for 55+ housing remains solid, as demonstrated in the surge for 55+ rental demand,” said NAHB Chief Economist Robert Dietz. “Builder sentiment for the for-sale 55+ housing market also remains in positive territory, supported by low inventory of existing homes. However, it is being constrained by development costs and their impact on affordability.”

Source: National Association of Home Builders.

Available Insurance Policies Explained

What is General Liability Insurance?

A type of insurance coverage that provides protection to the insured in case he/she is sued for claims that arise within the coverage of the policy. This type of insurance policy is common for businesses and companies, as it provides protection when negligent acts resulted in bodily injury or property damage on the business premises, or when someone is injured as a result of using the distributed or manufactured product of the company.

 What is Property Insurance?

It provides protection to any types of property against the risk that most likely arise, including fire, theft, vandalism, etc. This kind of insurance coverage has various specialized forms such as home insurance, flood insurance, fire insurance, boiler insurance or earthquake insurance. The property is also insure in two main ways — the named perils and open perils.

  • Named perils – this type of policy that provides insurance coverage for damage-causing events that are only specified in the policy documents.
  • Open perils – this type of policy covers all forms of losses and damages caused to the insured property.

What is Business owner’s policy (BOP)?

BOP is an insurance policy that combines protection against major property and liability risks in one package. It is commonly comprised of property insurance, liability insurance, auto insurance, crime insurance and business interruption insurance. Business owner and the insurance company can make arrangement on what to include in the insurance policies, depending on the company’s needs.

What is Commercial Auto Insurance:

An insurance premium purchased to protect a company’s vehicles such as cars, motorcycles, trucks and other road vehicles. Its primary use is to provide protection against physical damages and bodily injury resulting from accident specially traffic collision, as well as against liability that could arise after.

What is Worker’s Compensation Insurance?

Worker’s compensation is a type of insurance that provides medical benefits and wage replacement to employees who suffered from injuries or accident during the course of his/her job. This type of benefits is claimed by employees as a matter of rights and the employer cannot resort to any legal actions made by affected employee. Thus, the benefit is given to the employees in exchange for waiving their legal rights to sue their employers for the incident.

What is Professional Liability Insurance?

Also known as Errors and Omissions Insurance, Professional Liability Insurance is a type of insurance policy that gives protection to professionals such as lawyers, accountant, property agents, etc. against negligence or other claims imposed by their customers. Each professional who have expertise in a specified field are required to obtain this type of insurance coverage because general liability insurance policies do not offer insurance coverage against claims arising out of professional or business practices like misrepresentation, negligence or malpractice.

What is Directors and Officers Insurance?

Directors and Officers Insurance is risk-reduction insurance coverage for directors and other senior officials of an organization. This type of insurance policy protects senior executives of the company against their direct actions that could affect the financial status and operation of the company. Insurance claims under this policy includes reimburses, either in partial or in full, the costs resulting from lawsuits faced by senior executives arising out of their poor management decision, shareholder grievances, employee dismissals and among others.

What is Data Breach Insurance

A data breach is a security incident wherein sensitive, confidential and protected data stored in a computer system has been hacked, stolen, used or viewed by unauthorized person. Data breaches may involve personally identifiable information (PII), personal health information (PHI), intellectual property or company’s confidential information.

To protect the company against such risk, data breach policy is offered and covers variety of losses including the cost of restoring or recovering lost data; responding to a data breach like payment of credit monitoring and cost of notifying customers; lawsuits filed by those customers whose data was disclosed; interruption of business operations caused by data breach; and defending regulatory measures like regulatory fines.

What is Homeowner’s Insurance?

Homeowner’s insurance is the most common type of insurance policy and offers broad protection packages that typically covers the policyholders, his/her spouse and children living in the same household. Its primary coverage includes protection against damages to the home as well as the items inside the home caused by fire, personal liability exposure and other similar perils. Although common homeowner’s insurance does not cover some events such as floods, earthquakes or other ‘act of God’, policy holder can acquire additional supplementary policies that cover such eventualities.

What is Renter’s Insurance?

Renter’s insurance is similar to homeowner’s insurance but the insurance coverage only applies to the tenant of the home. It provides insurance coverage for the policy holder’s belongings and liability against theft, fire, vandalism or other means of damage to the tenant’s personal property within the rented property. This kind of insurance coverage applies to any individual renting or subletting a single-family home, duplex, condo, apartment, townhouse or loft.

What is Life Insurance?

Life insurance is intended to protect a family against the financial hardship that accompany the premature death of the policy holder. This kind of insurance has two options:

  • Term Insurance – provides insurance coverage at a fixed rate of payment and limited period of time. This means that if the period expires, the coverage of the premiums you have paid is no longer valid. This option is a pure death benefit and its primary purpose is to provide financial benefits and assistance upon the death of the policy holder.

Permanent Insurance – provides insurance coverage to the policy holder as long as he/she pays for the premium. It can never be cancelled and it is designed to pay out a benefit in all cases, thus this type of premium is much expensive compared to term insurance.

Pending Home Sales Dip 1.0 Percent in February

(Washington, WA – Insurance News 360) – On March 28, the National Association of Realtors announced that pending home sales dropped by one percent during the month of February.

The forward-looking Pending Home Sales Index dropped from 102.9 in January to 101.9 in February, marking the 14th straight month of annual decreases, as year-over-year contract signings dropped 4.9 percent.

“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” said Lawrence Yun, NAR Chief Economist. “As a whole, these numbers indicate that a cyclical low in sales is in the past but activity is not matching the frenzied pace of last spring.”

Although there has been growth in the West region, current sales are well below where they were in 2018. He attributes this to a lack of inventory and prices that have risen too quickly.

Denver-Aurora-Lakewood, Colo., Seattle-Tacoma-Bellevue, Wash., San Diego-Carlsbad, Calif., Portland-Vancouver-Hillsboro, Ore.-Wash., and Nashville-Davidson-Murfreesboro-Franklin, Tenn., saw the largest increase in active listings in February compared to a year ago.

“If there is a change at all [in interest rates], I would say the Fed will lower interest rates in 2019 or 2020. That would stimulate the economy and the housing market,” he said. “But the expectation is no change at all in the current monetary policy, which will help mortgage rates stay at attractive levels.”

Yun expects existing home sales to decline to 5.3 million, while the national median existing home price is expected to increase by 2.7 percent.

In the Northeast the Pending Home Sales Index declined 0.8 percent to 92.1, and is now 2.6 percent lower than it was in 2018. In the Midwest the PHSI dropped 7.2 percent and is 6.1 percent lower than February 2018.

Unlike the regions already mentioned pending homes sales in the South and in the West experienced increases. In the southern region, the index crept up 1.7 percent to 121.8, although this is still 2.9 percent lower than February 2018. In the west, the index increased by .5 percent, but is 9.6 percent below February 2018.

Source: National Association of Realtors®