Challenges When Providing Workers’ Compensation Insurance To High-Risk Businesses
High-risk industries are those in which injuries are commonplace. The work can be dangerous. Industries such as construction, forestry, agriculture, transportation, and warehousing fall into this category. Workers’ compensation insurance companies and agents may find it difficult to acquire enough workers’ compensation for businesses in these industries.
High Premiums
Whenever a company or industry has a high rate of workers’ compensation claims, the premiums increase, sometimes significantly. Therefore, high risk workers comp insurance may create a financial burden for the company, increasing its operating costs. These industries may also need special coverage that increases their premiums further.
Risk Control Requirements
To receive adequate workers’ compensation insurance, high-risk industries often need several risk control plans. For example, you may require these companies to have a risk assessment plan, a way to assess any physical demands these companies place on their staff members, a safety plan, and a comprehensive safety training program. You may also require that these plans receive regular updates. In addition, these companies likely have to conduct these assessments regularly.
In addition, you may have different requirements than the companies you secure insurance through, which can complicate your ability to provide insurance to these companies.
Limited Pools Of Insured Companies
For every additional person insured, the risk to your company decreases. However, when you work with industries that have high risks, you often work with a smaller pool. Statistics reveal that as you increase the number of companies you work with, the cost of their insurance also goes down. However, these industries have much higher rates of incidents, disrupting the natural distribution curve.
In addition, because they have such a high risk, your company may only want to insure a limited number of businesses in these industries. You still need to balance your operational efficiency and mitigate your losses.
Higher Claims Histories
In high-risk industries, the number of workplace injury claims each company processes is typically significantly higher than in other industries. These workers put themselves in vulnerable positions, such as on high roofs, near dangerous equipment, or in dangerous work environments, such as on roadways. Like most insurance companies, you may feel less inclined to offer insurance to companies with high claims histories.
Experience Modification Factor
The experience modification factor represents this claim history. It compares a business’s claims history to other companies in its industry. Companies with above-average claims receive a score higher than 1.0, while those with below-average claims receive a score of less than 1.0. As an insurer, you likely seek companies with the lowest score possible because this limits your risk. Therefore, companies with higher scores can find it difficult to purchase adequate insurance.
Regulatory Compliance Requirements
High-risk industries often have greater regulation than other organizations. Often, these regulations change and adapt every year. This creates confusion and increases the costs for these businesses. In many cases, these companies can lose their workers’ compensation insurance if they aren’t fully adhering to their industry regulations, creating a gap in their coverage.
As an insurance agent or company that provides workers’ compensation insurance, you understand how prohibitive these factors can be in your insurance assessments and provision to high-risk companies. However, you can work with other insurance providers to give these industries the coverage they need.
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