Total Team Solutions Blog

Two types of Worker's Compensation Coverage

By: Rob Lynn

Worker’s compensation requirements are different in every state.  For employers it is critical that they maintain compensation coverage that fulfills that state obligations so that those costs incurred from an employee injury  or on the job illness is adequately covered.    The two most common type of worker’s compensation is Voluntary and Assigned Risk

The International Risk Management Institute (IRMI) defines  the voluntary market as “a group of insurers that elect to write insurance in a competitive environment retaining the right to accept and reject business submitted.”   The Voluntary market is the preferred form of workers’ compensation as it is typically less expensive as the risk taken by the worker’s compensation insurance company is less.

Employers that are able to secure worker’s compensation in the voluntary market typically fall within these guidelines:

• They have been in business for at least three years
• They have safe working conditions, and workers aren’t subjected to any major hazards
• They have no previous claims or losses
• They have been insured for at least three years with no gaps in their coverage
• They have a reputation for a low employee turnover rate

The IRMI defines the Assigned Risk Market as “a method of providing insurance required by state insurance codes for those risks that are unacceptable in the normal insurance market.” This is reserved for businesses that are unable to get insured in the voluntary market because they are high risk in the eyes voluntary market providers. As a result, this type of workers’ compensation can translate into a considerably higher premium.

Below are some of the key reasons why employers may be limited to the assigned market for worker’s compensation:

• They have been in business for less than three years
• Their employees consistently work in hazardous conditions, and there’s an ever-present threat of injury or illness (e.g. roofing contractors and industrial machinists)
• They have a history of previous claims or losses
• They have not had prior coverage
• They have a reputation for a high employee turnover rate

 

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