7 terms to familiarize yourself with when purchasing Workers Compensation Insurance
Insurance is like many industries, there is a lot of industry jargon. This jargon is hard to understand, even for people who are experienced business owners or even some people who work in the insurance industry. Here are 10 terms that a business owner should familiarize themselves with before renewing any commercial insurance policy. Especially before purchasing or renewing your workers compensation insurance coverage. Here is a list of 10 terms you might will more than likely hear as you talk with your workers compensation insurance agent.
Average Weekly Wage (AWW)
The Average Weekly Wage is a term that is used to determine an employee’s rate of temporary, total, partial disability or permanent total disability. It is usually determined by dividing the employee’s total wages for the previous year by 52. This will be important to have an accurate number and not an estimate. The policy will be audited at the end of the term and the more accurate your numbers are on the front end, the less likely you are to have to pay additional premium at the end of the term.
Date of Injury (DOI)
If the injured employee was hurt as the result of one individual event, the date of injury is the specific date the injury occurred. If the injury was caused by repeated exposures, what most would consider a cumulative injury, this is the date that the worker knew of should have known that the injury was caused by work.
First Report of Injury (FROI)
Following an on-the-job injury, employers are usually required to file a first report of injury form. This form should be filed with the proper state administrative agency who oversees workers compensation insurance.
Return to Work (RTW)
Return to work is a part of a businesses safety program that incorporates the injured worker in the business activities even before they are able to return to full time permanent work. This is important because humans are creatures of habit and the longer they stay off the job, the more likely they are to never return to full time employment. When this occurs claims can get out of control and negatively impact your loss ratio. A businesses loss ratio is one of the main factors carriers use to determine how much to charge a business for workers compensation premium.
The relationship of incurred losses compared to the earned premiums expressed as a percentage. If, for example, a firm pays $100,000 of premium for workers compensation insurance in a given year, and its insurer pays and reserves $50,000 in claims, the firm’s loss ratio is 50 percent ($50,000 incurred losses/$100,000 earned premiums).
NCCI stands for the National Council for Compensation Insurance. According to their website the mission of NCCI is, ‘To gather data, analyze industry trends, and provide objective insurance rate and loss cost recommendations’. NCCI is currently used by 35 out of 50 states to determine workers compensation premium rates.
Pay as You Go
Pay as You Go Workers Compensation Insurance is designed to allow business owner’s to get coverage in place for less up front costs and pay premium each month based on payroll. With a traditional Workers Comp policy typically twenty five percent of the premium is due all at once. This is the minimum a business can pay to get coverage in place. The rest of the premium is usually paid in nine monthly payments. With the pay as you go option businesses can get coverage in place for as little as a few hundred dollars. Additionally, business owner’s benefit from Pay Go Workers’ Compensation Coverage because it prevents audits from happening more frequently. An end of term audit still happens, but Pay Go prevents audits from happening more frequently and makes the difference owed much smaller. With the monthly payment format there is less risk of over or underpaying the premium.