Managing risks is a big part of running a business. Risk protection insurance can pay for and guard against most risks, such as business interruption and loss or damage to equipment or facilities.
But what about your employees who get injured on the job site? Sure, workers’ compensation provides care and financial support to injured workers.
But it might not be enough for high-cost, catastrophic claims. Those can quickly exceed expectations and budgets. This is where an extra layer of protection, known as excess workers’ compensation insurance, becomes essential.
Here, we’ll discuss the benefits of having this additional protection.
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Catastrophic Loss Protection
Some workplace injuries are not only serious, but also catastrophic. Some examples include traumatic brain injury, spinal injury, major burns, or amputation. Such injuries usually leave the injured worker with lifetime physical, emotional, and financial issues.
Consider spinal injuries. Their estimated lifetime costs are typically between $700,000 and $2.5 million. Without protection, the expense of such an event may be too great to absorb.
A single major, single-event claim would drain reserves and put the company in financial distress. Excess insurance would save the day in this case. It provides a fiscal cushion that shields companies from those occasional, extremely expensive claims.
This protection comes into effect when a single claim reaches a predetermined limit.
This excess protection specifically protects your business from the financial shock of a massive accident. That is, it transforms an unexpected, perhaps catastrophic event into a budgeted, contained expense.
Budget Planning Predictability
Operating a business budget is enough of a headache without financial shocks to deal with.
Workers’ compensation costs can fluctuate wildly, making it very challenging to budget. Factors like increasing claim costs, policy adjustments, and fraud also push the costs much higher.
A recent ruling by the Connecticut Supreme Court, for instance, had the potential to alter workers’ compensation expenses significantly. For some employers, the expense would have increased by as much as 265%, and by 41% systemwide in total. Such unpredictability can undermine decades of fiscal soundness.
Excess insurance helps cap your overall financial risk. It sets a definite limit on what you pay out for claims, either in terms of per accident or for the entire year. This means the maximum financial exposure is known, making budget planning much more stable.
Then there’s a guaranteed cost workers’ comp policy. In this type of plan, an employer pays a fixed, predetermined premium to an insurance carrier, typically each year, for their coverage.
According to Prescient National, the insurance company assumes all the financial risk for workers’ compensation claims, covering costs from the very first dollar.
More Control Over Claims Handling
By choosing to self-insure your workers’ compensation policy and add on excess coverage, you are in a wonderful position. That is, you have sole control of how claims are administered.
Unlike traditional insurance methods, where the carrier generally takes the lion’s share of decisions, you can participate directly in every step of the claims process. This means that you can collaborate directly with claims adjusters, taking the process in the direction that suits your specific operational needs and priorities.
You also get to select your own service providers, like medical networks, rehabilitation specialists, and third-party administrators (TPAs).
This hands-on approach has many benefits. It can mean better, customized outcomes for injured workers, so they receive optimal and timely care.
Faster and more effective recovery for employees often translates directly into lower overall claim costs for the business, creating a mutually beneficial situation.
Certain excess insurers also offer specialty support teams. They are professionals who can assist firms in handling tough cases that may fall within their retained layer, optimizing outcomes, and controlling expenses.
Compliance With Legal Requirements
Workers’ comp insurance is not an option in most of America, but the law. Almost all states require employers to carry this coverage. The requirements vary by state, perhaps depending on the number of employees.
Illinois law, for instance, mandates coverage even if you have one part-time employee. Certain high-risk industries, such as construction or trucking, frequently face stricter requirements.
If you choose to self-insure, statutory excess insurance is also required to be purchased in most states. This is so that when you are struck with enormous claims, injured workers still receive their benefits. This is a protection for the employee and the state workers’ compensation system.
Failure to have the required coverage can lead to serious penalties. These include hefty daily fines, substantial minimum fines, and criminal charges. Corporate executives can be held personally responsible for these penalties.
Perhaps most importantly, if a company is not insured, an injured worker may sue the company in civil court, where damage amounts are unrestrained.
In a nutshell, excess workers’ compensation offers vital protection for self-insured businesses. This coverage is not just another expense but a smart, strategic investment in your business’ future. It provides invaluable peace of mind, knowing that your company is prepared for even the most unforeseen circumstances.
