Most employers are required by law to obtain workers’ compensation insurance to protect employees injured on the job. Unfortunately, not all businesses are able to purchase workers’ comp in the regular insurance market. That’s where assigned risk plans come in.
Also known as assigned risk pools or the residual market, assigned risk plans were established by states to cover employers who’ve been declined coverage by standard insurers. These pools act as a market of last resort, ensuring that all employers can get coverage, no matter their risk or loss experience.
If you’ve been rejected for coverage, you may be eligible for an assigned plan. The laws in each state determine how these plans are administered and financed.
Why you may not be covered by regular insurance
There are a few reasons why you may have been declined regular coverage, ranging from a poor loss history to the fact that your insurance company simply doesn’t offer coverage for your type of business. However, most employers are rejected for one of these reasons:
- You’ve had too many workers’ comp claims, causing your insurer to drop your coverage.
- You’re in a hazardous industry. Risky occupations such as roofers, loggers and arborists generally have difficulty finding coverage.
- Your business is just getting started, and you don’t have an experience record.
- Your business is too small, and the premiums you pay aren’t enough to offset the risks you pose.
- You have a high employee turnover rate.
Since injured workers are legally entitled to workers’ comp benefits, states created assigned risk pools as a safety net. However, not all states set up their pools the same way, and you should familiarize yourself with the plan in your state.
Assigned risk plans vary from state to state
States have established administrators to operate assigned risk plans and issue policies. These administrators include the National Council on Compensation Insurance (NCCI), various state competitive insurance funds and state rating organizations.
NCCI is a national nonprofit rating bureau owned by insurance companies that provides services to insurers, insurance agents, regulatory authorities, state governments and other parties. It provides rating services to 36 states, known as NCCI states. NCCI also administers the assigned risk plans in 22 states. If you own a business in one of these 22 states, your assigned risk plan will be governed by NCCI’s requirements.
All workers’ compensation insurers must participate in the assigned risk plan in NCCI states, either by joining a multistate reinsurance pool or as a direct-assignment carrier. In 14 states, the state competitive fund administers the assigned risk plan. In others, the rating organization or an insurer is the administrator.
A few jurisdictions (North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the U.S. Virgin Islands) are considered “monopolistic” because they are required to purchase their workers’ compensation insurance from a government-operated fund; private insurers are prohibited from selling coverage.
If your business operates in multiple places, you need to be aware of these differences. For example, if you do business in one of the monopolistic locations, you must purchase a separate policy from the government bureau to cover your workers there. They cannot be covered under a multistate workers’ compensation plan.
If you are unable to obtain workers’ comp coverage in the standard market, you can apply to your state’s assigned risk administrator. Usually one or more insurers must reject you before you can apply for an assigned risk plan. If it is an NCCI state, you can apply online or ask your insurance professional to help you.
Assigned risk plans are expensive, so try to get standard coverage
Assigned risk coverage may be the only way you can get workers’ comp insurance, but it is more expensive than standard coverage. You may also find that coverage is limited and you are ineligible for premium discounts. So it’s best to try to get standard coverage first. Just because one carrier declines you doesn’t mean all will. Each insurer has its own underwriting standards and risk appetite, and not all carriers are in the same markets.
Look for insurers or brokers that specialize in your industry or that insure new businesses or those with prior losses.
There are some factors that will likely result in your being declined by nearly every standard insurer. One of them is having a high “experience modifier,” a calculation based on your prior claims. Businesses are rated based on their claims history to determine their workers’ comp premiums.
If your loss experience is better than the average for your industry group, your experience modifier rating (ex-mod) will be less than 1. If it’s worse than the average, your ex-mod will be greater than 1. The higher your ex-mod, the higher your premiums will be and the less likely you are to qualify for regular insurance. Some states also assess a surcharge if your ex-mod is greater than 1.
Review your experience rating records
If you have a high ex-mod, you should review your experience rating to make sure it accurately reflects your records.
- Get a copy of your experience rating worksheet to check the claims and payroll amounts that have been used to calculate your ex-mod.
- Make sure you are classifying your workers accurately. Work class codes can make a difference in your premiums. You can request a classification inspection from NCCI or your state’s rating bureau.
- You may also be able to save money by having a workers’ comp audit consultant audit your payroll, review classification codes and look at various ex-mod factors.
Other insurer red flags
In addition to a high ex-mod, here are some other red flags that might cause you to be rejected:
- A major claim in the past two years
- Labor law violations
- Misclassifying W-2 employees as 1099 contractors
- Very low or no payroll
Improve your record and work toward leaving the pool
To sum up, it’s always best if you can obtain insurance in the standard market, where your premiums will be lower and you’ll have more choices for coverage. But in cases where insurance is required and you’ve been declined regular coverage, an assigned risk plan may be your only alternative.
Employers that are currently in an assigned risk pool may be able to qualify for regular insurance by improving their loss record through increased safety procedures and training. Some states have safety programs such as drug-free workplace programs that qualify employers for workers’ comp premium reductions. Talk to your agent for information about your options
Always work to improve your safety record and reduce your claims. Your premiums should start to come down and your coverage options will increase. Talk to Consolidated Insurance + Risk Management about what plans are available and ask for tips to help improve your ratings.