Tuesday, September 16, 2014

New York Workers Compensation and Larger Deductibles

Because of the uncertain economy facing many businesses, workers compensation insurance costs is one of the first lines to experience rate increases. This is a concern because premiums for this coverage line are based on state rates, and some states are in a much more perilous condition than others.

The New York Workers' Compensation Law was enacted in 1914 to protect both injured workers and their employers. Under this landmark legislation, workers who suffered injuries or illnesses on the job received timely medical treatment and wage replacement assistance, while employers were protected from being sued by those injured workers. The laws of New York are clear: with few exceptions, anyone having employees is required to provide workers' compensation insurance.

Larger deductibles means savings on premiums

The concept of large-deductible workers comp programs has gained popularity in recent years. According to Gus Aivaliotis, vice president of large casualty for Safety National Casualty Corporation, a key reason for the success of large-deductible programs is that "companies can obtain many of the financial advantages of self-insurance, without the administrative burden that may accompany self-insured programs." Safety National was among the first carriers to introduce the large-deductible concept, and Aivaliotis says, "It has become a very good product for us."

Large deductible policies came into existence after the workers' compensation market crisis in the late 1980s and early 1990s. During that time, "assigned risk pools," or other state instituted insurers of last resort, grew to be major insurers of employers that could not get required coverage from private insurers. These pools had large operating losses. Since then, the usage of large deductibles has increased to the point where, in 2002, the NCCI reported that 31.4% of "manual-equivalent premium" was written using a deductible of $100,000 or greater.

Ways in which to implement larger deductibles vary

As the concept of using a large deductible gained acceptance in workers compensation it became a meaningful way to offset costs. As a result, insurance buyers can maintain many of the financial advantages of self-insurance while transferring much of the administrative burden to their insurance carrier.

Many buyers of large-deductible workers compensation programs have chosen to self-fund the deductible. Recently, however, some employers have begun using a captive insurer to fund the deductible. The decision to use a captive varies widely based on the nature and goals of the buyer and an understanding of the captive structure. A company interested in implementing large deductibles for their workers compensation programs in New York should speak to an agent regarding this matter.