Is Workers’ Compensation Insurance A Commodity (Is Cheap Work Comp Insurance The Way To Go)?
Some are not going to like my answer to the above questions, but the answer is “Yes” for many. Cheap work comp insurance is a good way to save money for the right business.
A commodity is something that is interchangeable with other goods or services of the same type. It is uniform across all providers. There is very little for one provider of a commodity to distinguish its commodity (product or service) from the competition; except for price.
Your Workers Compensation insurance policy is identical to your competitors’ policies.
There are no coverage options to choose from (except whether or not you want to cover your owners) whether you buy expensive or cheap work comp insurance.
There are no coverage exclusions that can be added back into the program by endorsement whether you buy expensive or cheap work comp insurance.
Neither are there variations to the limits of claims on an individual or aggregate basis whether you buy cheap work comp insurance or a more expensive policy.
There are really no options to choose from within your program. All coverage provisions are regulated by the state.
As a result, all policy contracts are the same.
So, if your Workers Compensation Insurance Policy language is identical to your competitors’ (or everybody else’s for that matter) policies, then nobody has better or worse coverage than another. What is different from one work comp program to another?
The only difference between your policy and your competitor’s is the pricing.
So, yes, Work Comp Insurance is a commodity and making purchase decisions based on price alone (buying a cheap work comp insurance policy) is perfectly reasonable for the right organizations.
What Is “The Right Organization” For Price Shopping Work Comp Insurance Quotes?
The right organization for making Workers’ Compensation purchase decisions based on price alone is one that simply doesn’t have claims. One who is so unlikely to have claims but buys Workers’ Compensation Insurance because they are legally required to do so like, say, a doctor’s office or an accounting firm. A company for which workers’ compensation claims are an extremely rare event and, if one should occur, would involve very minor injuries.
If you are responsible for this purchase decision within your organization and you’re still not sure if you fit the profile, ask yourself “what is an Experience Modification Rate?” If you don’t know the answer or are unsure, you fit the profile of one who should be shopping for the lowest rate.
Having made the decision that work comp is a commodity for you and that you have nothing to lose by shopping for cheap work comp insurance coverage, obtaining work comp insurance quotes from as many (within reason...there are hundreds of work comp insurance companies in any single state) carriers as possible is a logical focus.
What Is “The Wrong Organization” For Price Shopping Work Comp Insurance Quotes?
Nothing stated previously about Workers’ Compensation Insurance being a commodity changes from the standpoint of the policy contract. It’s still the same. But, if you are in an industry where workplace accidents (claims) are expected to happen (at least once in a while), you need to be considering more than price alone.
Construction is a good example of an industry where accidents will happen even for those companies with exemplary safety practices. You can’t help it due to the nature of the work, and, as a result, you should consider a different approach in evaluating a work comp insurance quote.
If you fall into this group, you need to do some due diligence (and/or ask your broker to do this for you) about workers’ compensation insurance carriers who are known to have good claims departments. You want a claims department known for expertly adjusting claims, closing out claims quickly, low turnover of adjusters, and more.
If you fall into this group who should NOT be considering price alone but you do so anyway, there’s a good chance you will find yourself price shopping among increasingly more expensive programs over time; shooting yourself in the foot. This is due to the fact that for any given work comp claim/accident, the final claim value can vary greatly from one insurance company to another based on the expertise of the claims department.
What Else To Consider Alongside My Work Comp Insurance Quote?
There are numerous other issues apart from the medical handling of the claim that your insurance company controls. For example, your insurance company should have some process to review bills from the medical providers to ensure proper billing. A robust Medical Bill Review program can save you from improper, inflated values on your Experience Modification Worksheet. Medical Bill Review is one function among many operating in the background that fall under the purview of Claims Management and impact your experience modification rating.
The more your claims costs rise, the higher your Experience Modification Rate will be. This directly increases your premiums. Also, if you Experience Modification Rate goes too high, the universe of insurance companies who are willing to compete for your business will shrink; leaving you to choose from more expensive carriers who quote business with higher perceived risk.
Workers’ Compensation Insurance As A Commodity
On the surface a worker’s compensation insurance policy appears to display the attributes of a commodity. Policy contracts are the same with no differences in coverages or limits with only differences in pricing. From this perspective it would seem reasonable for a business to simply shop for cheap work comp insurance.
The result being that work comp insurance presents itself as a product that competes on price. This is a very logical approach for some organizations to shop for cheap work comp insurance. And, it is a very tempting mistake for other organizations who would benefit from doing their due diligence and investigating the claims handling performance of competing insurance companies.
These other organizations who do have claims will need to lean on the carrier’s claims department for service. They should consider the quality of a prospective insurance company claims department in addition to price. Eventually, that quality level will impact future pricing opportunities; for better or worse.