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Alternative Coverage: Breaking Down Large-Deductible Workers’ Compensation Plans

Alternative Coverage: Breaking Down Large-Deductible Workers’ Compensation PlansNo matter what state a business operates in, workers’ compensation is available to help protect said businesses and its employees. Requirements vary on a state-by-state basis, and in some states coverage is not required at all. For many businesses, especially large corporations, handling workers’ comp cases for out-of-state employees, part-time workers or certain contractors can be a difficult process. Additionally, rising premium costs in some states have led business owners to seek out alternatives to traditional guaranteed cost workers’ comp plans they typically utilize. One of these alternatives is the large deductible workers’ compensation plan.

What is a Large Deductible Workers’ Compensation Plan?

A large deductible workers’ compensation plan provides the same insurance coverage as a tradition guaranteed insurance plan, with the addition of a special deductible endorsement. Essentially, the insurance company will handle all claims for the insured just like they would under a guaranteed plan. After claim payments are made, the insurance company then bills the insured for the amount paid until the deductible is met.

This type of workers’ compensation is not for every business. It is designed for larger companies that have the resources to cover a large portion of their workers’ comp losses. The deductible can range anywhere from $100,000 to $1,000,000 per claim or per occurrence, depending on the plan.

Why Would an Employer Want a Large Deductible Plan?

Since a large deductible workers’ compensation plan leaves an employer financially responsible for a greater portion of the cost of workers’ comp claims, it doesn’t sound like the most ideal choice. However, this type of plan does come with a number of benefits. Advantages of a large deductible plan include:

  • More carriers are willing to take on underwriting a large deductible plan, which increases market availability and can result in significantly reduced premiums.
  • Incentivizes the implementation of loss control and return-to-work programs.
  • Allows employers to be essentially self-insured while still having their claims management process handled by the insurance company.
  • Possible tax savings for employers.
  • Better cash flow advantage compared to guaranteed insurance plan or other alternative risk programs.

Of course there are disadvantages to this type of plan, too. The insurance company will typically need the employer to establish some type of escrow account to ensure they are able to meet the deductible. The large deductible plan requires significantly more financial security than other plans, and employers who go this route need to prove that they will be able to pay. If the employer is unable to meet their financial obligation for some reason, it can result in the policy being cancelled, and further collection methods by the insurer.

Still, when structured correctly, a large deductible workers’ compensation plan’s benefits will outweigh the disadvantages. Agents who understanding the benefits and risks of this alternative coverage have a unique opportunity to add value to their portfolio and differentiate themselves from their competitors.

About ASIA Workers’ Compensation

Associated Specialty Insurance Agency, Inc. has been “The Workers’ Compensation Specialist for Brokers and Agents” for the past two decades and is committed to providing brokers and insurance agents across the East Coast with expertise and services to develop a Workers’ Compensation policy. For more information about how we can assist you with claims management, anti-fraud measures, and more call (610) 543-5510 to speak with one of our professionals.

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