Nevada small business owners and decision-makers have a lot on their plates these days. In addition to simultaneously serving as CEOs, heads of human resources and pretty much every other role in their organizations, these decision-makers must also protect their businesses, which includes carrying various lines of insurance. And because they are already stretched thin with the day-to-day responsibilities of running their businesses and meeting their customers' needs, most turn to their trusted advisors usually their insurance agents to help navigate the complicated mix of business insurance products.
Of all the lines of insurance Nevada businesses need to carry, workers' compensation insurance is often the least understood and frequently thought of in the same terms as other insurance products. As background, workers' compensation insurance is required by law in Nevada and covers employers for their statutory and legal obligations for employee expenses that are a direct result of on-the-job injuries or illness. In Nevada, business owners can obtain workers' compensation protection from private insurance companies, self-insurance or self-insured groups.
When it comes time for a business to select or renew its workers' compensation insurance policy, pricing naturally plays a key role in the consideration set, especially in this economy. Unfortunately, many decision-makers don't fully consider what they're actually getting for their money when they buy strictly on price. Too often they don't completely evaluate other important factors like services and support. For this reason, many businesses decide to join a SIG, an alternative to traditional workers' compensation insurance.
When a company decides to join a workers' compensation SIG rather than shifting its risk to a third-party insurer, the company is joining a shared-risk pool with joint and several liability among members and injured employees will have to pursue their claims against the SIG. If the SIG does not have enough money to cover the members' claims, each member will have to contribute to the shortfall.
Conversely, employers choosing coverage from private, traditionally structured insurance companies are relieved from bearing the costs of accident claims because the benefits must be provided by the private carrier. Private insurers assume the financial responsibility for policyholders' claims and provide them with effective loss control, fraud prevention, and other critical services designed not only to limit risk, but also potentially reduce costs over time.
Based on the latest SIG-related Small Business Opinion Poll commissioned by Employers, the majority of small businesses 73 percent report they have little or no knowledge of how SIGs work. The poll also discovered that 40 percent of small business decision-makers incorrectly believe that SIG members are not financially responsible for the claims of each of the group's other member companies.
The poll also found that the lack of SIG knowledge is not limited to the general small business population as 39 percent of small businesses who are currently or were previously part of a SIG incorrectly believe SIG members are not financially responsible for the workers' compensation claims of each of the other companies in their SIG, not just their own businesses.
Understandably, businesses today are closely evaluating all possible cost-cutting measures to reduce operating expenses. And while close and continuous examination of such costs is smart business, many small businesses are often lured by self-insurance's promise of lower costs, unknowingly exposing their companies to increased risk. Unfortunately, many choose self-insured groups without understanding the collective financial risk and liability they inherit should other group members default or if the group is forced to close.
When it's time for business decision-makers to renew or shop their workers' compensation insurance policies, they should completely evaluate exactly what they are getting for their money. Not only should they work with their insurance agents to receive multiple quotes to obtain competitive rates and value-added services, they should also make sure they are fully informed about how SIGs work if they are considering alternatives to traditional coverage.
For businesses considering alternatives to traditional workers' compensation insurance or current SIG members considering leaving a group, following are key questions they should ask the group administrators.
Nine questions businesses should ask their self-insured group administrator:
1. How well funded is the self-insured group?
2. How many claims have occurred while my company has been a member?
3. What is the expected lifetime cost of each of these claims?
4. What does "joint and several liability" mean to my business?
5. What is my company's exposure if another member of the self-insured group has a claim?
6. Can a claimant sue my company for the full cost of a claim?
7. What liabilities does my company have if I leave the self-insured group?
8. What are the legal requirements of leaving a self-insured group?
9. Will I need to reinsure any costs related to claims that occurred while I was part of the self-insured group?
By taking a closer look at SIGs to gain a full understanding of what they offer in terms of workers' compensation insurance coverage, Nevada business decision-makers can better make informed decisions for the long-term success of their businesses.
Hale Johnston is senior vice president, regional manager of the Western Region for Reno-based Employers.