If you are an employer or planning on starting a new business that will employ workers, you are required by the state to purchase workers compensation insurance to protect against the possibility of work-related injuries or illnesses. In return, your company is protected against employee lawsuits.
Employers living in California may have noticed that the cost to carry workers compensation has increased steadily over the last couple of years. As with any government-regulated program, the reason for this increase is multi-faceted and involves many different details and government departments.
Here’s the basic rundown:
Workers compensation insurance rates in California are heavily regulated by the state’s Department of Insurance, which is influenced by advice from the Workers Compensation Insurance Rating Bureau (WCIRB).
The WCIRB makes recommendations in part based on the state’s “loss ratio”.
A loss ratio in its simplest form is the percent of money paid out in claims relative to the money earned from employer premium payments. If the amount of workers compensation claims exceeds the amount of paid in premiums by employers, the state’s Department of Insurance will advise or recommend that carriers raise rates to allow for profitability for the carrier.
This is the same situation that happens when a big hurricane strikes. Suddenly, insurance companies have to pay out big claims for home and car damage and respond by raising their rates for future policies in that area.
There are many details involved, but the main reason we’re seeing increasing workers comp rates in California is simply because claims are rising. That means it’s up to every employer in California to try to keep their employees as safe and healthy as possible in order to lower the number of claims being filed each year. This is a shared responsibility, plus, protecting workers is the right thing to do regardless of the cost of workers comp.
If it pains you to write the check for your monthly worker’s comp premium, ask yourself if you’re doing everything possible to make your work environment as safe as it can be. If not, get to work! If other employers follow your lead, you may just see workers comp rates dropping in the future.