Intro
Your business needs worker's compensation insurance. Without it, you expose your entire enterprise to steep liability costs. Even if you operate a relatively low-risk office-oriented business your state likely requires that you carry a policy. Some states even require worker's compensation policies for one-person operations.
No business wants to incur additional debits, especially when it seems highly unlikely that any of your employees will ever be injured. However, there are policies that can ameliorate the cost of worker's compensation. These policies are called dividend plans, or sometimes participating plans. Essentially, these policies reimburse a percentage of your premium payments at the end of each policy's term.
Your dividend payment will depend a few key variables:
- Claims made against the policy
- Payouts on each claim
- Earned premiums must meet a set threshold set by the insurer
- Policy must be in effect for the duration of the policy term
- Timely and complete premium payments
Types of Plans
Dividend plans come in three basic types. Familiarize yourself with these plan types so that you can choose the company and policy that best suits your business. The three types of worker's compensation dividend plans are:
- Flat dividend plans
- Sliding-scale dividend plans
- Combination plans
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Flat Dividend Plans
A flat dividend plan will pay a set percentage dividend at the end of your policy term. These dividends are generally somewhere between five and 15 percent. The dividend payment is not contingent on the losses or claims you make during that term. However, if you make many claims during the term your next policy might not allow a dividend, or your dividend might be reduced.
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Sliding-Scale Dividend Plans
A sliding-scale dividend plan will reimburse you based on the ratio of your losses relative to your premium payouts over a policy term. The lower your losses are, relative to your paid premiums, the higher your dividend payment.
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Combination Dividend Plans
Your insurer might offer a plan that combines elements of a sliding-scale and flat dividend plan. That is, their flat dividend rates might rise in accordance with your premiums. Since your dividend rate might get quite high, in accordance with your premiums, your insurer might enforce a maximum loss ratio that impacts your dividend. In some cases, you might forfeit your dividend altogether if your loss ratio was too high.
Dividend Payments are not Guaranteed
You should be aware that insurers are rarely bound to pay a dividend, regardless of your losses, premiums, or policy agreements. That is because the board of directors might deem that the company's financial position is such that prohibits further payments.
Your dividend payments might be reduced or nullified due to massive claims during your policy period. This might be due to an unforeseen spike in claims that arose from a weather event, or a legislative change that impacted worker's compensation plans. Any number of factors could place your insurer in a position to refuse dividend payments. However, to avoid a public relations scandal, they might attempt to pay partial dividends and offer incentives on future policies.
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Three Factors that Determine a Dividend Payout
There are three factors that may determine whether or not your insurer will pay the dividend you expect to result from prompt premium payments and maintaining a safe and incident-free workplace. These factors are unfortunately out of your control, but they are worth noting, so that you have greater understanding of how insurance companies operate. These three factors are:
- Loss experience
- Investment performance
- Overall expenses
Prior to writing your policy, your insurer will determine its current and future fiscal health based on its loss experience. That is, it will attempt to predict future financial well-being based on how many claims it has paid in the past. These numbers will help predict future payments. Thus, if their paid claims meet or fall short of previous years' numbers, you will likely receive the dividend you expect, per your policy. On the other hand, if your insurer's payouts exceed expectations, you can expect a lower or no dividend payout.
Insurance companies generally invest their reserves. They have dedicated brokers who constantly buy and sell equities and commodities on behalf of your insurance company. As you are paying your premiums, the insurer is trying to maximize its profit by capitalizing in speculative markets. If, however, your insurer's stock portfolio incurs a major downturn, your dividends might see a subsequent reduction.
The third factor that can impact your chances of cashing a dividend check is the overall expenses on your insurer's books. These expenses can arise from any number of sources. If your insurer builds a new headquarters, your dividend policy could take a negative hit. Other factors could include legislative actions that impact payroll policies, unforeseen catastrophes, and
Premium and Loss Requirements
Dividends are essentially offered as a way to offer incentives to employers to create safer workplaces. The safer your business is for your employers, the fewer claims your insurer will have to settle. If your insurer pays fewer claims, they will reap higher profits. A dividend plan is thus a win-win for you and your insurer.
In order to make a dividend plan work for everyone, your policy must first include high enough premiums to qualify. Then, once your payouts are high enough, your loss ratio must fall within the parameters of your policy. Of course, a flat dividend plan will likely pay a dividend regardless of your loss ratio, you might not qualify for the same dividend plan in the next policy term.
Reduce Incidents, Increase Dividends
There are many factors that impact dividend payments. Some of these, such as volatility in equity markets, that are out of your control. One of the key elements, claims, is something that you can directly influence through workplace initiatives.
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Inspections
You can reduce on-the-job injury through diligent inspections. Even if you are in an office environment, take the time at least once a quarter to inspect the workplace for potential hazards. These may include cracked cement on the sidewalk out front, torn carpeting, precipitous stairways, or faulty electrical systems.
While it may seem costly to pay for repairs, you will surely see savings in the long-run. If you show documentation of your inspection protocols to your insurance agent, you might even see a reduction in your premium payments, allowing you to upgrade your policy or invest the savings elsewhere.
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Safety Training
All workplaces can benefit from safety training. In these training sessions, you can introduce safety equipment, best-practices, and information on resources to use in certain scenarios. To facilitate these safety practices, consider creating a safety manual that will outline your policies. Your insurance company may have suggestions for how to best proceed with
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Reduce Workplace Stress
Workplace stressors can result in avoidable claims against your work comp policy. These claims will jeopardize your dividend potential, so work to avoid them. You should also acquaint yourself with the laws of your state regarding stress-related work comp claims. California, for instance, allows compensation if an employee can show that he incurred a psychiatric diagnosis as a result of work-related stress.
To alleviate the mental stress on the job, address issues related to inter-office relationships. If you have a bully in the workplace, their behaviors might put you at risk for worker's compensation claims. To alleviate the problem, you might suggest counseling for the bully and their victims, and any other interventions your human resources department deems necessary.
Even if your workers are not able to directly make claims based on stress or bullying, they will be sharper, happier workers if you can address these issues. Such workers are then less likely to be distracted when performing dangerous duties, resulting in fewer worker's comp claims.
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Ergonomic Equipment
Sitting at a desk typing is not so dangerous, right? To the contrary, repetitive stress injuries constitute a large portion of work-comp claims. Workers who sit for extended periods can also do long-term damage to their spinal cords and overall nervous systems. A simple upgrade in chairs, keyboard trays, etc. can mean the difference between collecting a dividend on your work-comp policy and incurring inflated premiums.
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Movement
Another way to alleviate these types of claims is to help your employees become more cognizant of the dangers they face by simply sitting. You can offer periodic yoga classes, including chair yoga. It may be beneficial to institute periodic standing-stretching breaks. Your employees might not appreciate the interruptions at first, but their bodies will thank them (and you) over time.
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Get Back to Work
One way to reduce work-comp claims is to get your employees back to work as soon as possible. When an employee is out on a disability claim, work with them to create a plan for when they will return to work. If they are an office worker, you might see if there's a way to ease them back to work with a work-from-home protocol. Even if they are used to performing labor, there may be some administrative tasks they can do at home before they're fully back on their feet. Enabling your employees to ease back to work after an injury can pay dividends in the long-run, while protecting your insurance dividends in the short-term.