How does workers' compensation insurance work?
Workers compensation insurance is a mandatory policy to provide financial assistance to employees who become sick or injured at work. All employers must take out workers' compensation insurance to ensure their employees are covered for wages while they cannot work and medical treatment and rehabilitation to help them return to work.
When a worker is injured and a claim is lodged via the insurer your premium is immediately impacted. The reason for this is that the insurance is based around risk and payroll and claims experience. This means when you have more claims you premium is going to increase to re-cover costs.
Let's take a look at an example. John Smith works for AAA Industries. He injured his lower back from manually handling bagged products in the warehouse 6 months ago. He was diagnosed with a ruptured disc and required surgery to fuse his disc together. He has been on workers compensation and has been undergoing extensive rehabilitation for 6 months now. In total, his medical expenses for this claim have added to $52,000.
Prior to John's injury, AAA Industries' insurance premium was $50,000 per year. Due to the claim of $52,000 to cover John's medical expenses, the premium has now increased to $102,000 per year. Any other claims that might be raised by employees at AAA Industries will be added to this premium until it reaches a maximum of $150,000. Then, the premium will be reduced by 30% each year over 3 years until it returns to the original amount of $50,000.