As a business owner, the last thing you would want is for an employee to get hurt at work. However, if you run a business long enough, an accident is bound to happen eventually, especially if you work in a high-risk industry.
When an employee is injured on the job, they’ll have medical expenses that need to be paid, they may not be able to work while they recover, and in worst-case scenarios, they may sue you for a settlement. Fortunately, this is where workers’ compensation insurance comes into play.
With the exception of Texas-based operations, all businesses in the United States must have a workers’ comp policy. Whether your company has two on-site employees or a plant with 5,000 workers, you need to purchase coverage. However, how you take out a workers’ comp policy depends on which state your business operates. Mainly, your location determines whether or not you have the option of going through a private insurer.
Competitive vs. Monopolistic Workers’ Comp State Funds
Before doing any further research about workers’ comp insurance, you should look into your state’s regulations and determine which type of state fund insurance your state offers.
If your business operates in Ohio, Wyoming, Washington, or North Dakota, you will use the monopolistic state insurance fund. Most other states have competitive workers’ comp state insurance funds. Your business’ location may also dictate the length of the statute of limitations on workplace injuries.
Understanding Monopolistic State Insurance Funds
Owning a business in a state with a monopolistic fund means you only have one option for workers’ comp insurance (unless you choose to self-insure, which some jurisdictions do not allow). As the term “monopolistic” suggests, you do not have the option of shopping for the best policy from private insurers. Instead, all businesses buy into the same state fund and use this fund should they incur expenses due to a workplace accident.
Living in a state with a monopolistic fund has its advantages and disadvantages. Benefits include:
- Monopolistic funds take out all the guesswork of finding insurance coverage. With only one option, you don’t have to worry about shopping around for the best deal.
- Many private insurers don’t take on businesses with high associated risks. With a monopolistic fund, even companies in “dangerous” industries can buy into coverage easily.
- Since these funds do not have marketing programs and don’t issue renewal policies, their administrative costs are much lower than those of private insurers.
Disadvantages of monopolistic state insurance funds include:
- As with all monopolies, if consumers (in this case, business owners) only have one option for a product or service, it stipples competition that drives providers to keep prices low and offer excellent customer experiences.
- If your business employs workers who live out of state, you need to purchase separate coverage for them.
- Not all states with monopolistic funds offer employer liability coverage, which helps protect employers should an employee take them to court over a workers’ comp issue.
Understanding Competitive State Insurance Funds
The majority of U.S. states have competitive markets for workers’ comp insurance. This means business owners have the option to use the state fund or to purchase their workers’ comp plan from a private insurance company. If you run a company in a competitive state, you’ll have to research your options diligently to find the best policy for your business.
Advantages to competitive workers’ comp insurance markets include:
- Competition between insurance companies can drive prices down and incentivize insurers to offer better coverage and better customer service.
- Again, because of competition, the state fund option is typically affordable and comprehensive.
- The majority of workers’ comp policies in competitive markets include employer liability.
- You can choose an insurance plan catered to your specific needs. For example, companies with low risk of on-site injuries won’t pay as much as those in high-risk industries.
What are the disadvantages of competitive workers’ comp markets?
- Shopping for the best insurance policy can be a hassle. You’ll have countless options to choose from, which means hours of vetting policies, talking to insurance providers, and waiting on quotes.
- You run the risk of choosing a policy that your employees or their workers’ union don’t approve of, leading them to protest or even file lawsuits if necessary.
Know Your Options and Choose Wisely
With a solid understanding of workers’ comp insurance and your state’s specific requirements and options, you have the knowledge to research and purchase the policy best fit for your business. Even if you live in a state with a monopolistic fund, you may have the choice to self-insure, so it’s always important to consider your options carefully.