What is Workers Compensation?

There are two kinds of insurance coverage that are required by law. If you drive a car, the law requires liability insurance on the car. If you own a business and if you have employees, you are required by law to have Workers Compensation (WC) coverage.

If an employer does not provide coverage for his employees, he is said to be in Non-Compliance with the law. A non-complying employer can be fined $1000 for failing to provide coverage. If he continues in non-compliance, he can face further penalties and his business can be shut down. If an employee of a non-complying employer gets injured, the employer may end up paying all claims costs of the injured worker.

Part A

PART A of the policy is Workers Compensation Insurance. It covers Bodily Injury (BI) to employees in the course of their employment. It covers payment of BI claims in full. It will also pay for time lost from work. If an injury is serious and requires rehabilitation or retraining, it will be provided by the coverage. If the injury is so serious that the employee is disabled, it will pay disability payments.

• There is No Maximum Limit of coverage under Part A.
• Part A also lists the state that the WC policy applies to. An Oregon policy covers employees who live and work in Oregon.
• The legislature of each state is responsible for the content of the WC policy that is available in the state.
• No matter what company an Oregon employer gets coverage from, his policy is identical in coverage to every other WC policy issued in Oregon.
• If Oregon employees work outside the state of Oregon, or if the Oregon employer hires workers to work in another state, there is a good chance that the Oregon policy does not cover them, or that the state they work in will not recognize the Oregon policy as legitimate coverage for their state.

Part B

PART B of the policy is Employers Liability Insurance. This part provides liability protection for the employer if the employee decides to sue the employer for the BI the employee suffered.

The regular limits of liability coverage for Part B are:

An injured employee almost never seeks coverage under part B. The reasons for this are: (1) Part B coverage is limited while Part A coverage has no maximum limit. (2) If an employee pursues a claim under Part B, then the insurance company would not make payment under Part A and there would not be any further payment until the claim is completely settled.

Part C

PART C of the policy is Other State Insurance. If a business has operations in other states, and the insuring company is willing to include coverage in those states on the Oregon policy, those states would be listed here. Policies written through SAIF rarely include coverage for other states.

WC PREMIUMS are based on

1. CLASS OF WORK: The type of work done by the employees. There are over 600 different job classifications that employees can be classified under.
2. ANNUAL PAYROLL: The amount of annual payroll paid under each specific classification.
3. RATE PER $100 OF PAYROLL: Every year, on January 1st, new rates per $100 of payroll are published by NCCI (National Council of Compensation Insurers) for the State of Oregon.
4. EXPERIENCE MODIFICATION (Ex Mod): Applies only to employers with more than $2500 of premium per year, and with coverage in force for two or more years.

At the beginning of coverage, the employer ESTIMATES the annual payroll. When the policy year ends, an AUDIT is done to determine the ACTUAL payroll for the policy year. If the audited payroll is higher than the estimated payroll, an additional premium will be due. If the audited payroll is less than the estimated payroll, there will be a refund of overpaid premium, unless the policy is written at the minimum premium.

In Oregon, the owners of a business can choose not to be included in WC coverage. Or they can choose to be covered. Almost all owners choose to exclude themselves due to the cost of coverage.

NCCI, The Residual Market or The Risk Pool. When law requires an insurance coverage, what happens when regular insurance company decline ot offer coverage? The state has to provide a place where such coverage can be purchased. There is an assigned risk pool for auto insurance. There is also an assigned risk pool for WC.

Major reasons why businesses end up in the WC risk pool: If a business has been in non-compliance for more than a month or two; If a business has a bad claims history; If a business has a poor history of paying premiums; If the work is hazardous; If the business does not have adequate previous work history.

This information is general in nature and does not replace the policy. As with all insurance coverages, please refer to the workers' compensation policy for a complete explanation of what is covered and what isn't.