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PPO PLANS WORKERS PENSION

Q. What is a loss reserve?

A. A loss reserve is an estimated amount of money that the insurance company sets aside to pay for a claim. Loss reserves are used to evaluate the worth of each claim, based upon the claims adjustor’s judgment and experience in handling similar claims and the potential for claims payment. Insurers are required by law and WCIRB rules to establish these reserves for incurred claims.

Q. What is a workers’ compensation surcharge?

A. An insurance company may surcharge premium if it believes that additional money is needed to meet expected losses and expenses for a particular employer. Consumers should ask the insurer to provide formal documentation that reflects all the rating components used to develop their premium. Surcharges are usually applied only to high-risk activities with a higher-than-average loss potential.

Q. What is a minimum premium?

A. Basically, minimum premium is the least amount for which the insurer is willing to insure an employer. Each insurer files its minimum premiums with the rating plan to CDI.

For Example: An insurance company has set a minimum premium of $500 for your type of business. Assuming your actual payroll is only $20,000 with a manual rate of .78 per $100 of payroll, your calculated premium would be $156 ($200 X .78). But you would still pay $500 minimum premium instead of $156, since your insurance company has set its minimum premium at that level. Thus you are encouraged to shop around for the company with the lowest minimum premium if you have a small payroll.

Q. Is there a penalty if I cancel my workers’ compensation insurance during the policy year?

A. If you cancel the policy before the end of the policy term, you will pay a penalty. The premium will be based on the time the policy was in force, and increased by a standard short-rate percentage to cover company expenses. If the company cancels the policy, the premium will be based on the actual number of days it was in force (pro-rata). Also, your insurance company may charge you the minimum premium when the calculated short rate premium is less than its established minimum premium. Therefore, read your policy very carefully regarding the final determination of premium upon its cancellation.

Q. What is participating policy?

A. If a policy is written on participating basis, an employer may participate in the profits of the insurance company derived from its California workers’ compensation business in the form of a dividend. There are various types of dividend plans with different provisions and requirements. Check with your agent or company for specific details.

Q. Can an insurance agent or an insurance company promise or guarantee the payment of a future dividend?

A. No. It is a misdemeanor for an insurance company, agent or a broker to promise the payment of future workers’ compensation dividends. Under California law, the insurance company’s board of directors or other governing body must review the overall loss experience of the workers’ compensation business since its last dividend declaration. This governing body then determines whether the insurer has a surplus from which dividends may lawfully be paid. Such dividends must be declared by resolution adopted after expiration of the policy term. This declaration should specify the dividend plans, formulas or schedules to be applied. Any person who makes or causes to be made any knowingly false or fraudulent material statement or material representation for the purpose of obtaining or denying workers’ compensation benefits or payments is guilty of a felony.

Q. What if I disagree with the classifications assigned or rates applied to my business?

A. First, talk to your insurance agent or broker or the insurance company. If you disagree with their explanation, you may direct your complaint to the WCIRB (at its San Francisco address listed in Exhibit II). However, you must submit a statement of facts in writing, within twelve months after the expiration date of the policy in question, including the name of your firm, the name of your insurance carrier and the details of your complaint. The WCIRB will investigate your complaint, contact the insurance carrier, and advise you of its findings within 45 days.

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