Advanced
Insurance Management LLC is
based in
the Chicago suburbs, but we do a lot of work with
California employers who have problems with their
Workers Compensation insurance audits,
classifications, or X-Mods.
Workers Comp in California is similar to the system
in most other states, but there are also a fair number of
unique aspects to California Workers Compensation
insurance, enough so that California is typically
viewed as being its own distinct market.
For one thing, the largest provider of Workers
Compensation insurance coverage in California isn't
an insurance company, exactly, but the State
Compensation Insurance Fund, or
SCIF.
SCIF competes with private insurers. It was created
by the state but isn't a state agency. It is
supposed the use the same manual rules and same
policy forms as private insurers in California--but
sometimes SCIF operates as if the judgement of its
own underwriters and auditors is the final word,
insulated from oversight and correction. That's not
really accurate, but SCIF can sometimes leave that
impression with employers who are disputing SCIF
premium charges.
SCIF also functions as California's "insurer of last
resort"--what in other states would be called the
Assigned Risk Plan.
In recent years, SCIF has developed and
implemented some unique and, in our eyes,
questionable, rating factors that are
unique to SCIF. SCIF keeps the fine details of this
rating program secret, guarding it as if were the
eleven herbs and spices of KFC, or the secret
formula for Coca Cola.
But of course, keeping hidden the details of a
fundamental rating factor that increases premium
charges for thousands of employers makes it
impossible for anyone to double-check those rating
factors for errors.
Errors abound in every other element of Workers
Compensation premium computation, so we expect the
SCIF rating plan is no different in this regard. But
so far, our efforts to uncover the details of this
rating factor have been unsuccessful. We will keep
trying, though.
Who has to get Workers Compensation coverage?
In California, virtually
any business that
uses workers
(full or part time) other than the owners
of the company
is required to
meet their
statutory Workers Compensation obligations by
either getting
coverage from SCIF or an approved insurance
company,
or by being approved
as a self-insurer (only
practical for large companies)
or by becoming a member of a
group self-insurance
program,
In California, if you're a
roofing company, you have to get
Workers Comp coverage even if you don't have any workers
other than the owners.
Executive officers and directors of corporations must be
included in workers’ compensation coverage, unless the
corporation
is fully owned by the directors and officers. If
the
directors and officers fully own the corporation, then
they
may elect to be excluded from workers’
compensation
benefits.
Larger employers can seek
approval to self-insure California Workers Comp
liabilities, and that is
governed by the Office of Self Insurance Plans, or
OSIP.
Self-insurance requires state approval, a net worth of
at least $5 million,
net
income of $500,000 per year and posting of a security
deposit. While
historically
only very large companies could self-insure because of
legal
requirements, in recent years group self-insurance, in
which several small
employers in the same homogenous industry pool their
workers'
compensation
liabilities, has increased in popularity as an
alternative to
traditional coverage. Contact the state's Office
of Self
Insurance
Plans for
information on how to self-insure.
Independent Contractors and
California Workers Comp
This is a common cause of
audit disputes over Workers Comp premium in California.
In California, true "Independent Contractors" are
excluded from Workers Comp of those who retain their
services. But the joker in that deck is that not all
workers who are characterized as "independent
contractors" meet the statutory definitions of
Independent Contractors. Which means that some
"Independent Contractors" aren't really sufficiently
independent.
Which means the insurance company may well charge for
them. And they routinely do.
To avoid being charged, you must have on file certificates
of insurance that
document that these independent contractors have their
own Workers Compensation insurance in force.
Absent
these certificates of insurance or a other valid proof
that
they have their own coverage, insurance companies
can get
overzealous in seeking to make premium charges
for such
workers, even when they are operating their own
independent
businesses and are not required to insure
themselves (if they are
sole proprietors or partners in
the business, for example.)
Sometimes insurers will
seek to make premium charges even
when certificates of
insurance are presented, if the insurer alleges
that
there was not truly coverage in place for that worker.
This is
an area that has been the subject of some
contentious disputes.
Executive officers of a
corporation can opt out of coverage, if they
wish, but this must be done by specific endorsement to
the policy.
How are the premiums calculated?
Workers Compensation premiums are
calculated by assigning
classifications to the business
operations (according to a system
devised by the WCIRB).
Each classification has a particular rate,
which is
applied to remuneration (the rate is per hundred dollars
of remuneration).
The policy starts out with estimated
remuneration (usually referred to as payroll, but it can
be more
than that) and then, when the policy ends,
actual remuneration is
determined, and the policy
premium is adjusted by an audit.
Premium is further adjusted, for companies
with premiums above
a certain minimal amount a year in premium, by application of
the Experience Modification Factor,
sometimes called an X-Mod.
This factor, calculated
annually by WCIRB, is based on prior
loss and payroll
data of the particular business.
Premium can be further
adjusted with
Schedule Credits or Debits.
The
premium is also reduced by applying a
Premium Discount factor,
which is a size discount
applied once premium is over a certain
minimal size.
And always
remember, the premium shown when the policy starts is
just an estimate.
Final premium will be determined after
the policy ends, and sometimes this final premium can be
significantly higher than the original estimated
premium.
We regularly get calls from employers who
have just received a shockingly-high final premium bill
and are at a loss to understand how their Workers Comp
policy that originally had a premium of just $2,000.00
has now generated a final premium bill of $25,000--or
more.
We
can often help employers by finding and
correcting
errors made by the insurance
company in computing that
final premium.
And
speaking of possible errors, there's the whole
California
Dual Wage Classification sleight of hand. More
info
here on this particular trap for California
employers.
Who regulates Workers
Compensation in California?
Claims matters are handled by the
Workers Compensation Appeals
Board, or WCAB. This body
resolves disputes regarding proper
claims settlements,
and coverage issues.
But Workers
Compensation insurance premiums are outside the
purview of WCAB. The
rules governing Workers Compensation
insurance premium
computation are created by WCIRB.
The Workers
Compensation Insurance Rating Bureau, or WCIRB,
is a private organization but has some
quasi-regulatory authority
in California, delegated to it
by statute. WCIRB writes the manual
of rules that
determine how premiums are calculated (subject to
approval of the Insurance
Commissioner), how particular
classifications are assigned to employers,
and calculating
Experience Modification Factors,
also known as X-Mods.
All of the above is offered for information purposes
only. We here at Advanced Insurance Management LLC are
not attorneys, so if you have any question regarding
Workers' Compensation law you should contact appropriate
legal counsel.
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