Workers’ compensation is frequently one of the most expensive forms of coverage a commercial insurance client will purchase – particularly in California, where rates average $3.48 per $100 of payroll. Committing small oversights that trigger fines or a lapse in coverage only drive those expenses higher.
Unfortunately, mistakes on workers’ compensation applications are not uncommon, says La’Troya McKinney, commercial lines account manager with Abram Interstate Insurance Services, and even experienced insurance agents can benefit from a few refreshers.
The 13-year insurance veteran spoke with Insurance Business America about the most common oversights she sees when processing coverage applications from commercial clients.
1. Misclassifying employee status
Because employers are not required to provide workers’ comp coverage for contract workers classified as 1099 employees, a powerful temptation exists to include as many employees as possible under this filing.
There are strict guidelines in California as to who qualifies as a 1099 workers. 1099 workers are independent contractors, not employees. If an employer is scheduling the workers time, directing their activities and so on, the worker is generally considered an employee. Failure to properly distinguish between the two, can subject the employer to fines of up to $150 per day, per employee.
The misclassification of workers is particularly common in businesses such as dentist offices and nail salons, or for workers in the sales profession.
2. Not beginning coverage on an employee’s first day
When starting new employees, agents must ensure coverage begins the minute they set foot in the office as an employee of that company. That includes any training or any other work for which the employee is being paid prior to beginning full-time work.
Failing to provide insurance from day one could trigger a gap in coverage and come back to haunt both the agent and their client.
“Most carriers are very stringent on this, particularly as a lot of claims are based on cumulative injuries like repetitive motions.” McKinney said. “It may take three years for something like carpal tunnel to manifest itself, and carriers will want to figure out exactly when that injury occurred.
“If there’s a gap in coverage, the carrier could determine the injury occurred during the gap and be liable for the claim payment, thereby paying a loss they shouldn’t be paying.
3. Not providing workers’ compensation for family members
Under California law, resident relatives are not required to be included on an individual sole proprietor’s workers’ compensation policy. That includes a spouse and any children living in the home who also work for the proprietor’s business.
Rules on family members change, however, when a business incorporates. Full workers’ compensation coverage is required for any family members who are not officers of the corporation, including spouses and children.
To help clients avoid the potential cost increase here, McKinney says she frequently recommends company owners make their spouse an officer of the corporation, making them eligible for exclusion from the workers compensation coverage.
Serving comp clients well
McKinney said these three areas account for most of the oversights she sees on workers’ comp applications and urges agents to familiarize themselves with coverage requirements and employment law to deliver the best services to their commercial clients.
The guidelines can also be effective for agents outside California.
“As a result of California stringent laws, they are a good model to use for other states also," she said.
