Worker's Compensation: How to Pick a Ripe Carrier.

• Author: COOLINS, INGO
• Position: Brief Article

Everyone loves a "buyers' market," where sellers jockey for position by offering the lowest possible price. But the 1990s proved that with workers' compensation insurance--cheapest isn't always best.

The 1990s marked the most tumultuous decade in the 37-year history of California's workers' compensation insurance system. In addition to landmark reform legislation, one of the most significant events was in 1995 with the advent of "open rating," which produced the first truly competitive marketplace in the system's history.

OPEN RATING

Open rating freed carriers from mandated minimum rates and spawned a fierce buyers' market in which some carriers courted companies by charging artificially low prices to bolster market share without regard for long-term financial stability.

The first four years of open rating produced the most dramatic overall drop in premiums since the Great Depression--an average decrease of 30 percent. But some carriers, which initially slashed rates to inadequate levels, now have raised prices dramatically to recoup losses.

THE BOTTOM LINE

When shopping for workers' compensation coverage, all business owners should consider several factors--starting with price.

With workers' compensation coverage, the cardinal rule is to make sure you compare final quotes and not just basic rates. Rating plans or the discounting schedules of workers' compensation insurers yield final quotes that may be vastly different from their basic rates. What makes the difference? That depends on how you answer key questions:

* Are you receiving discounts for proactive programs you've instituted--programs that generally entail a lower risk for the insurer? Such programs include early return-to-work programs, comprehensive health benefits for your employees and full use of the medical control options.

* Do you fully understand the variables that could affect your final price, such as premium range discounts, subclass qualifications and group discounts? When comparison shopping, ask carriers to specify the variables that will affect your final price.

* Once you understand the pricing of your quote, ask: What am I getting for this price, and what do I need or expect? Can I rely on the carrier's financial strength?

STAYING POWER

A carrier's financial strength is crucial in today's volatile market. When carriers underpriced their workers' compensation product to gain market share in the late 1990s, some carriers became insolvent. Financial strength...