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Workers' Compensation

Workers’ compensation insurance provides coverage for medical expenses, lost wages, and more in the event of an on-the-job injury or death. As it’s required in most US states, and can be a major expense, companies can turn to Marsh for innovative solutions.

In broad terms, workers’ compensation exists to provide benefits to employees or staff who are injured or die on the job as a result of work-related injuries. Although it is of course unfortunate for such events to occur, they do happen and the financial remedy provided by workers' compensation can be immensely helpful to an employee as well as his or her family.

The majority of workers’ compensation costs for employers are comprised of insurance premiums and/or retained losses. Programs, if not properly managed, also can be costly to organizations in relation to workforce productivity and the time and resources required to manage claims.

In the US, workers’ compensation rules and regulations are established on a state-by-state basis and can vary considerably. These complexities can make it difficult for companies to navigate this environment and address emerging trends and legislative changes.

At Marsh, we understand that your employees are your most valuable asset and recognize your desire to protect and promote their health and safety. From insurance advice and placement to pre- and post-loss advisory solutions, our specialists can support efforts to reduce workers’ compensation loss costs, improve productivity and profitability, reinforce behaviors in support of key business objectives, and develop and implement sustainable safety programs.

Together, we can help you stay compliant, manage risks, reduce costs, and be resilient.

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Workers' compensation insurance exists to provide benefits for employees or staff who are injured on the job or die as a result of work-related injuries or illnesses. These benefits can include payment for appropriate medical care, as well as replacement for part of the employee’s lost wages and funeral costs if needed.

The goal of workers’ compensation insurance is to help ensure employees receive necessary medical care for work-related injuries and can return to work as soon as possible. The system is often called the “grand bargain” between workers and employers in that in return for covering the costs of workplace injuries to employees, the employer is immune from lawsuits in most situations, which is commonly known as exclusive remedy.

The risks involved in an employee’s work duties affect the cost of workers’ compensation policies for an employer. In addition, pricing is calculated using a number of different factors, including payroll, geographic location, prior claims, and more.

Workers’ compensation is a statutorily imposed obligation in most states. When an employee sustains an injury arising in the workplace or suffers an occupational disease to which a workers’ compensation statute is applicable, workers’ compensation responds and the employee cannot sue their employer.

Employers in most states, with the exception of Texas, are required to purchase workers’ compensation. However, companies that meet certain criteria are permitted to qualify as self-insurers.

A holistic approach to workers’ compensation should be based on the key elements of your company’s total cost of risk (TCOR). Your TCOR likely encompasses the following five areas:

  • Retained losses and the use of analytics and risk mitigation techniques to reduce loss costs.
  • Claims management and administration fees as well as the management of vendors and implementation of claim advocacy programs.
  • Risk transfer premiums and achieving optimal insurance program design, execution, and placement.
  • Cost of and management of collateral to make more capital available for reinvestment.
  • Implied risk and evaluating different program structures in terms of volatility.

Since these costs are all interrelated, effectively managing the various components of a workers’ compensation program requires the use of data and analytics to identify cost drivers and appropriate pre- and post-loss mitigation strategies.

Marsh provides data-backed insights and analysis of your workers’ compensation risks, can help identify any program opportunities for improvement, and will work with you to establish best practices so that your organization and your bottom line are more resilient. 

Workers’ compensation in the US typically covers any losses or damages suffered due to injury, illness, or death that:

  • Arise out of and occur in the course and scope of employment, which will normally come down to whether an employee was benefitting the employer at the time.
  • Are proven to be the result of a workplace exposure.
  • Are “peculiar” to the employee’s work, meaning that the workplace risk is found exclusively among or presents greater exposure for certain employees.

Exceptions may include employees who are under the influence of alcohol or drugs and instances where employees are engaging in irresponsible behavior that results in injury.

A workers’ compensation policy generally covers the expenses incurred due to the work-related injury or death of an employee. It’s important to note, however, that there are varying compensability criteria across states with workers’ compensation programs.

Workers’ compensation insurance typically covers expenses such as:

  • Medical: This can include emergency room visits, physician visits, physical therapy, prescriptions, and surgeries to name a few.
  • Lost wages: Payouts usually help cover a portion of the wages an employee loses if they have to miss work due to a work-related injury.
  • Funeral costs: Policies will often pay funeral expenses in the event of a death on the job. Death benefits may also be available to spouses and dependents.

Several dynamics go into premium costs. The size of your workforce, program structure, claims history, and the types of labor within your workforce – and the level of risk associated with their roles – will all factor into pricing.

With our comprehensive approach to workers’ compensation – data, analytics, safety consulting, and claims handling – we help you gain greater control of all of your program costs.

An experience modification rating, or x-mod, is a metric based on a company's claims experience over the most recent three-year period. The purpose of the experience modification factor is to incentivize employers to provide a safe workplace. The company’s actual loss experience is compared to the expected losses based on historical loss data for the same payroll, class codes, and state mix. The resulting x-mod is one of the factors used to determine workers’ compensation premiums – and depending on the mod, the premium may increase, decrease, or remain the same.

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Christine Williams

Christine Williams

Managing Director, Worker’s Compensation Center of Excellence, US Casualty Practice

  • United States