VOLUNTARY MARKET
The benefits of voluntary market vs. the risk pool for staffing workers’ compensation
Workers' compensation insurance is a crucial aspect of protecting both employees and employers in the event of workplace injuries or illnesses. For staffing companies, navigating the realm of workers' compensation insurance can be complex, especially when deciding between the state risk pool and the voluntary market. In this article, we will explore the key differences between the two options and highlight the financial benefits of choosing the voluntary market over the risk pool. By understanding these advantages, staffing companies can make informed decisions about their insurance coverage, potentially saving significant costs in the process.
State Risk Pool vs. Voluntary Market:
State Risk Pool: The state risk pool, also known as the assigned risk pool or the residual market, is designed to provide coverage for high-risk employers who may struggle to find insurance in the voluntary market. Staffing companies operating in high-risk industries or with a history of frequent claims often find themselves in this pool. While the risk pool serves as a safety net, it comes with certain drawbacks.
Voluntary Market: The voluntary market, on the other hand, comprises insurance carriers that are actively seeking to underwrite workers' compensation policies for employers. These carriers have more flexibility in setting rates and coverage options based on their risk assessments. Staffing companies that can demonstrate a commitment to safety measures and a positive claims history may find it advantageous to enter the voluntary market.
Financial Benefits of the Voluntary Market:
1. Competitive Pricing: In the voluntary market, insurance carriers have the ability to compete for business. This competition can lead to lower premiums, as carriers strive to offer attractive rates to win over employers. Staffing companies can take advantage of this market dynamic by obtaining quotes from multiple carriers and negotiating for more favorable pricing based on their risk profile.
2. Customizable Coverage: Unlike the risk pool, which offers limited coverage options, the voluntary market provides greater flexibility in tailoring workers' compensation policies to meet specific needs. Staffing companies can work with carriers to create comprehensive coverage plans that align with their unique business requirements. This customization allows for more accurate pricing and ensures that companies are not paying for unnecessary coverage.
Why Staffing Companies Should Consider Leaving the Risk Pool:
1. Improved Cash Flow: The risk pool often imposes higher premiums to compensate for the inherent risk associated with participating employers. By transitioning to the voluntary market, staffing companies can potentially reduce their premium costs, resulting in improved cash flow. This financial flexibility enables companies to invest in growth, hire additional staff, or allocate resources to other crucial areas of their business.
2. Enhanced Risk Management: Moving to the voluntary market provides an opportunity for staffing companies to engage in proactive risk management. Insurance carriers in the voluntary market often offer valuable resources, such as safety training programs and loss control services, to help companies mitigate risks and reduce the likelihood of workplace accidents. By actively addressing risk factors, staffing companies can further lower their insurance costs.
The Overcharging Tendency of Risk Pools:
One of the significant drawbacks of the risk pool is the tendency to overcharge employers for workers' compensation insurance. Since the risk pool caters to high-risk employers, premiums are typically higher to offset potential claims. However, many staffing companies find themselves paying more than their fair share due to the generalized approach taken by risk pool pricing. By transitioning to the voluntary market, companies can benefit from more accurate pricing based on their individual risk profiles, potentially saving substantial amounts of money.
Staffing companies operating in the state risk pool for workers' compensation insurance should carefully evaluate the advantages of transitioning to the voluntary market. The financial benefits, including competitive pricing, customizable coverage, improved cash flow, and enhanced risk management, make the voluntary market an attractive alternative.