Having a contingency or a backup plan was considered an essential ingredient while formulating the strategy of the business model in an organization. The revenue generated from the operations had a substantial part in contributing to the overall country’s GDP. Gradually, the concept of insurance began building its inroads. Subsequently, insurance predominantly was recognized as an independent industry altogether.

 

In the initial phase of teething, the insurance sector suffered hardships and was greatly hit by the two great recessions in the US Economy. The primary reason for the downfall in the insurance industry was liberalization and non-classification of other businesses in terms of risk. Leading experts of the insurance companies finally came together on a single platform. A regulatory body was formed. Classification matrix was crafted. Insurance policies were further domiciled into various categories. This exercise gave awareness to the insurance and other sectors. A yardstick to measure the criteria of difficult and high risk was ascertained, which was built into the premium rates. It followed the fundamental principal of risk versus reward. Higher the risk, higher the premium. This led to branching out of private and state-owned insurance companies. In some of the states, there is a monopolistic scenario, while in others it is most competitive.

 

Insurance is a vast field, therefore to have a myopic view in understanding the relationship of difficulty in insurance with high-risk businesses. Hence we will restrict the narrative to worker’s compensation insurance. Many business owners hold a general misconception that they don’t need a separate worker’s compensation policy if they already have general liability insurance. The fact is that a general liability policy does not cover the risks of workplace accidents and injuries. The reason why many businesses feel this way is because general liability insurance is calculated by staff count, but in reality, it doesn’t cover employee injury at all. To offer the necessary protection to your employees and avoid expensive litigation, you do need to have a workers compensation insurance policy in place.

 

Insurance companies calculate the risk of each employee according to the kind of work they perform. The NCCI, or National Council on Compensation Insurance, provides a set of rules to help you classify every employee. An employee performing clerical work, for example, is at a lower risk of workplace injury than, say, an employee working with electrical equipment on the shop floor. Nonetheless, regardless of the level of risk, every permanent employee needs to be covered by worker’s compensation insurance. Worker’s compensation does not cover contractual employees. The actual size of the insurance premium is a combination of the measured risk and the wages or salary of the employee.

 

Worker’s compensation insurance requirements vary from state to state. Hence, jurisdiction plays a very important role. You can start by reviewing the relevant Worker’s Compensation Act in your state. So, in California, for instance, a business with just one employee has to offer worker’s compensation insurance, while in Alabama, a business has to have at least five employees before it is legally required to offer such compensation. Interestingly, businesses in New Jersey, Texas and South Carolina are not legally required to offer worker’s compensation!

 

To sum it all up, Worker’s Compensation Insurance is limited to physical impairment or injury. An injury that has occurred while performing a certain operational activity in the organization. What it implies, is that if you are in the office and suffer some non-physical impairment, such as cardiac arrest, brain hemorrhage or nervous breakdown, it will be very difficult to prove that such non-physical impairment was related to the work or not. Which is why before any of the employees are insured or offered healthcare or worker’s compensation insurance, might have to go through some series of medical diagnostic tests. As the insurance provider also wants to protect its interest.

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