NEWSLETTERS: The Straight and Narrow

By Anthony Tellers, Bowermaster and Associates Regional Vice President

Tough times call for businesses to make tough choices. The key is to know the difference between a tough choice and a wrong choice. When it comes to your business insurance, the wrong choice can cost you coverage or even cost you fines and penalties. Note the following:

Late claim reporting

There are many "reasons" for not immediately reporting a mishap to your insurer;

• You felt more information was needed
• You felt the claim was ridiculous and did not deserve attention
• You felt the insurance carrier might hike your premium once a loss was reported
• You felt the claim would not amount to anything and would just go away

However, if a year passes and the claim becomes a lawsuit and the insurer discovers you had long standing knowledge of the claim but suppressed the reporting, your carrier will not be pleased. More likely, the insurer will "reserve its rights" to deny coverage based upon late notice.

Do it yourself claims adjusting

Sometimes you might feel it best to handle a claim yourself without bothering the insurance company. This can be risky business. Offering a settlement out of your own pocket may appear expedient, but, if the claim becomes a lawsuit, the fine print in an insurance policy may hurt you. The carrier may not cover the loss because the earlier unauthorized offer to settle has prejudiced its ability to defend the claim. Many policies say "No insured shall, without our consent, make any offer or payment, except for first aid…."

Going without workers comp

The cost of workers compensation insurance can make employers search for options—even as drastic as going bare on this state-required coverage. The district attorneys are tracking down these companies and preparing to hit them with fines up to $10,000 and criminal charges that can result in jail time.

Misclassifying employees

This kind of premium fraud is high on the radar for district attorneys and workers compensation insurance company auditors. The most commonly cited example is when a roofing company with 10 roofers and four clerical workers claims to have 10 clerical workers and four roofers. Since roofers have a much higher accident rate, the more roofers on payroll drives the premium higher. Misclassifying the roofers into the lower rate of the clerical class doesn’t fool the auditors.

Setting up a shell business

Some employers establish multiple companies under common ownership, including one with no insurance. Under this scheme, the business without insurance might have 60 employees while the business with insurance might have 20. The employer secretly adds and deletes the 60 employees to the insured business as work flow dictates. The net result is that payroll and premiums aren’t recorded unless an injury occurs. Then the insurance carrier must pay claims for employees for whom full premiums were never paid.

Some employers also use the “shell business” game to try and avoid a high experience modification. However, the workers compensation rating bureaus are on to this dodge as well. New experience modifications are not issued unless there are majority changes in stock ownership, operations and employees. Insurance companies red flag the creations of new entities, watch them carefully, and often elect not to write workers compensation for them.

When it comes time to make an insurance decision, give your Bowermaster advisor a call. We can walk you through the options and consequences so that your decision can be an informed one.