Growing up my family watched Ben Hur featuring Charleston Heston. I just aged myself, I know. Without giving up too much of the plot, Charleston Heston’s character is a prince who falls from grace and experiences great hardship. In time, he returns home and discovers his mother and sister are alive and living in a leper colony. Like him, they fell from grace too. Needless to say, it destroys him.
If you have W2 employees or uninsured 1099 workers in Arizona, you are required by law to carry Workers’ Compensation insurance (Arizona Revised Statutes (A.R.S. § 23-901 et seq). If your business has undesirable characteristics, you may find your WC coverage placed in the residual market. Like Charleston Heston’s character, you may feel like you have fallen from grace with the insurance marketplace. Other names for the residual market are the market of last resort or the risk pool.
4 Disadvantages of Being ‘Uninsurable’
In 2019 NCCI published an article titled Insuring the Uninsurable. If that tile doesn’t conjure up the image of a leper colony, I don’t know what will. Accounts written in the residual market have some disadvantages off the jump:
1. Limited financing options.
Unlike direct bill accounts with preferred, admitted markets, you have limited payment options. This can be disruptive to budgets, especially for contractors who benefit from pay-as-you-go options.
2. No blanket waivers of subrogation.
Waivers must be scheduled at $250 per COI, disproportionately affecting contractors. That can add up quickly!
3. Higher Premiums.
Your manual premium has significant policy debits baked into your final pricing. Arizona authorizes three (3) carriers to write WC risk pool accounts. How much of a debit does your account have?
- AmGUARD Insurance, +12.5% rate deviation
- PA Manufacturers Association, +50% rate deviation
- Travelers Property Casualty Company of America, +50% rate deviation
4. Reduced Services.
Risk pool policies do not have 24/7 embedded nurse triage service, medical bill review support, or return-to-work program support available to most admitted/preferred market placements for no additional premium.
6 Behaviors That Can Lead to a Placement in the Residual Market
Certain behaviors can lead to a business being scorned by the voluntary or preferred market. What behavior can land you on the insurance market naughty list?
- Micro businesses or ghost policies with WC premium <$1000
- New ventures
- Businesses with a history of severity or frequency of claims *and who don’t have a desire to improve.
- High hazard operations
- You are a paper GC with poor risk transfer
- Your insurance agent’s behavior
- Lazy insurance agents who have limited market access, don’t service their accounts, or perform regular renewal reviews cost you more in the long run.
- Large agencies often have servicing thresholds based on the amount of premium you pay. Do you really want the level of your service pegged to how much premium you pay?
Behaviors That Lead to a Preferred Placement
Surprisingly, many businesses make a deliberate choice to stay in the risk pool because it is familiar. When I scrub the list of businesses currently in the WC Residual Market, I often find accounts that have outgrown the market of last resort. How can I discern that? There are signs. If you have received an email or a letter from me, that is a BIG one.
- Your Experience Modification Factor (EMOD) is <1.00
- Your governing class code is low-hazard
- You’ve been in business for over 3 years
- Your WC Premium is > $2,000
Wilson Insurance Can Help
When you work with Wilson Insurance we will take the time to get to know you and understand your history. We will help identify the behavior that causes financial leakage within your organization and create a plan to avoid returning to the risk pool. It is possible to make a pivot from past problems into new opportunities when you have an action plan and persuasive narrative. We can help you achieve operational excellence (and save money)!
That isn’t just bluster. As a former senior underwriter, I know how to talk so insurance carriers listen. I used to manage a $34M book of WC business. I’m experienced in knowing which levers to pull to mobilize carriers to act, engage, and ultimately offer a competitive quote that exceeds what other agents can accomplish. This is what I’m good at. Let me put my experience to work for you.
Interested? Let’s talk. You can reach me at [email protected] or at the office at 480-964-2400.
