One of the pillars of the U.S. economy is the number of new businesses and small businesses that provide jobs and services in their respective communities. And behind each of these small operations is most likely a single entrepreneur whose imagination is fueled by the thought of engaging in some industry such as operating a restaurant, a print shop, or automotive center. For the small business owner/operator, the focus is on building the business and meeting the numerous federal, state, and local administrative regulations is generally an unwanted distraction. Of those regulations, meeting a state's workers' comp requirement is one of the most important, since failure to do so can result in significant fines. Study after study also has found that workers' comp insurance costs represent a major impact on a business's bottom line. For that reason alone, an employer's insurance agent is as important and necessary as the employer's accountant, lawyer, or financial advisor.
The Agent's Role
The agent's primary role is to serve as the middle person between the employer and an insurance company. Agents work in everything from large brokerage firms to "mom and pop" operations, which may be located in small storefronts. For the most part, agents are paid on a commission basis, which are paid by carriers based on a percentage of an employer's premiums. According to studies conducted by such groups as the Council of Insurance Agents and Brokers, the average agent's commission on a workers' comp policy ranges anywhere from six percent to 10 percent. In the event an agent has a larger client, the commission rates can even be higher, or include a bonus.
An agent's services to an employer revolve around three basic tasks: finding the best workers' comp policy that matches the employer's need, helping the employer handling a claim, and making sure the employer complies with all applicable laws. First and foremost, an agent must explain to the employer the condition of the workers' comp market and how it affects the availability and affordability of coverage.
Since each state is governed by its own workers' comp laws, markets vary from state to state. For example, each state has its own rating law, which can affect the cost of coverage. Some states such as California have passed laws deregulating rates, which gives carriers wide latitude in setting an individual employer's premiums. By comparison, Florida sets so-called "manual" rates whereby all employers' premiums are calculated using the same base rate. Individual employer's rates are then modified based on their loss experience and other factors. Rates can also be affected by each state's system costs, including injured workers' benefits that are based on medical and other costs. That is why states that formerly had higher rates may see a large decrease if state lawmakers pass workers' comp reforms.
In addition to looking at the whole market, employers depend on agents to steer them toward reputable companies. In some states, it is not unusual for hundreds of carriers to offer workers' comp coverage to employers. Given the sheer volume of choices, employers must trust agents to assess the financial stability of a company. Additionally, employers must trust agents to evaluate the employers' businesses and recommend the type of policy that would most benefit the employer. For example, some carriers offer deductible plans whereby an employer may be reimbursed a portion of the premiums if the company suffers less than projected losses. Finally, it is up to the agent to negotiate an affordable policy by getting quotes from several carriers.
Compliance is Key
Due to the complexity of insurance and workers' comp laws, employers are not necessarily expected to know all the ins and outs of the laws' requirements. This is why employers depend heavily on agents to make sure they comply with all the various regulations. Perhaps the most important service agents provide to employers in this area is making sure that all the employers' workers are properly classified for purposes of calculating premiums. There are literally hundreds of job classification codes, and employers found with misclassified workers can face state fines. In extreme cases, state regulators can also issue stop-work orders, which shutdown an employers' business until the fine is paid.
Agents also can also help employers understand the type of documentation demanded under the law. Carriers are required to audit each employer annually to ensure they are in compliance with the law and have paid the proper premiums. In order for an employer to meet the audit requirements, they must present all payroll and other information.
Service Matters
Deciding on an agent is an important step for a new employer and can make a significant difference when it comes to the bottom line. Therefore, choosing an agent is not to be taken lightly. That is why it is important that an agent be well versed in the law, run a professional operation, and take advantage of any opportunity to participate in your community. When it comes to attracting new business, for an agent, everything comes down to reputation.
Many new business owners seek advice by talking to other successful business people. Another strategy is to join a local business group, such as a chamber of commerce, where there is an opportunity to meet agents face-to-face without the prospect of immediately making a choice. A new owner/operator should also reflect on the expectations under consideration for selecting an agent. Remember, this is the first person you are likely to call when an employee suffers an on-the-job injury. This is also the person who likely can provide commercial liability and other necessary business coverage. Chances are, if you as an owner/operator are looking to be in business a long time, the agent you choose will walk with you the entire distance. Therefore, and agent must project competence, trust, and let the employer know that he is a crucial ally in their new enterprise.
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