Workers Compensation Insurance
Pay-As-You-Go Insurance Delivery Though this is not a new product to the insurance space it is certainly gaining popularity in the Workers Compensation and General Liability product lines. You could give credit to the payroll vendor companies for assisting in the development that's pushing the envelope, but it appears that many insurance markets are grasping the rope and pulling their way into the market that once belonged to the staffing and employee leasing companies (better known today as Professional Employer Organizations). Having spent the last 20 years working in the human resource outsourcing industry from the insurance side I have learned a great deal about how and what small business owners look for in their service vendors. One thing for sure is the simplicity of paying for workers comp and commercial general liability is high on the list. Along side of insurance delivery methods are the services provided by Staffing and Professional Employer Organizations; it is what has given them a marketable edge in small business community.
What is Pay-As-You-Go Insurance? In the last few years multiple insurance carriers have being working on putting together programs that don't require a deposit and set up on a monthly self-audited basis. Included in the lineup is Workers Compensation and Commercial General Liability policies. To put it more in perspective with workers compensation; traditionally, Insurance Carriers estimate your premium costs on an "estimated and projected annual basis" for the coming year. Totaling the estimated premiums and fee's they will collect a deposit of normally 25% and then divide the remainder of estimated premium over 6 to 11 monthly payments. If the estimated amounts are accurate, well then no big deal; however, if the estimates were too high you would be paying more than necessary for a whole year; likewise, if the estimate was too low you would get a big audit bill at the after the end of the policy period. In a similar format the Commercial General Liability calculations are the same in pay as you go programs. It is interesting to note about traditional Commercial General Liability policies; that is, typically these policies are rated based on gross business receipts, not payroll. So one of the unique changes to insurance structure in Pay-As-You-Go, is the reformatting of their rating systems and actuarial databases for loss perspectives and the developing adequate premiums which are based on payroll instead of receipts. This reflects an initial slower to market process because of the development of new rate tables matched to payroll.
Year End verses Monthly Self-Audits The review method for adjusting the premium is corrected through your final audit that is completed at the end of the policy period (usually about 3 to 6 months after). It is at that point you would request a credit or refund to get your money back, or worse, have to write a check for the increased premium amounts due. Either way you slice it whether up or down, it is a bit of an antiquated method to say the least. If you contrast the Pay-As-You-Go model with the traditional model you can easily see the benefit of Pay-As-You-Goo in cash flow control. Under the self-audit model in Pay-As-You-Go, each month you tally up your payroll amounts for each assigned class (important: removing excess overtime, tip and per deim type wages) and submit net workers compensation wages to your Carrier. Depending on the method used by your Pay-As-You-Go program (i.e. the reporting/billing method the carrier uses), you will receive a bill for the exact premium that is due. It's a far better system and certainly gives you a more accurate premium picture while reducing your collateral costs because deposits are not required. So the name of the program "Pay-As-You-Go" makes sense, in that, you only pay for the amount of insurance you have too as you go.
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