Survey: Small Businesses Don’t Understand Dollars Spent on Workers’ Comp

Too many small business decision-makers appear to be spending money on workers’ compensation insurance coverage without understanding how workers’ compensation insurance works, what they get for their premium payments, or why they continue coverage with a particular carrier, according to a recent survey by Reno, Nev.-based employers.

The national survey by the workers’ comp carrier found that 14 percent of small business owners and executives could not name their insurer.

In the survey, 13 percent admitted they do not understand how workers’ compensation insurance protects employees with work-related injuries, or how their coverage can protect their small businesses’ bottom line against catastrophic claims.

The survey indicated that “experience engenders knowledge,” Employers stated. Respondents who have had two or more claims in the past five years were considerably less likely to report low levels of knowledge about workers’ comp insurance than those with only one claim, and those with zero claims.

Furthermore, those who reported low satisfaction with their current workers’ comp carrier were much more likely to report low levels of knowledge about coverage than those with high carrier satisfaction.

State safety nets

Most workers’ comp insurance policies are not purchased through a local Chamber of Commerce or trade association; only 10 percent of respondents purchased their policies through those channels, the survey indicated.

On the other hand, a significant number of survey respondents reported they rely on state funds for their insurance. Yet among survey respondents dissatisfied with their workers’ compensation carriers, more than half use state funds.

Survey results indicated that state funds appeal to many small business decision-makers who have little knowledge in terms of workers’ compensation insurance and may be the insurer of convenience, Employers said. Only 12 states continue to operate state funds, providing workers’ comp coverage as a safety net.

A related Employers survey result indicated that 18 percent of small business owners who reported having selected a new workers’ compensation carrier within the last policy renewal period were unable to recall the provider they switched to.

Purchasing persuasion

The survey found seven out of 10 small business owners, partners, presidents and CEOs depend upon their insurance agent to explain workers’ compensation coverage and pricing. At the same time, 58 percent of these decision-makers reported they consider choice of a workers’ comp carrier a “hands-on” responsibility that is theirs alone.

Price remains a deciding factor with 75 percent of decision-makers identifying it as their primary motivator in choosing workers’ comp coverage. Sixty-nine percent ranked their carrier’s financial strength as the second most important factor. Sixty percent named claims handling as highly important in protecting small business operations in the event of an employee injury, and in helping to return valued employees back to work as soon as they are able.

Significantly, the single most important source for small business decision-makers interested in learning more about workers’ compensation coverage remains their insurance agent. A majority of respondents (66 percent) reported turning first to their agent when in search of workers’ compensation insurance information. Twenty-two percent identified the Internet as their secondary information source.

The Small Business Market Monitoring Program is a semiannual survey measurement of workers’ compensation insurance industry trends. First quarter 2008 results of the Small Business Market Monitoring Program were released by Employers in collaboration with Profile Marketing Research Inc., of Lake Worth, Fla. Data was collected through telephone interviews from December 2007 through January 2008 from a national sample of 400 small business decision-makers at companies with 549 employees. The survey results had a +/- 4.89 percent margin of error.

Topics Trends Carriers Commercial Lines Workers' Compensation Business Insurance