As most business owners know, workers compensation insurance is a state-mandated insurance program that provides benefits to employees who are injured or become ill as a result of their job. In return for this protection, employers are typically required to pay premiums to a workers compensation insurance carrier.
While workers compensation insurance is designed to be a “no fault” system, there are still instances where employers may be held liable for workplace injuries. In these cases, workers compensation insurance can provide vital financial protection for businesses.
One way that workers compensation insurance carriers protect employers is by offering reinsurance. Reinsurance is essentially insurance for insurance companies. It is a way for carriers to spread out the risk of paying claims by sharing the risk with other carriers.
While reinsurance is not required by law, most carriers purchase reinsurance to protect themselves from the financial impact of large claims. By sharing the risk with other carriers, carriers are able to keep their premiums low and offer more stable rates to their policyholders.
For workers compensation associations, reinsurance can be an important tool for managing risk and keeping premiums affordable. Associations are typically made up of small businesses that may not have the financial resources to self-insure against a large claim.
By pooling the resources of its members, a workers compensation association can purchase reinsurance to protect its members from the financial impact of a large claim. In return, members of the association typically pay lower premiums than they would if they purchased workers compensation insurance on their own.
While workers compensation insurance is not required by law, it is an important coverage for businesses to have. By pooling the resources of its members, a workers compensation association can provide its members with the financial protection they need at a price they can afford.