Workers compensation is one of the largest expenses that many businesses face. Many employers will be shocked to learn how the system actually works. This guide is written in simple terms and focused on highlighting the important facets of this often misunderstood system.

1. Workers Comp
A Practical Guide for Business Owners
Justin Fowler, MBA
925-361-1320
Justin@gsisol.com

2. Workers Comp in a Nutshell
• Before workers comp, if injured at work, the employees had
to sue their employers under Tort Law
• To prevail in court, Torts require essentially all of the
following A) a duty; B) a breach of that duty; C) Causation;
and D) Damages
• Courts spent a lot of time on this and in the interest of
efficiency, lawmakers came up with a solution – Workers
Comp

3. Work Comp System Overview
• No Fault – don’t have to prove Tort requirements (no more
lawsuits, generally)
• Benefits paid to employees are set by state in the following
categories:
• Medical Benefits – Hospital and doctors bills
• Disability Payments
• Temporary Disability – 66% of your weekly
earnings up to 104 weeks
• Permanent Disability – Complicated formulas
weekly income $250-$1750
• Job Training – Max $10k to learn new skills
• Death Benefits - $250k - $320K

4. What Do Work Comp Policies Cover?
• Part 1 or A - Statutory Requirements
• Pays the above mentioned schedule of benefits to
employees for their medical bills, loss of income, training
needs, or death benefits to dependents
• Part 2 or B - Employers Liability
• If the injured worker chooses to sue the employer instead
• Limits in three categories:
• Bodily Injury by Accident $xxx,xxx Each Accident
• Bodily Injury by Disease $xxx,xxx Policy Limit
(aggregate)
• Bodily Injury by Disease $xxx,xxx Each Employee
• Part 3 or C - Other States Insurance
• Pays the state required benefits for other states that the
insured may operate in. Each state has a schedule of
benefits that may be different than CA

5. What Factors Are Used to Calculate Premiums?
• Class code base rate x payroll amounts
• For each employee type and each location
• Location Modifier
• +/- 20%
• Experience Modification Factor
• Company Scheduled Credits
• +/- 10%
• Company discretionary Credits
• +/- 40%
• Final Estimated Premium

6. Workers Comp Pricing
• Premiums are “estimates” and get audited EVERY YEAR
• Like taxes, if you overpay, you get a credit, if you under pay,
you get a bill!
• The ExMod is the only part the Employer can “control”
• There can be large differences in pricing between carriers
• Most companies pick and choose which types of business
they will insure
• The companies that have the fewest or lowest overall
losses are sought after and get the best pricing

7. • In 2016 the average medical expense per claim is $40,678
• The average amount received for lost wages is $29,030
• Hospitals and care providers get paid directly from workers
compensation companies
• Medical costs increase by double digits ever year
• Treatment options increase as new technology is
introduced
• Complying with each state’s individual laws and regulations
gets becomes more complicated and expensive each year
Why Is Workers Comp So Expensive?

8. Where Does The Money Go?
• 60% of premiums go directly to pay Injured workers
• 36% goes to expenses – brokers, attorneys, adjustors, etc.
• 4% is the company profit after all expenses are paid
Injured
Workers
60%
Direct Costs
18%
Indirect Costs
18%
Pure Profit
4%

9. Workers Comp Costs
• Who controls the COST (not the price) of workers comp?
• Insurance Company
• Broker
• Third Party Vendor
• Employer

10. Workers Comp Costs
• Insurance Company
• Payments are set by law
• Third Party Vendor
• Can dispute charges, provide training, etc.
• Broker
• Can assist in prevention and handling of claims
• Employer
• Can take an active roll in prevention, return-to-
work, ongoing processing of open claims

11. Workers Comp Cost Containment
• A Good broker will work with the employer to address:
• Prevention
• Safety Program IIPP
• First aid for minor issues
• Urgent care
• Review procedures
• Case Involvement with open claims
• Review losses with employer
• Model Experience Modification factors
• Best pricing from most advantageous insurance
company

12. Workers Comp Difference
“Work fast, be fair, and implement procedures
immediately to reduce the time and severity of
workplace injuries”
Justin Fowler, MBA
925-361-1320
Justin@gsisol.com