By Joshua Rosen, California Business Journal.
It was only 20 years ago when consumers started buying personal insurance online — and then brands like Geico and Progressive suddenly became colossal heavyweights dominating their industry.
Now, Cerity is doing the same for worker’s compensation insurance.
“Research shows that most businesses are still buying insurance the old-fashioned way and we know that will change completely. With this recent economic downturn, and the move toward remote working, we’re seeing the momentum pick up as businesses are quickly adopting new online business platforms like ours,” says Dennis Dix, Cerity’s Chief Operating Officer.
So are small business owners ready to purchase worker’s comp insurance online too? “It’s going to erupt shortly,” says Dix, who is charged with reimagining how workers’ compensation insurance is priced, purchased, and maintained. “In insurance,” he adds, “nothing happens quickly. It took us over a year to get our regulatory approval to operate in California. So, if you want to be ready to go when the pendulum starts to swing, you have to start before buying behaviors have changed.”
Spreading rapidly across the country, Cerity is now operating in 39 cities. “The is pendulum swinging,” Dix says. “We’re addressing the issues that penalize small businesses.”
To that end, Dix highlights three points that small businesses can do lower their insurance costs. The first is switching to a “pay-as-you-go” billing method.
“A pay-as-you-go system is the best billing method for small business workers’ comp policies for a few reasons — the first of which is small business owners only have to pay premiums when they pay employees,” he says.
In the current pandemic with its past and possibly future lockdowns, a pay-as-you-go system helps businesses better manage cash flow because “business owners don’t pay premiums when the business is closed,” Dix says. “Remember, work comp is only required if your people are working. So, if they’re not working, you shouldn’t have to pay more.”
The pay-as-you-go plan binds the insurance to the payroll, and the amount that a company owes for insurance is calculated only when it is paying employees. “Businesses get tremendous benefits from this billing method — the real value here is that the business only pays the premium when they pay employees,” Dix says.
Traditional policies provide an annualized quote and are paid with installments. When PayGo policies are calculated they result in a “percentage of payroll” as the price.
–Traditional: $500,000 estimated annual payroll; $1,200/year = $100/month
–PayGo: Rate of 0.0024 ($1,200 / $500,000); 0.0024 * payroll during the pay period = amount due)
Dix’s next point: Small businesses can reduce the revenue or square footage on their liability policy as some insurance companies price liability coverage by square footage.
“If a business has temporarily closed its operations, it can remove that square footage from the policy completely, the way someone might take a car off their insurance if they know that it won’t be driven,” Dix says.
Later on, of course, the business can add the square footage back to the policy.
If a business is forecasting lower sales, its insurance carrier can incorporate the new forecast in the price of the policy.
“The upside to this option is that you can continue to operate your business ‘as-is’ but with lower revenue,” Dix says.
Lastly, Dix’s third point: Small business owners can request a payroll endorsement on their workers’ compensation policy.
“Worker’s compensation is a company’s largest insurance expense,” Dix says. “If you’ve reduced payroll or expect you will, your insurance company can process a ‘payroll endorsement’ to the policy.
This payroll endorsement can immediately lower the amount a business owes for the policy term. The full calculation for workers’ comp premium is fantastically confusing, yet all are based on “estimated annual payroll.” This is the amount of payroll a business expects to pay all employees within a twelve-month period.
For businesses with worker’s comp, insurance companies perform an “audit” at the end of the policy term to compare “estimate” to “actual” and true up the payments. Under certain circumstances, the insurance company may refund premium already paid. “It’s rare, yet if the operation is near the end of its policy period, has already paid the entire premium, and its new estimated annual payroll is lower, the entity overpaid, so you will have to request the refund as many carriers prefer to handle these payments at the end of the policy term.”
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