Workers’ Compensation Insurance options for Alabama Business

Per the Alabama Department of Labor, businesses with more than four

employees are required by the Alabama Workers’ Compensation Law to

carry workers’ compensation insurance coverage on each employee.

With regards to workers’ comp, full-time workers, part-time workers, and

company officers all fall under the grouping of “employee.” Employers

are free to choose the best way for their business to cover workers’

compensation liability requirements.

Coverage

Workers’ comp insurance protects the business by limiting civil liability

and specified damages while providing employees with a remedy for

occupational disease and injuries sustained on the job. Examples of

employee benefits are medical coverage and wage compensation. In

exchange for these benefits, employees are no longer entitled to pursue

any legal claims against their employer regarding the incident. While the

law allows quite a bit of leeway as to the method of insurance a business

selects, the available options are quite strict with their criteria in

granting a policy. It is important to discuss all your options with your

insurance agent in order to select the best allowable policy for your

business.

Commercial Insurance – Voluntary Market

Employers who have a low to medium risk of workers’ compensation

claims should consider attaining coverage on the “voluntary market.”

Underwritten by a state-approved insurance carrier and purchased

through your agent, these policies are recognized by the Alabama State

Courts and guaranteed by the Alabama Insurance Guaranty. An

additional advantage is that employers can compare market rates and

choose the most reasonably priced policy for their needs. The downside

to the voluntary market option is that the insurance carrier, not the

business, makes the determination on whether or not to renew the

policy. Carriers are also free to implement rate increases.

Commercial Insurance – Assigned Risk Pool

If your business has a medium to high risk of workers’ compensation

claims, or a history of claims, insurance carriers may decline to write a

policy for your business. If this is the case, you can purchase insurance

through the “Assigned Risk Pool” also called the “involuntary market.”

In this scenario you can still purchase your policy through your insurance

agent, but it is written and administered by the National Council on

Compensation Insurance. However, before attaining this type of policy

you and your agent must make a direct application to the NCCI

Assigned Risk Pool with proof that you have contacted and been

refused by two insurance carriers. As with a voluntary market purchased

policy, these policies are recognized by the Alabama State Courts and

guaranteed by the Alabama Insurance Guaranty. Insurance carriers that

participate in the Assigned Risk Pool are approved by the Alabama

Department of Insurance. This option limits the employer greatly as

there is no input regarding the choice of insurance carrier, the policies

are typically high cost, and subject to rate increases.

Group Self-Insurance

Group Self-Insurance coverage is obtained when a business joins a group

self-insurance fund. There are several Funds from which to choose, and

policies can be purchased through your insurance agent or the Group

Fund Administrator. Once it is determined that the employer meets the

requirements set forth by the selected Fund, the employer must enter

into an agreement to pool their liabilities for the sole purpose of

providing workers’ compensation benefits. This system is also recognized

by the Alabama State Courts and approved and regulated by the

Alabama Department of Labor, but it is not guaranteed by the Alabama

Insurance Guaranty Association. Renewal of membership is determined

by the Fund, and the policies are subject to rate increases although they

are generally reasonably priced.

Individual Self-Insurance

A business can decide to become a “self-insurer” but must meet

several financial qualifications. Per the Alabama Department of Labor,

these qualifications include:

✗ Audited financial statements;

✗ A $5 million minimum net worth;

✗ Current assets to current liabilities ratio of 1.0 or greater; and

✗ A positive net income.

If these qualifications are met, the employer must submit to the Alabama

Department of Labor an application for self-insurance. Once approved,

the employer themselves is responsible for paying any benefits

mandated by the Alabama Workers’ Compensation Law. This

arrangement is recognized by the Alabama State Courts and regulated

by the Alabama Department of Labor, but allows the employer the

freedom to manage claims, legal issues, and safety programs. There are

several drawbacks to imposing this type of insurance, mostly financial.

The Alabama Department of Labor cites cost considerations such as:

assessments, fees, taxes, payments to the injured workers – which can

be a long-term liability because of lifetime medical benefits mandated by

law – litigation, and membership in the Alabama Workers’ Compensation

Self Insured Guaranty Association.

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