Workers’ Compensation

Workers’ Compensation Policy

Workers who have been injured or become ill have a right to receive specific benefits through workers’ compensation insurance, depending on the nature of their condition. These benefits can be categorized into five main types, encompassing medical care, temporary disability compensation, long-term disability compensation, support for job displacement, and death benefits. Each injured worker may be eligible for one or multiple of these types of compensation.

Medical Care

Employees who have sustained injuries while on the job have the right to obtain any necessary medical treatment to heal or alleviate the consequences of their work-related ailment or injury. This medical care encompasses a wide range of services, such as doctor consultations, hospital stays, rehabilitation sessions, physical therapy, chiropractic treatments, dental procedures, prescription medications, x-ray examinations, laboratory services, and any other required care as deemed appropriate and sensible by the attending physician, while adhering to relevant treatment guidelines.

Except for specific treatment requests initiated by treating doctors within an employer’s Medical Provider Network (MPN), all medical treatment demands are forwarded by the treating physician to the workers’ compensation insurance company for the purpose of utilization review (UR). The UR process will then result in the approval, alteration, or rejection of such requests. In case an injured worker disagrees with a decision to modify or deny treatment, they have the option to contest it by requesting an independent medical review (IMR).

If you seek further details regarding UR and IMR, make sure to reach out to the Medical Unit of the Division of Workers’ Compensation (DWC). This unit operates under the Department of Industrial Relations (DIR). Typically, it is the duty of the employer to make all necessary arrangements for medical care during the initial 30 days once the injury or illness is reported.

Alternatively, in the circumstance of a workers’ compensation injury or illness, if an employee wishes to receive treatment from their own doctor, they must have previously designated their personal physician. This designation should be made known to the employer before the work-related injury or illness occurs.

Typically, in situations where the employee has not made a prior decision and the employer or their workers’ compensation insurance company chooses a Health Care Organization (HCO) or a Medical Provider Network (MPN), the injured employee will initially receive treatment from the HCO or MPN. The injured employee’s freedom to change their attending doctors will rely on whether they are being treated in an HCO, MPN, or by their previously designated physician. For additional information, employees can reach out to the Information and Assistance Officer at their nearest DWC office. Additional contact information is available on their website.

First Aid Treatment

Employers are required to offer their injured employees first aid treatment as part of their medical care. The California Department of Insurance (CDI) and the DWC are jointly emphasizing the importance of adhering to Section 6409(a) of the California Labor Code for all employers, physicians, insurance companies, and self-insurers.

Physicians are mandated by Section 6409(a) to submit a report, known as the Doctor’s First Report of Occupational Injury or illness (DFR), to the claims administrator for all work-related injuries or illnesses they treat, regardless of severity. This includes cases where only first aid is administered and no work time is lost. While the Labor Code permits first aid exceptions when it comes to the Employer’s Report (Form 5020) and the Employee Claim Form (DWC-1), it fails to provide a similar exception for the DFR. Consequently, the responsibility falls upon the insurance company or self-insured employer to submit DFRs to the DIR.

The CDI and DIR suspect that certain medical providers and employers have established dubious agreements that give the employers the power to influence how physicians classify injuries. There are instances where physicians, upon employers’ requests, solely report the Detailed First Reports (DFR) of injuries to the employers, intentionally omitting the insurance companies from the loop. This agreement persists despite the evident severity of the injuries exceeding mere first aid requirements.

Employers frequently promote this contract as a means to prevent or decrease the increase of insurance costs. However, these promotional strategies are unethical and could potentially lead to criminal infractions involving the fraudulent manipulation of premiums and unjust denial of rightful worker’s compensation benefits for injured employees.

Temporary Disability

If a worker is unable to resume work within three days following an injury or illness, they have the right to receive temporary disability benefits to compensate for the partial loss of wages caused by the injury or illness. Prior to receiving these benefits, it is necessary for a physician to confirm that the employee cannot perform their job duties due to the work-related injury or illness.

There is no compensation provided during the initial three days of an employee’s absence, unless they spend a night at the hospital or are unable to work for a span exceeding 14 days. Temporary disability benefits are intended to compensate for two-thirds of lost earnings, with the amount capped at the legal maximum. These benefits are typically disbursed biweekly until the employee is fit to resume their job or their condition stabilizes. The duration of these benefits is bound by statutory constraints that limit the timeframe for which they are provided. The restrictions are contingent upon when the injury took place and the nature of the injury.

Permanent Disability

In the event that an employee sustains a work-related injury or illness leading to lasting impairment, they may qualify for permanent disability benefits. The compensation they receive is determined using a specific formula, taking into account factors such as the severity of the physical injury or disfigurement, the employee’s age at the time of the incident, their occupation, and the date the injury occurred.

When determining permanent disability, additional factors taken into consideration are apportionment (the proportion of disability attributed to work versus other causes) and an adjustment factor that considers the diminished ability of an injured employee to earn future income. The prevailing legislation on employees’ compensation establishes the fixed benefit quantity, along with the lower and upper thresholds for the sums to be disbursed. These benefits are dispensed bi-weekly until either the maximum sum is attained or the payment is consolidated into a one-time lump sum settlement.

The calculation of permanent disability percentage relies on the formula mentioned in the Permanent Disabilities Rating Schedule, which is utilized following an evaluation of the worker’s enduring impairment and restrictions. Various schedules are offered, each corresponding to specific injury dates. The Department of Industrial Relations (DIR) Website provides access to these indispensable Schedules for Rating Permanent Disabilities. For complete DIR contact information, you can visit their website.

The determination of the injured employee’s lasting impairment and restrictions is conducted by a doctor who can be the doctor treating them, a Qualified Medical Evaluator (QME), or an Agreed Medical Evaluator (AME) in the case where the employee has legal representation.

The DWC’s Medical Unit is responsible for the appointment and regulation of QMEs. In case of a disagreement with the treating physician’s opinion and if the worker is unrepresented by an attorney, they have the option to select a QME from a panel of three members provided by the DWC’s Medical Unit for a separate evaluation. Check the Resources section in this brochure for contact information of the DWC Medical Unit.

If there arises a disagreement between the attorney and the workers’ compensation insurer regarding the opinion of the treating physician for a represented worker, they are required to make an effort to find common ground on an AME to conduct the evaluation. In the event that they fail to reach an agreement and the injury occurred in 2005 or onwards, the DWC’s Medical Unit will step in and appoint a three-member QME panel instead.

The three-member panel offers a potential solution for parties to reach a consensus on a physician. However, in case of disagreement, each party is granted the opportunity to eliminate one physician’s name from the panel. This process continues until only one physician remains, who will then conduct the evaluation. In instances where parties fail to agree on an AME and the injury occurred before 2005, they have the option to individually choose their own QME.

Should the assessments diverge, the determination of permanent disability will occur via negotiation or, when required, by means of legal proceedings.

Supplemental Job Displacement Benefit – for injuries between 01/01/04 and 01/01/13

Between the specified period of 01/01/04 and 01/01/13, individuals facing an injury have access to a distinctive provision called the Supplemental Job Displacement Benefit (SJDB). This benefit takes the form of a nontransferable voucher, exclusively dedicated to funding education-based retraining or skill enhancement programs. An eligible state-approved or accredited school can accept this voucher as a means of covering various expenses, such as tuition, fees, books, and any other essential costs directly associated with the specified program.

To avail of the opportunity, 10 percent of the voucher can be allocated to compensate a vocational or return-to-work advisor. For the injured individual to be eligible for this perk, they must have endured lasting impairment, not been capable of resuming work within 60 days following the conclusion of temporary disability, and the employer should have neglected to promptly present modified or alternative employment options. The law has established a specific limit for vouchers, which is determined by the degree of permanent disability and can vary in amount.

Supplemental Job Displacement Benefit – for injuries on or after 01/01/13

If the injury occurred on or after January 1st, 2013, this advantage bestows a singular and inalienable voucher for educational retraining or augmenting one’s skills. This voucher possesses the ability to cover various expenses related to education, including but not limited to tuition, fees, books, tools, and other necessary components. These expenses can be incurred at any California public school or an approved training provider as mentioned in the state’s accredited training list.

Additionally, this versatile tool serves multiple purposes, including covering expenses for licensing or professional certification fees, costs associated with examinations, and fees for preparation courses. Furthermore, it allows individuals to acquire computer equipment worth a maximum of $1,000 and provides reimbursements of up to $500 for various miscellaneous expenses.

Employers have a duty to provide certain benefits to employees who sustain permanent disabilities as a result of workplace injuries, such as offering regular, modified, or alternative work opportunities in a timely manner. To ensure fairness, employers must also extend a voucher to these employees, regardless of the severity of their disability. This voucher holds a value of up to $6,000 and cannot typically be used as part of a settlement agreement.

Return-to-Work Supplement Program – for injuries on or after 01/01/13

The DIR administers the Return-to-Work Supplement Program (RTWSP) benefit, which offers a unique payment to employees facing a significant income loss compared to their permanent disability ratings. This benefit can be applied for by employees who incurred an injury on or after January 1st, 2013, and have already received an SJDB voucher related to that particular injury.

In order to be considered, the employee is required to fill out an online application on the DIR Website. This application must be submitted to the DIR within one year from the date the SJDB voucher was sent to the employee. Should the employee be deemed eligible, they are entitled to receive a single, non-recurring payment of $5,000 in accordance with current legislation.

Death Benefits

In the unfortunate event of a worker suffering a fatal injury while on duty, the cost of a dignified burial is covered up to the legally set maximum amount. In addition, eligible dependents left behind may receive financial support for a specific duration of time. Such support payments are typically provided on a weekly basis, equivalent to the highest temporary disability benefit available.

The overall sum of support payments granted varies depending on the number and level of dependence of the beneficiaries.

Workers Compensation FAQs

How Is Coverage Structured in a Workers’ Compensation Policy?

Part One of a workers’ compensation insurance policy encompasses workers’ compensation coverage. Here, the insurer commits to timely disbursing all entitled benefits and compensation to a worker who has sustained injuries. The employer is legally required to bear the burden of these payments, as prescribed by the relevant workers’ compensation law/laws of the state(s) specified in the policy’s Declarations/Information section.

Is Workers’ Compensation insurance the only option for employees injured at work?

An employer’s assumption of complete responsibility for work-related injuries entails that workers’ compensation benefits become the exclusive recourse available to injured workers, leaving them with no legal grounds to sue their employers for damages in civil court.

Employees who suffer work-related disabilities often rely on workers’ compensation as their only source of remedy. However, it is crucial not to overlook the significance of employers’ liability insurance, which can offer valuable coverage alongside workers’ compensation insurance. This valuable coverage is provided through Part Two of a comprehensive policy that combines workers’ compensation and employers’ liability insurance.

Employers’ liability Part Two serves as a safeguard for employers, providing protection in cases where an employee’s injury or illness falls outside the scope of workers’ compensation laws. Employers can seek guidance from a certified commercial broker-agent to explore the inclusion of employers’ liability coverage within their workers’ compensation policy.

Who needs to purchase Workers’ Compensation Insurance?

Under California Labor Code Section 3700, every employer in California is obliged to offer workers’ compensation benefits to their workforce. It is mandatory for businesses employing even a single individual to comply with this legal provision. Additionally, certain contractors may be obligated to possess workers’ compensation insurance, as stated by the law, regardless of whether they have employees or not.

In certain circumstances, a sole-proprietor who owns a business might find it necessary to acquire workers’ compensation insurance solely for their own coverage. To ensure this specific inclusion of a sole-proprietor, it is vital that it is explicitly mentioned within the policy itself or added as an additional endorsement for coverage purposes. Due to its nature of holding the employer fully accountable for any work-related injuries, workers’ compensation insurance, which falls under liability insurance, may not be the most suitable option for a sole proprietor seeking insurance coverage.

A sole-proprietor seeking alternatives to workers’ compensation can consider purchasing health, life, or disability income insurance. For more details and advice, it is advisable to reach out to a licensed commercial broker-agent or a casualty broker-agent. Workers’ compensation coverage must extend to executive officers and directors of quasi-public or private corporations when they perform paid services for the corporation, unless they choose to be exempted from such coverage.

A written waiver can be executed by an officer or director who possesses a minimum of 10 percent of the corporation’s stock that is issued and outstanding (or a minimum of 1 percent of outstanding stock if a designated family member owns at least 10 percent of the stock). This waiver allows them to opt out of workers’ compensation coverage if they have their own health insurance policy or health care service plan. 

In like manner, an individual who holds a position as a principal member in a joint venture or as a director in a legally registered company with limited liability has the option to opt out of workers’ compensation benefits by submitting a written waiver, even if they receive wages regardless of the profits gained.

A licensed commercial broker-agent would prove beneficial for employers who wish to explore the inclusion or exclusion of these individuals in their discussions. 

In California, determining who falls under the category of an employee and needs to be included in a workers’ compensation policy is outlined in Section 3351 of the California Labor Code. This section also takes into account any exceptions that may apply. On the other hand, Section 3352 automatically exempts certain individuals from being considered as employees, while also explaining the process for other workers to voluntarily waive their coverage.

Employers are not restricted from offering workers’ compensation insurance to their workers under this provision, should they wish to do so. Irrespective of whether a business is a sole-proprietorship, partnership, Limited Liability Company, or a corporation, it is advantageous to establish a productive association with a dependable and skilled broker-agent. These professionals can elucidate matters concerning coverage eligibility and offer choices tailored to the organizational structure of a business.

How does an employer get  Workers’ Compensation Insurance coverage?

Businesses have two choices when it comes to acquiring workers’ compensation insurance: they can buy it from a licensed insurance company or obtain it through the State Compensation Insurance Fund (State Fund). Additionally, employers are provided with the alternative of self-insuring for workers’ compensation.

A licensed insurance broker-agent can be of great help to businesses in obtaining workers’ compensation insurance. They have the knowledge and expertise to guide businesses in purchasing insurance from authorized companies and can also provide details about State Fund and self-insurance options. Additionally, valuable information about insurance companies authorized to sell workers’ compensation insurance and a convenient online rate comparison of the leading 50 workers’ compensation insurers can be easily found on the official website of the California Department of Insurance (CDI) – www.insurance.ca.gov.

State Fund is a government-backed institution that conducts workers’ compensation transactions without seeking profit. It engages in competition with private companies offering workers’ compensation insurance while simultaneously functioning as the final insurance option for workers when private firms decline coverage.

To learn more about how State Fund works, businesses can initiate direct contact with State Fund itself or get in touch with a licensed commercial broker-agent such as SeaCastle.

In order for a business to attain self-insurance, they must acquire an official certificate from the Office of Self-Insurance Plans (OSIP) within the DIR. This applies to private employers as well, who have the obligation to either provide security or engage in alternative security deposit program agreements with the Self-Insurers’ Security Fund. This requirement must be fulfilled in order to receive the necessary certificate granting consent for self-insurance.

Previously, only very large companies could self-insure because of strict regulations. However in recent years, group self-insurance has become popular. In this scenario, companies from the same industry pool their liabilities and provide self-coverage as an alternate for standard workers compensation policy. To get more details about self-insurance for workers’ compensation, get in touch with OSIP or with a licensed broker such as SeaCastle.

What if an employer fails to purchase Workers’ Compensation Insurance?

Failure to purchase workers’ compensation insurance by employers in California is considered a violation of the Labor Code. In such cases, the Division of Labor Standards Enforcement (DLSE) holds the power to issue a stop order against uninsured employers. This stop order effectively suspends all business activities until proper workers’ compensation insurance is obtained.

In addition to the issuance of a cease and desist order, the DLSE has the authority to impose penalties depending on whether an employer is found to have operated without insurance coverage either through a regular investigation or by means of filing a claim for a worker’s injury with the Uninsured Employers Benefits Trust Fund.

Not having workers’ compensation coverage is against the law, and the consequences can be severe. According to Section 3700.5 of the California Labor Code, this offense is considered a misdemeanor. The individual responsible may face up to one year in county jail, a fine of up to twice the value of the workers’ compensation premium that should have been paid during the period of being uninsured (a minimum of $10,000), or both penalties combined.

Illegally uninsured employers face severe repercussions as the state imposes fines of up to $100,000. In the unfortunate event that an employee sustains an injury or falls ill due to work-related circumstances, it is the employer’s liability to cover all associated medical expenses if they are uninsured. Employers seeking additional guidance can reach out to the Information and Assistance Officer at their nearest DWC office.

When the employer has obtained appropriate insurance, workers’ compensation benefits become the sole recourse for individuals affected by workplace injuries. In the event that a worker falls ill or sustains an injury due to work-related circumstances, they possess the right to bring a civil lawsuit against their employer if the latter is unlawfully uninsured. This option is available alongside the option to file a workers’ compensation claim.

If employers neglect their obligation to provide necessary benefits, they may find themselves accountable for reimbursing the Uninsured Employers Benefits Trust Fund. Violating the law by deliberately not obtaining workers’ compensation insurance can lead employers to face charges of insurance fraud. The CDI collaborates with various agencies to thoroughly examine suspected cases of fraud and collaborates with local district attorneys’ offices to take legal action against those who breach the law.

What are the Uninsured Employers Benefits Trust Fund and the Subsequent Injuries Benefits Trust Fund?

In case an employee suffers from a workplace injury or illness when their employer illegally lacks workers’ compensation insurance, they have the option to lodge a claim with the Uninsured Employers Benefits Trust Fund (UEBTF).

When an employer fails to provide insurance or neglects to make the required payment or bond for compensating injured workers, the UEBTF comes into play. This organization takes charge of workers’ compensation claims and aims to retrieve the funds it has paid on behalf of uninsured employers. For contact details concerning the UEBTF, please refer to the Resources section in this brochure.

If an individual, who was once an employee, possesses a preexisting permanent disability or impairment and encounters another injury or illness at work, they might have the opportunity to receive supplementary remuneration via the Subsequent Injuries Benefits Trust Fund (SIBTF). To be eligible for such assistance, the total permanent disability must amount to a minimum of 70 percent, with additional criteria needing to be fulfilled.

Employers bear no responsibility for the overall disability of an injured worker if any part of the injury is caused by factors unrelated to the workplace, as per workers’ compensation law. The employer’s liability is solely limited to the compensation owed to the worker for the latest work-related injury, excluding any previous injuries.

What factors contribute to the premium of a Workers’ Compensation policy?

Classification

The computation of workers’ compensation premiums relies on the categorization of employers according to their respective activities and the associated rates attached to each particular employer category. The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is responsible for creating classifications that classify unique and recognizable occupations, industries, or businesses, assigning them specific codes which are then sanctioned by the Insurance Commissioner. Insurance providers typically utilize these classifications as a basis for crafting workers’ compensation policies.

Insurance companies have the freedom to create and present their own classification system to the CDI for approval. It is not often that approval is granted for a separate workers’ compensation classification system, as the standards for it are quite strict. To assist employers with any inquiries regarding classification, experience modification, and rating matters, the WCIRB offers a policyholder ombudsman. You can find the contact details for the WCIRB and the policyholder ombudsman in the “Resources” section of this brochure.

Open Rating

For every industry classification code, workers’ compensation insurers determine a unique rate. These rates need to be officially submitted to the CDI. At present, in California, workers’ compensation insurers work within what is known as an open rating system. In this system, individual companies have the freedom to establish rates based on their capacity to sufficiently manage losses and expenses associated with each industry classification. 

In order for workers’ compensation insurers to operate, they must first submit their rates and any relevant supplementary rate information to the CDI. This is known as open rating. Multiple factors are taken into account when reviewing these rates, with rate adequacy being a crucial aspect.

Insurance companies must ensure that their rates are sufficient to keep the company financially stable. These rates also help to ensure that insurance companies have the necessary surplus funds to fulfill current and future claim obligations. In order to protect consumers and promote fair competition, the Insurance Commissioner prohibits rates that are insufficient to cover losses and expenses, unfairly discriminatory, or that may lead to a monopoly in the market. The Commissioner’s power does not extend to rejecting rates that are only deemed exorbitant, as dictated by the law.

Premium Modification

The premium calculation commences by determining the classification code alongside its corresponding rate. Expressed in dollars and cents, the rate is an essential factor. Estimations are made for the payroll of each classification, which is then subjected to multiplication (per $100 of payroll) with the applicable rate. The end result of this equation is referred to as the base premium.

The foundational premium undergoes alterations, which can be either incremented or decremented, utilizing rating plans, typically identified as schedule or judgment rating, as well as through experience modification. (For detailed explanations of schedule and judgment rating, kindly refer to the Glossary section.)

Experience Modification

Every year, insurance companies are mandated to provide the WCIRB with payroll and loss data, which is then used to calculate an employer’s experience modification. The experience modification, calculated using a formula approved by the CDI, is specific to each eligible employer. This formula carefully considers the employer’s payroll and losses, including paid losses and loss reserves, within a specified experience period.

The assessment of experience modification is based on comparing an employer’s history of losses or claims to that of other similar-sized employers in the same industry. In cases where the experience modification is below 100%, it indicates a greater-than-average level of expertise, while a modification above 100% signifies a below-average level of proficiency. The estimated premium is determined by incorporating the experience modification, alongside any additional adjustments like schedule or judgment modifications, into the base premium.

Prospective Rating

Prospective rating, portrayed above, is deemed the fundamental formula for workers’ compensation rating. Although various rating plans exist for calculating workers’ compensation premiums, such as retrospective rating or dividend plans, prospective rating remains the most widely used method. Any enterprises seeking a deeper understanding of workers’ compensation rating methods are advised to reach out to a licensed broker-agent for additional details.

Premium Audit

The ultimate cost of a workers’ compensation policy remains unknown until the policy term concludes and thorough examination of the employer’s payroll documents takes place. By conducting a final assessment of payroll records, it is determined whether the initial estimated payroll was accurate or not. If the actual payroll exceeds the estimated amount, the employer will be liable to pay an extra premium.

In the event that the projected payroll decreases, the employer becomes eligible for a refund premium from the insurance company. To accommodate employers with varying payrolls, certain workers’ compensation insurers provide a monthly payroll reporting alternative. If such an option is unavailable, the employer can collaborate with their broker-agent or insurance company underwriter to promptly report significant payroll fluctuations throughout the policy duration.

Having accurate payroll estimates throughout the policy term is essential in mitigating the risk of encountering a substantial premium audit bill or a considerable return premium. These occurrences have the potential to heavily impact a business’s cash flow.

Employers must be mindful of the fact that workers’ compensation insurance providers typically possess the authority to examine payroll records throughout the duration of the policy and up to three years following its conclusion. While this prerogative is commonly exercised during the final audit, interim audits may also be conducted at the discretion of insurance companies.

Noncompliance with an insurance company’s audit can result in policy cancellation or non-renewal, with insurance companies employing any legal methods to retrieve unpaid premiums. Furthermore, an employer who obstructs an insurer’s audit may be compelled to pay a total premium amounting to three times the initial estimate.

In addition, the WCIRB has the authority to establish experience modifications based on reported losses while disregarding unaudited payroll. This often leads to a higher experience modification compared to previous years. It is crucial to acknowledge that intentionally providing inaccurate payroll information is perceived as insurance fraud and may be legally penalized to the maximum extent.

The WCIRB holds the authority to perform an audit on a company’s payroll records, enabling them to assess the insurer’s accuracy in conducting the payroll audit.

Does the CDI have jurisdiction over Workers’ Compensation Claim issues?

It should be emphasized that the majority of conflicts arising between employees who have suffered injuries and workers’ compensation insurance companies are not within the jurisdiction of the CDI [1]. The DWC provides support to both employers and employees handling workers’ compensation claims. In case an employer or employee has any doubts or worries regarding a workers’ compensation claim, they can reach out to the Information and Assistance Unit of the DWC.

Should an unrepresented injured worker encounter any disagreements related to their workers’ compensation claim, the DWC’s Information and Assistance Unit is readily available to aid in successfully resolving the dispute. In the event that the dispute remains unresolved, it is possible to file a formal Application for Adjudication (dispute resolution) with the DWC.

If a worker who has been injured seeks assistance in filing the Application with the DWC, the Information and Assistance Unit is there to lend a helping hand, unless they have already hired an attorney. It should be noted that the jurisdiction over conflicts arising from workers’ compensation claims lies solely with the DWC. 

CDI addresses cases of fraudulent submission or denial of workers’ compensation claims by conducting investigations, as stated in California Insurance Code Section 1871.4.

Both employers and employees have the option to get in touch with the DWC through the contact details mentioned in the informative Resources section. This section further includes precise contact information for both the Information and Assistance Unit and the DWC. Furthermore, it is essential that an employer has the capacity to engage in conversations regarding any prevalent matters related to workers’ compensation claims with their appointed broker-agent, additionally being able to address a particular claim directly with the claims adjuster tasked with overseeing it on behalf of the workers’ compensation insurance company.

How Does the CDI Address Workers’ Compensation Concerns?

The focus of the CDI lies predominantly on matters related to the assessment and approval of workers’ compensation insurance. Individuals have the option to get in touch with the CDI for a diverse range of concerns pertaining to the rating and underwriting of workers’ compensation.

Here are the various grievances related to workers’ compensation insurance that fall within the authority of the CDI when it comes to consumer affairs: 

• Adherence to established premiums by insurers
• Mistakes in assessing insurance rates
• Disagreements regarding classifications and adjustment of experience
• Negligence in delivering reports on loss history
• Notifications of policy termination and refusal to renew
• Disputes arising from audits
• Policies concerning the distribution of profits
• Resolutions related to the activities of broker-agents
• Dealing with instances of insurance fraud

The Title 10 of the California Code of Regulations (CCR) has laid out a comprehensive set of guidelines from Sections 2509.40 to 2509.78 that outline the precise steps to follow when challenging experience modifications and classification assignments, extending to the possibility of appealing to the CDI. If you find yourself facing obstacles in workers’ compensation rating and underwriting, we encourage you to reach out to the CDI using the contact details mentioned in the Talk to Us section of this brochure. Our team is adept at assisting individuals in effectively resolving workers’ compensation concerns relating to rating and underwriting matters, with successful outcomes being the norm. 

In the event that the CDI lacks jurisdiction, individuals can approach the relevant state organization to obtain necessary aid. It is crucial to reach out to the CDI if you suspect any instances of workers’ compensation fraud. Anonymous fraud reports can be submitted to the CDI. The higher the quality and reliability of the information provided, the better the chances of catching and bringing to justice the culprits involved in workers’ compensation fraud.

What is a loss reserve?

In the realm of insurance, loss reserves play a vital role in assessing the financial value associated with every claim. Essentially, these reserves represent a calculated sum that insurance companies allocate as a provision, designated specifically for covering potential claims. The task of determining the appropriate loss reserve generally falls upon the shoulders of claims adjusters, who employ their expertise and discernment in making this crucial decision.

Prior claims experience is valuable in assessing the necessary surplus funds an insurance company should maintain to fulfill its present and future obligations towards claims. Reporting workers’ compensation loss reserves, alongside other relevant claim data, is mandatory for insurance companies to provide to the WCIRB. The information aids the WCIRB in computing experience modifications. 

Inadequate loss reserve practices can spell financial disaster for an insurance company. Whether by overestimating or underestimating loss reserves, the company risks mismanaging funds that should be allocated for claim payouts, thereby distorting its true financial obligations. Insufficient reserves to cover future liabilities directly affect the insurer’s solvency, creating a negative impact.

On the other hand, an excessive allocation of funds might result in an artificial increase in the experience modification, which in turn could lead to the unjustified rise in premiums for the insured individuals. Given the significant priority placed on upholding the financial stability of insurance companies, it is crucial that the loss reserves remain highly precise and are updated frequently using the latest claims data at hand.

How does an employer request a workers’ compensation premium and loss history report?

The policyholder or their authorized broker-agent must make a written request for workers’ compensation premium and loss history reports, also known as loss runs. As per California Insurance Code Section 11663, the insurance company is obligated to respond within 10 business days.

Five scenarios can result in the termination or non-renewal of the policy. First, if the policy is canceled or not renewed. Second, if the policyholder asks for the information within 60 days before the existing policy’s renewal date. Third, if the policyholder’s current insurer’s rating is downgraded by a well-known insurance rating service to a financial rating lower than secure or good, or to a rating that would harm the policyholder’s ability to conduct their business activities. And fourth, if the department conserves the policyholder’s current insurer or orders them to halt business operations. 

In the event that an insurance company does not adhere to a written inquiry for loss records as outlined in Section 11663.5 of the California Insurance Code, seek help from the CDI by utilizing the contact details available in the Talk to Us segment presented towards the conclusion of this informational booklet.

What is a minimum premium?

Insurance companies enforce minimum premium thresholds to account for the costs associated with policy issuance and management. In cases where a company has a limited payroll, the resulting premium calculated may be significantly diminished.

Insuring a risk becomes financially impractical for an insurance company when the calculated premium is too low to cover basic expenses. In such cases, the insurer would only incur losses even before any claims are made. In order to mitigate this, insurance companies set a minimum premium as the lowest acceptable fee to charge for assuming a risk. As part of their rating plan, insurance companies are obligated to submit their minimum premium requirements to the CDI.

What happens if an employer cancels a policy mid year?

In the event that an employer decides to terminate a workers’ compensation policy prior to its expiration date (mid-term) in search of alternative insurance providers or due to business closure, the insurance company has the obligation to reimburse the policyholder for any unutilized premium on a proportional basis, unless otherwise stated as a short-rate cancellation as outlined in California Insurance Code Section 481(c).

When a policyholder fails to fulfil the agreed term of insurance, they may face an administrative penalty known as a short rate. To cover their costs, insurance companies have the ability to impose a minimum premium on cancelled policies if the amount from the short rate cancellation is lower than the set minimum premium. 

In case an employer encounters any difficulties related to a cancellation or refund issue regarding premiums, they have the option to reach out to the CDI. The necessary contact details can be found in the designated Talk to Us section of this brochure.

What happens if my insurance company with an active claim goes bankrupt or insolvent?

Thankfully, in the event of a workers’ compensation insurer going bankrupt, safeguards are in place for both employers and employees. The task of overseeing the conservation and liquidation of California insurance firms lies with the Insurance Commissioner, who has been appointed by the courts. The Conservation and Liquidation Office (CLO) of the CDI takes charge of meticulously managing all aspects related to conservation and liquidation.

The important aspect of paying workers’ compensation claims is the close partnership between the CLO and the California Insurance Guarantee Association (CIGA), whose collective efforts guarantee the prompt settlement of these claims. By doing so, they alleviate the hardships faced by both employers and employees when their insurance provider undergoes financial ruin. 

The presence of CIGA ensures the uninterrupted payment of claims, regardless of the insufficient liquidated assets of a bankrupt insurance company. If you wish to learn more about the conservation and liquidation procedure, you can get in touch with the CDI using the provided contact details in the Talk to Us section of this brochure. Additionally, find contact information for CIGA in the Resources section.

What is a dividend plan?

An employer has the option to partake in the benefits of its workers’ compensation insurer’s profits through a dividend plan. These plans, commonly known as participating insurance policies, enable employers to receive dividends based on the insurer’s profitability. Numerous dividend plan options exist, each with their own distinct provisions and criteria.

If an insurer wants to pay a dividend, they usually require the company to be profitable. Additionally, the dividend may also depend on the loss experience of a specific insured. If employers want to explore alternatives to prospective rating, they should reach out to their broker-agent to discuss and obtain more information. 

Submission of dividend plans for approval by the CDI is compulsory, along with providing all other relevant rating plan details.

Can any agency or company assure a future Workers’ Compensation dividend amounts?

According to the regulations in the California Code of Regulations (CCR), it is explicitly mentioned that broker-agents or insurance companies are prohibited from providing assurances or making any commitments regarding the exact sum of future dividends for workers’ compensation. This can be found in Title 10, Chapter 5, Subchapter 3, Article 9, Section 2504 of the CCR.

A policyholder dividend statement cannot suggest the magnitude of forthcoming dividend payments, even though a broker-agent or representative from a company can offer previous dividend payment figures for illustrative purposes. 

In case an employer suspects any form of dishonesty regarding the dividend plan by a broker-agent or company representative, particularly instances where they make explicit or implicit assurances about future dividends, it is crucial for the employer to promptly reach out to the CDI using the contact details mentioned in the Talk to Us section of this brochure.

In case of a disagreement about a workers’ compensation classification code, what actions can an employer take?

Should an employer have reservations about the classification code assigned by their workers’ compensation insurance company, they are advised to reach out to the broker-agent or insurance company underwriter for a thorough conversation and/or clarification regarding the disputed classification code.

The employer must be duly notified in writing within a period of 30 days by the insurance company if any modification is made to a classification code, leading to a rise in the premium. This practice is in compliance with Section 11753.1(b) of the California Insurance Code, unless the reclassification is authorized by the Insurance Commissioner or occurs due to CDI regulations. 

In case a disagreement persists over an assigned or reassigned code, the employer has the option to submit a written complaint to their insurer. If no resolution is achieved, the employer may then escalate the issue and launch an appeal with the CDI. 

If an employer wishes to challenge a classification decision issued by the WCIRB, they have the option to submit a written query to the WCIRB. In case the inquiry is rejected or remains unanswered for a period of 90 days, the employer has the right to proceed with their dispute by formally serving the WCIRB with a Complaint and Request for Action (CRFA).

In case the CRFA is denied or disregarded after a month, the employer has the option to reach out to the CDI and initiate an appeal.