A retro workers’ compensation policy is a complex insurance program that differs from traditional workers’ comp coverage. With such a policy, the company pays a premium based on expected losses. Once the coverage period ends, the premium is increased or decreased to more accurately reflect the actual losses from the coverage period. The final premium the employer pays is retroactively calculated based on the actual losses that accrue over the course of the policy period.
How it Works
As per the State Board of Workers’ Compensation, certain companies in Georgia must provide workers’ compensation coverage to their employees. Retro workers’ compensation policies use complex mathematical formulas to calculate the minimum and maximum premium that an employer will likely have to pay.
To calculate the retro premium, companies take the basic premium, add any converted losses, and multiply the result with a tax multiplier. It can be difficult to understand how a policy provider or an employer calculates individual multipliers or tax factors. When used properly, retro plans can control the cost of a workers’ compensation program.
If not used or managed effectively, these plans can lead to higher premiums and costly legal disputes. This can include lawsuits between insurance companies, employees, and the employer who opted to use the retro program in lieu of a standard workers’ compensation plan.
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The Role of Claims
The handling of workers’ compensation claims has an important impact on the retro plan and the premiums that an employer will have to pay. The entire concept behind such plans is to allow the insured party to save money on the cost of claims. Having too many claims during a certain timeframe or mishandling claims can affect the formula and have serious consequences on the efficacy of such plans.
When to Use Retro Plans
Employers may wish to run a retro workers’ compensation plan for their companies if they:
- Enjoy financial flexibility and are not burdened by cash-flow problems, high receivables, or delayed receivables.
- Have ample experience in handling claims on a frequent and ongoing basis.
- Have the analytical data needed—usually in the form of volume claims from the past—to determine the right multipliers and tax factors that would make financial sense for your company.
It is important to note that some companies use retro plans because they are unable to provide standard workers’ compensation plans to their employees from other avenues.
For example, the National Council on Compensation Insurance provides a Loss Sensitive Rating Plan to Georgia companies that want to run a retro workers’ compensation plan, but the qualification criteria are stringent. Such plans should only be used by companies that understand their risks and benefits.
Advantages of Retro Plans
If your company fits the profile above, you may opt for a retro workers’ compensation plan. If you do, and you can run it well, you can potentially enjoy several benefits. For example, you can have more flexibility to provide different rating options and designing plans for unique needs.
You may be able to use self-designed plans based on your own strengths and competencies. These can give you a strong sense of ownership, a push factor to control losses, and a way to optimally manage your policy. Retro plans can also help you manage your cash flows.
Disadvantages of Retro Plans
Mismanagement of retro plans—or inaccurate calculations of tax factors and premium multipliers—can have serious consequences. For instance:
- Retro plans can prove to be very costly as compared to a standard workers’ compensation plan if you suffer losses outside the retro period.
- It can be difficult to explain and roll out retro plans. If a company’s stakeholders and accountants do not fully understand the plan as designed, it may lead to mistakes.
- Retro plans can lead to significant income, cost, and risk fluctuations, depending on market conditions and the injuries or claims filed by covered workers.
- Due to the propensity for errors and risk, retro plans typically require highly specialized audits and high levels of collateral before implementation.
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Contact Our Team for Help
For guidance on claims from a retro workers’ compensation policy, please contact the Bader Scott Injury Lawyers team today at (678) 562-5595. We provide free case evaluations so that you can learn the legal standing of your case. If you decide to work with us, we can let you know what steps you need to take next. Do not hesitate to reach out to us today.