Small businesses need to handle workers’ compensation just as larger employers do. Fortunately, there is a way to make doing so more affordable for small business owners: enrolling in a dividend plan. Workers’ compensation dividend plans reward businesses that properly manage and control their losses by returning a dividend at the end of the workers’ comp policy. A dividend plan is implemented by the insurer in question but overseen by state departments, and they must provide their approval on the plan, whether modeled on the National Council on Compensation Insurance’s plans or developed by the insurer.
Types of Dividend Plans
Workers’ compensation dividend plans fall under three basic types:
- Flat dividend plans pay back a specified percentage of the insured’s earned premium at the end of the policy term. Losses do not affect the dividend’s value, but poorly managed losses might impact eligibility for a dividend plan in the next term.
- Variable, or sliding scale, dividends are calculated based on both the earned premium and the loss ratio. The percentage earned increases with the premium and grows further as the insured’s loss ratio goes down. Excessive loss results in no returns.
- Combination plans vary between insurers but generally contain aspects of both flat and variable plans – for instance, the ‘flat’ percentage might increase within ranges of earned premium while ignoring loss ratio up to a maximum value.
Consult with your insurer to find out more about any workers’ compensation dividend plans offered and what the rewards entail.