How Natural Disasters Effect Workers’ Compensation Rates

Lemonaide for Hurricane Relief 377X321Hurricane Irene continues to wreck havoc on the East Coast and of course, here in California our eye is always on “The Big One,” so the question on my mind this morning is

How are Workers’ Compensation Rates In California effected by natural disasters?

The answer is that natural disasters can have an effect on Workers’ Comp rates in a roundabout way. Workers‘ Comp insurance is the only unlimited insurance available.

That means there is no cap on how much a claim can cost. So, workers’ compensation companies buy reinsurance or in simple terms, they buy insurance on your Workers’ Comp. insurance. Here is an example:

Your Work Comp carrier pays claims from $0-$500,000

Reinsurance Company A pays claims from $500,001-$1,000,000

Reinsurance Company B pays claims from $1,000,000-No Max

These reinsurance companies also sell reinsurance on Business Property coverage, Homeowners, Business Interruption and many more types of coverage that get directly affected by a natural disaster. When a disaster happens the reinsurance companies take a big hit. It can come from hurricane Irene or overseas such as the earthquake in Japan earlier this year and the subsequent nuclear meltdown.

To recoup the lost money, reinsurance carriers will raise their rates they charge to all the primary carriers including workers’ compensation. Essentially, the reinsurance companies have to pay out large amounts of claims so there is less liquidity in the market but the same demand exists. Its back to economics 101, supply is down, demand is up so costs rise.

If your company is based in California or other places prone to natural disaster it pays to make sure that your Worker’s Comp insurer is prepared for catastrophe.  That way you can be assured that they will be there when you need them.

To find the Workers’ Comp carrier that is both stable and has the most competitive rates, contact us at Leader’s Choice Insurance Services to assist you and take that chore off your busy plate. 

 Ben Clark, CEO of Lenders Choice Insurance Services writes about issues concerning, workers compensation insurance, business liability insurance and business auto and fleet insurance. 

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