Why Your Growing Nonprofit Needs Workers Compensation Right Now

purchase workers compensation early for your nonprofit

The clock’s tickin’

If you are a human services nonprofit (i.e. you work with at-risk populations, both human and animal), then you need to procure workers compensation as early into your existence as possible.

Many nonprofits choose not to carry workers compensation if they have fewer than the state mandated employee count. This is a cost-saving measure on the front end, but it can cost big in the future.

The Market for Human Services Nonprofit Workers Compensation

If you are a large nonprofit with high payrolls and good claims experience, you should have no problem finding coverage. More than likely, you’ve had workers compensation for a while anyway.

If you’re a smaller, startup nonprofit looking to cut costs by shaving off bits of the insurance program, this post is for you.

The market for workers compensation insurance is sparse. Carriers have poor claims experience with organizations that provide crisis counseling, animal shelter services, foster care and adoption, homeless services, etc.

Consequently, if you have lower payrolls (i.e. under $500,000) and have never had coverage, your options are limited in most places.

Reasons Applications Are Denied for Coverage

We’ve had quite a few applications for workers compensation from small nonprofits come through our office in the last few months.

Many have been declined. Here are a few of the reasons:

  • Nonprofit has been in business for more than 2 or 3 years, but never had coverage before: DENIED
  • Nonprofit has had more than the minimum number of employees (in GA, that would be 3) for 3-4 years: DENIED
  • Nonprofit provides residential services or other services for at-risk populations and has never had coverage: DENIED
  • Nonprofit has had a lapse in coverage (due to an insured’s nonrenewing their policy or canceling midterm for budgetary reasons): DENIED
  • Nonprofit’s premium too small and no prior coverage: DENIED

Nearly every one of these reasons are the result of not prioritizing the coverage near the beginning of the life of the nonprofit.

The only available option is an assigned risk plan (the ‘pool’ as it’s affectionately known). Assigned risk options nearly double the rate of carriers on the open market.

If your nonprofit is up for a contract with a government entity or another organization, and that contract requires workers compensation, you can suffer from sticker shock if you fit the profile described above.

How to Reduce Your Costs Over Time

First of all, workers compensation is good risk management. If an employee or someone who can vaguely call herself an employee gets hurt, you’d have funds available to take care of medical expenses and loss of earnings – it makes no difference how many employees you have.

That said, I understand the concern about cost. If you’re a nonprofit with a small budget on the front end, another $1,500-$5,000 for workers compensation seems impossible.

Here is a suggested approach to workers comp that should help keep costs down over time and embed the insurance in your business plan so you will not be left in the cold when a contract is required or when an employee gets hurt.

1. Include Workers Compensation in ALL business and budget planning.

One of the biggest reasons potential compensation clients have sticker shock is because they never researched the cost. Consequently, they just go without. Do your homework up front and plan for it. Include the costs in your fundraising asks.

Connect workers compensation with your overall vision and mission of caring for others. In this sense, you’re caring for your employees AND you’re taking out good protection that could protect your assets.

2. Buy coverage as early as possible (if you have an employee and know you will grow)

Even if you have to shell out funds for a small assigned risk, minimum premium policy for $1,500 (or whatever it is in your state), you might be well-served to just bite the bullet.

We’ve found the nonprofit who is up to win a contract 3 years later not qualify for the most affordable policy simply because they’ve never had coverage. If you get a year or two under your belt early (and maintain a clean claim record), you will qualify for the available options. If you don’t have prior coverage, yours will be an uphill battle.

3. Take advantage of all safety training and risk management best practices.

Even if your employees think you’ve geeked out on safety, do it. It truly does pay dividends over time. Your policy is there if you need it, but nobody EVER wants to actually use their insurance.

4. Get in the pool early, and get out of the pool as quickly as you can.

As I mentioned above, the assigned risk option for your state is often the only available market for workers compensation when you’re starting out. It’s a good idea to go ahead and take that insurance out when you qualify for minimum premiums than waiting to get your first potential contract for services after you have $150,000 in payroll and 4 employees. Carriers (at the time of this writing) will often decline your application if you’ve waited.

Buy the minimum premium policy. As soon as you hit the state required number of employees (or earlier if your agent can help you), bug your agent about finding a standard carrier.

Questions?

If you do, please don’t hesitate to reach out. You can contact me by clicking here and filling out the form and ask any question you might have.

 

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