New Mexico employers who are required to obtain workers' compensation insurance have several options for finding coverage. The best option depends upon business needs. Having insurance coverage protects a business and protects the business's workers.
Businesses can purchase coverage from any insurance agency licensed to sell commercial lines.
There are three types of coverage:
- Conventional coverage - the voluntary market;
- Assigned risk pool - for high risk employers;
- Self-insurance - for larger companies, businesses with similar activities, and governmental entities.
Private commercial insurance companies provide workers' compensation insurance in what is called the voluntary, commercial market. The insurance company must be licensed by the New Mexico Office of the Superintendent of Insurance (OSI), and its premium rates must be approved by that agency. Visit the OSI website for more information on risk pool law, dispute board regulation, and loss cost multipliers for workers' compensation insurers. Also, visit the A.M. Best Company to determine a company's financial strength, or ask an insurance agent to provide that information.
A workers' compensation insurance policy matches the risk of claims against the policy and the likely cost of the claims, based upon state and national averages.
The premium is determined by three factors:
- How much employees are paid, as expressed by actual payroll
- The type of work employees do and how hazardous the work is, according to national averages
- The claims and safety history of the company, expressed as an "experience modifier"
Businesses apply for insurance with the help of an insurance agent. The company's underwriter assigns ratings to the job classifications of the employees. Premium is billed at the beginning of a policy year, and is an estimate, based on the company's expected annual payroll, and may be altered if circumstances change within the policy year. A policy covers all employees working in the business, except for executive employees who opted out. If additional employees are hired during the policy year, they are automatically covered, and the final premium bill is adjusted at the end of the policy year.
Employers can expect to have their business' payroll audited annually. Insurers do this to ensure the premium they receive is enough to compensate for the insured risk.
Safety Results in Lower Premiums
Ensuring a safe workplace results in lower insurance costs. Because the experience modifier (based on the claims and safety history of the company) is a multiplier of the total premium, it provides an incentive for employers to develop a safety conscious workplace. Employers with good safety records may enjoy a significantly lower premium than an unsafe employer in the same industry. A good safety record becomes a competitive and financial advantage for the safety-conscious employer. Find out more about how to build a safety program.
Avoiding Error and Fraud
Insurers have the right to receive premium for the entire risk being covered. Failure to disclose payroll honestly, or deliberately trying to deceive an insurer about the number of employees in a business is fraud.
Artificially reducing the experience modifier by paying claims out of pocket is illegal. The practice does not prevent a worker from later filing a workers' compensation claim, and may deprive the injured employee of important benefits.