Does Workers’ Comp Insurance offer Dividends?

Workers’ comp insurance sometimes provides dividends, though they are not guaranteed and depend entirely on the insurance company's discretion. Availability can vary by the size of the policy, the industry involved, and the location of the insured business. Dividends act as a form of rebate, offering businesses the chance to recover part of their paid premiums.

What are dividends in workers’ comp insurance? 

A dividend is a method for insurance carriers to give back part of the premium after the term is over. This provides financial help in the same way that a rebate might for other purchases. 

The way dividends work can vary based on the specific carrier and factors like market conditions, regulatory requirements, and financial performance. 

Most of the time, dividends are calculated based on the carrier’s underwriting profits, which are made up of the difference between premiums and expenses and losses. If the profits are higher than a certain amount, dividends may be passed out as a way to reward the policyholders for keeping costs down.

However, no dividends are guaranteed. It’s always at the discretion of the leaders at the insurance company. Some may use dividends regularly while others will not. 

The size and availability of dividends are also going to vary based on location, business size, business industry, and other things.

When available, dividends are a great value for policyholders who may wish to make back part of their premium payments. However, understanding all the details is essential to ensure you make the best choices in terms of carriers and their perks. 

Having open communication with the carrier lets policyholders learn more about the factors that go into dividend eligibility and how to get the biggest chunk of change from those dividend payments.

What types of dividends are available?

When it comes to workers’ compensation insurance, there are different types of dividends, each of which is designed for a distinct purpose and will meet the unique needs of policyholders. 

Most of these will fall into one of two categories. Understanding each will give you a better idea of which option is right for you.

Sliding Scale Dividends

Sliding scale dividends are done on a loss-sensitive basis. That means the amount of dividends you can expect will be impacted by your specific claims experience. 

Basically, if you have fewer and less severe claims, you’re likely to get the most impressive dividends. This form of system is an incentive for a business to implement risk management processes and prioritize workplace safety.

By pushing for proactive methods to avoid accidents and hazards, a sliding-scale dividend system can make policyholders much more conscious of safety in the workplace. They also match the interests of the insured and insurance company as both sides benefit from the positive aspects of the system.

To give you an idea of how sliding scale dividends work, here is the dividend plan of one of our leading partner carriers: 

Flat Dividends

A flat dividend is more predictable and straightforward for policyholders. Instead of looking at claims, flat dividends are provided as a percentage of the audited premium. 

So, there might be flat dividends of 5%, 10%, 15%, and 20% for a fixed return that doesn’t have to do with history. With this structure, businesses can anticipate specific dividends based on the volume of their premiums.

A flat dividend is often preferred by businesses that want a stable return on their investments in insurance. It can also be useful for anyone who has little claims experience or who has a business operating in an industry that is considered higher risk than others. 

Why do Carriers offer Dividends?

Insurance carriers provide dividends as a tool for achieving objectives that are useful to them and the people they insure. They are often used to remain competitive as workers’ compensation insurance providers while giving insured businesses a reason to be more responsible. 

A few reasons carriers offer dividends include:

Business Retention and Attraction 

Dividends are a great way for carriers to provide a financial reason for businesses to choose them instead of other providers. By showing they can offer great returns through dividends, they indicate how they are different and can create stronger relationships with policyholders. 

In addition, dividends can lead to better retention and customer loyalty with clients who are more likely to stick around.

Risk Management and Loss Mitigation 

With sliding scale dividends, which factor in claims experience, businesses are pushed to prioritize risk management and having a safe work environment. 

Rewarding those with lower claims helps an insurance company mitigate losses and improve their profits. This relationship leads to risk prevention and awareness and can prevent more workplace incidents.

Premium Payment Compliance

Dividends can be very motivating when it comes to ensuring a policyholder quickly makes their premium payments in full and on time. 

Some dividends are only provided if the policyholder meets all requirement payments and has no outstanding balance. This encourages responsible financial behavior and timely payments. 

In addition, since it’s a reward for payment compliance, it can cut down on administrative costs associated with managing delinquent accounts and fighting for late payments.

Typical Rules and Regulations

There are many regulations and rules established by regulatory bodies and carriers to follow when it comes to receiving those dividends. 

A few to be aware of include the following:

Discretionary Decision

Carriers have full discretion in terms of how and whether they pay dividends. The management team or board of directors will be tasked with making this decision. Numerous factors will be considered, such as market conditions, financial performance, and claims experience before dividend eligibility is determined.

Cancellation Notices

Any policyholder should realize that dividends may not be provided after receiving several notices of cancellation based on late premium payments. 

It doesn’t matter if the policy is eventually canceled or remains instated. This just goes to show how important it is to comply with payments to retain dividend payouts.

Audit Resolution

Before calculating and handing out dividends, audits need to be resolved and all balances need to be fully settled. This ensures all the dividend payments are accurate and promotes transparency in terms of the distribution process. After a policy term is complete, most dividends are reviewed and sent out within six months.

Premium Thresholds

Dividends are very common for those with policies that have a premium of $10,000 or more. However, some insurance carriers will provide dividends to accounts with a lower premium. 

Keep in mind that you may need to meet certain requirements to be eligible for dividends based on the carrier’s underwriting criteria and risk assessment.

How do you receive Dividends?

In most cases, policyholders receive dividends at the end of the term of the policy. This is going to occur after any calculations and audits have been done. 

However, some companies may provide upfront dividends as an incentive to bring in more business. Dividends can be issued as a separate check or applied to the current policy. 

Never be afraid to ask for dividends to be applied. The worst that can happen is being told no.