Weaponizing Workers Comp Insurance Against Small Business

 In just the past week, I’ve been contacted by multiple small businesses, located in disparate states, with a shared problem: their insurance company is trying to put them out of business.

Now, of course, that isn’t really the primary objective of these huge insurance companies. It’s just that they don’t give a shit. They think they are owed money for Workers Comp insurance—a lot of money, in fact—and thus these financial giants have put in motion their standard operating procedures for obtaining what they believe is owed them.

And that is how Workers Comp insurance gets weaponized into a very efficient financial equivalent of a thermobaric bomb.

Consider one of these cases, a small construction company in Georgia. This company was required by state law to buy Workers Compensation insurance, so they reached out to a local insurance agent. They were a small company so the insurance agent placed them into what’s known as the Assigned Risk Plan—a state-sanctioned insurance industry mechanism that accepts all applicants, even very small businesses that insurers aren’t normally much interested in.

The premium charge for that policy was $1,500.00.

At the moment, the insurer is now seeking, years after the policy ended, over $700,000 from this small business, for that $1500 policy and the subsequent policy (which the small biz also bought for about $1500).

So a small and unsophisticated construction business bought two Workers Comp policies, policies that state law required them to buy, and now, years after those policies ended, they are on the receiving end of a bill for over $700,000.00.

This is not an aberration. This is not some weird one-off situation. This is an everyday occurrence. I know, because I get calls and emails almost every day from small business owners in the same kind of situation.

Around our office, we call them Shock Audits.

It is difficult to imagine any other industry where this sort of thing could occur, much less be commonplace. Insurance, after all, is supposed to be regulated by state agencies. And Workers Compensation is, according to insurance industry spokespeople, the most highly regulated line of insurance.

And yet.

We have a system that often drives small employers out of business, or saddles them with huge unexpected costs, for something that they are required to purchase. A system that routinely sells an insurance product that is priced very low at the outset, only to balloon outrageously after the policy has ended.

Stay tuned for more information to come on this subject.