The Basics of Dividend Plans

You may believe that your employees’ welfare is incentive enough to keep your workers’ comp claims at a minimum. Enrollment in workers’ compensation dividend plans, however, offers you a financial incentive as well. Under these plans, you get paid a dividend for controlling your losses when your policy expires. The amount of your earned loss ratio likely depends on your earned premium and the losses you incurred during the year.

Your incurred losses include anything the insurer has paid or will have to pay as the result of injuries sustained at your workplace during the policy period. This can include both past and ongoing medical expenses, legal expenses and lost wages. A final audit determines your earned premium for the year based on your payroll at the time of the audit. If your payroll increased during the policy year, therefore, the earned premium would reflect that final number.

Workers’ compensation dividend plans typically pay according to the earned loss ratio. The earned loss ratio is the total incurred losses divided by the earned premium. If it exceeds the minimum required by the plan in which you are enrolled, you may be entitled to a dividend payment. These programs help by giving employers extra motivation to maximize workplace safety in order to minimize workers’ compensation claims.