Most insurance people think it’s just plain crazy. We don’t, but you should know that not buying a Workers Comp policy isn’t just trading one kind of policy for another... You are actually changing the legal standing of your business and your employees. Not being a part of Workers Comp gives your employee a right to sue that they didn’t have under “real” Workers Comp and it means you are giving up your Common Law defenses (e.g. Assumption of Risk, Fellow Servants Fault and Contributory Negligence) if sued by an injured worker. - You go to court with one hand tied behind your back!

On the other hand, being a “nonsubscriber” and using “alternate” insurance usually starts out costing literally 1/4 to 1/3 the cost of “real” Workers Compensation and it can give you more control to avoid questionable claims. There really are merits and disadvantages of both. That is probably why it’s nearly a split decision among restaurant owners with State surveys estimating about 52% reject Workers Comp. This report asks 5 strategic “gut check” questions and then discusses some of the most important issues surrounding Texas’ biggest insurance issue: Do I buy “real” Workers Compensation or become a “nonsubscriber” and buy an “alternate”? For a more complete understanding of the advantages and concerns please also read a few of our other free reports, 6 Gaping Work Injury Insurance Holes that could “Gut” Your Restaurant and 7 Sizzling Reasons Most Restaurants DON’T buy Workers Comp.

Please, Please, Don’t Do “Nothing”!

This is not a “one size fit’s all” subject. Each restaurant is different. There is a lot of naïve overconfidence on both sides of this issue. I am convinced a lot of businesses decide poorly for their personal circumstance. You invest a lot to get a restaurant going and I’m not just talking about cash for the kitchen equipment. You are inundated with decisions to open your business -from the theme and menu to the number of forks and color of chairs. The time, energy and financial investment continue and increase when your doors are open and you are moving toward success. The most important thing is do something!Many restaurants don’t buy Workers Comp, don’t buy an “alternate” and they never file the state required forms. Doing nothing is like tap dancing on a landmine! Don’t risk it all. The price for a great workers comp “alternate” policy is cheap – usually just over 1% of forecasted payroll for a million dollar policy limit and it really pays to do it right. Strange as it may seem, lousy policies often actually cost more than the best ones.

“Gut Check” Time

But assuming you were going to buy some coverage anyway, which way should you go, “Comp” or “alternate”? The best start on that question is a small test. You are going to think this is silly, but I’m not joking. These are really important questions to help decide. Think of the chart below as a spectrum. No one is usually all the way on one side. Give yourself a gut check and mark each with an “x”. Here’s question number 1:

What Is My Personal Risk Tolerance?

Las Vegas Risk Taker

Sure Thing Even Feels Risky

This is very similar to the question your Stock Broker asks when he wants to know if you are comfortable with the ups and downs in the market that are associated with investments that have an opportunity for a higher return. With “alternate” policies, the premium is almost always a lot cheaper, but they have deductibles. In some circumstances (usually only programs for larger employers) you could also be paying fees for claims administration as losses occur – quite different from Workers Comp with a zero deductible (usually). People often refer to Workers Comp as a “guaranteed cost” policy. In truth, even with Workers Comp your actual premium will be based on the payroll that is actually paid out over the year so adjustments are made after the year is over, but usually there is no deductible, no administrative fees, no hidden charges. You know what you are paying. It’s a lot more of a “sure thing”. Taking the volatility can be very profitable but it’s, well... volatile.

How Much Of An Attorney Target Am I?

By Liquid Assets Do You Mean My Wine Cellar?

Solomon's Treasure In My Checkbook?

This is really a big one that businesses seldom put in perspective. In evaluating risk there are 2 big questions – How often? and How much? When you become a “nonsubscriber” your risk of being sued goes up – on both. It just does. Law suits happen more often and can be bigger; however your employee has the burden of proving your negligence. He has to find an attorney to take the case – usually on a contingency fee basis where the attorney is paid out of the settlement or award. You might be shocked to hear that “plaintiff” attorneys like to get paid... so the first thing they do is try and see if there is a “case” they can prove – the second is to look for the pot of gold at the end of the rainbow. “No mon... no fun.” This “gut check” goes to that question. If an attorney was trying to figure out how he’ll get paid if he wins, what would he see? If your largest asset is the stock in your own company and it “owns” cash flow and some used equipment, you are not a big target. Conversely, if you are highly liquid and you keep a lot of assets in your business, you either need high limits (there are a lot of big employers who do it) or should consider “real” Workers Comp. The good “alternate” policies have liability protection and statistically, the frequency of employee law suits against small employers is much lower than larger ones.

On the other hand “real” Workers Comp is different. The Workers Comp Act has something called the “exclusive remedy” doctrine which basically indicates that your employee will take what they can get out of the Comp policy and (almost) no more. About the only thing an employee can sue for in Workers Comp is gross negligence in the event of a wrongful death. Last time I checked there had only been 5 of those in the history of Workers Comp in the state (since 1913)! You gotta be pretty reckless to be the 6th. By the way, everyone thinks there is litigation in Workers Comp, but those are just hearings and appeals to determine what the policy owes the injured so they don’t really represent liability risk to the employer. So, how about it? Has the little leprechaun of life pointed a rainbow at your hide? Are you much of a “bulls eye” for an attorney?

What's My Attitude About Work Injury Claims?

If I Didn't Cause It, I'm Not Paying For It!

If One Of My People Get Hurt They're Getting The Best!

How Safe Do I Make My Work Environment?

Decisive Safety Culture?

Claims Like Popcorn

Let’s face it. Accidents happen in the safest kitchens. Some are pretty big. I have a cut finger claim going right now where, with skin grafts and complications it is up to $38,808. That doesn’t count the more serious lifting back injuries or slips and falls. It’s also true that when there is a serious safety program in effect and employees know both that it will be enforced and success will be rewarded it really makes a difference in reducing the frequency of claims. Stability and experience in your staff also reduces claim activity, unfortunately, most restaurant jobs are not high wage positions so high employee turnover is common. Low claims help both the Workers Comp insured and the “nonsubscriber”, but because of the deductibles and increased possibility of law suits, they are even more important to the “non-subscriber”. Most underwriters will tell you when you have a lot of claims, even if they are all small, the “big one” is just around the corner. They are more nervous about writing an account with a lot of little claims than an account with a “whopper” that seemed to be a “fluke”. Most long term successful “nonsubscribers” are pretty passionate about a safety culture. Are you?

Management Understanding and Involvement?

That's Why I Have An Agent

Nothing Gets Past Me!

A lot of employers, particularly smaller ones feel “alternate” policies are, well... a hassle. Frankly, they’re right. As a “non-subscriber” you have to file forms with the state and there are state required notices you give your employees. In addition, you also have benefit plan descriptions to hand out and explain to your employees and most insurance companies will also have you set up a binding arbitration program with your employees so you hand those out as well. Now, don’t get me wrong. The insurance company usually provides all the forms, notices, and stuff, but it is a hassle and it is confusing. We do a lot of explaining and support on this stuff. To do it right, someone in the business has to understand what you are doing and deal with it. In “real” Workers Comp you can almost buy it and forget it (unless you get in a preferred provider network – it’s a hassle inside “real” Workers Comp). In an “alternate” policy you are usually going to save a bucket full of dollars, but you will have to take the time to understand and there is some additional paperwork. In short, not doing the paperwork can drastically increase your risk and add the possibility of fines from the State. If you are not wired for that, better stick with Workers Comp.

These 5 questions actually reveal a shocking amount about which way you should go (and I seriously doubt anyone else would ever ask them to help you figure it out). If you are slanted on the left of this chart you have reasons to consider an “alternative” more closely. If you are heavy on the right, you better just let us quote “real” Workers Comp. On an answer that is mixed left and right, we might be able to do an “alternative” you’d like, but we’d need to cook up something special. A fascinating statistic – in spite of the complexities, hassles and risk, employers who don’t buy Workers Comp had between an 11% to 41% higher satisfaction rating (up to 88% “satisfied” or “extremely satisfied”) than similar size employers who buy the “real” thing (Texas Department of Insurance 2006 Survey of Employer Participation in the Workers’ Compensation System). It can be a good option! The decision is important. Because of the risks and opportunities it is a Texas restaurant’s biggest money insurance question.

It’s a tough market out there. Food costs are up. Margins are down and it is crazy trying to find an employee who knows how to work. Whether you are leaning toward Workers Comp or an “alternate”, please consider letting us help by offering a free, no-obligation quote. Pricing for both is negotiable and varies drastically from one company to the next. Also, with “alternatives” the protection and exclusions vary drastically. Call my personal extension at 817-731-1940 ext 303 for questions or for a no-risk no-obligation quote or use the Fast Response Fax Form or our Online Quote page. As restaurant specialists, we can help make sure you are getting the right protection and help hold down your ongoing cost of risk. We’ll also do a great job on the rest of your account.


Sincerely, Kent Hagood, CIC, CRM
Certified Insurance Counselor, Certified and Licensed Risk Manager

Licensed Restaurant Insurance Specialist, "Executive Chef" of InsuranceChef.com

PS: Let's be perfectly clear what you're getting here. No-nonsense advice on Texas restaurateur's biggest insurance question -then the best pricing and specialized service and protection you can buy... period. Awfully brash to say but no one does this better, honest. We'll give you a "no-nonsense" evaluation of "real" or "alternate" workers comp. Then, we'll give you a free no-obligation quote on either or both. It just takes 5 minutes of your time.

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© 2008-2009 Risk Strategies, Inc. The reader is encouraged to consult their insurance directly concerning any related issue and the reader assumes all responsibility for their own actions relative to any items discussed in this report. Adherence to all applicable laws and regulations (federal, state and local) governing the use of any product or service described in this report is the sole responsibility of the reader. The author assumes no responsibility or liability.