JAIME: Welcome to Outgrowth: A Slice of Pro Beauty with your host Jaime Schrabeck. My co-host Ashley Gregory Hackett has the week off. Workplace safety has become a hot topic during the coronavirus pandemic, especially if your business has employees, or maybe you’re an employee yourself. Workers’ compensation insurance provides protection when someone gets hurt. To discuss the importance of this coverage, we’re joined by Craig Shapiro from Cerity. Let’s grow together. 

JAIME: Welcome to Outgrowth, Craig.

CRAIG: Thank you, Jaime and congratulations on starting your second year of this podcast.

JAIME: Well, thank you so much. Ashley couldn’t join us today. So we’ll be having this conversation about workers’ compensation insurance. Let’s start with the basic. What is it and why do we need it?  

CRAIG: Yeah. It’s a great question, and it’s, it’s, it’s one that, that business owners frequently ask, right? And it’s like, it feels like a regulatory burden I think to a lot of small business owners cause they may not have had a work comp claim before, but workers’ comp is one of those, I know from my perspective, maybe because I’m an industry wonk, but it’s one of those kind of magical products in that it gets something to everybody. So business owners get protection for their business, and workers, which most of us are, I am. We get protection from workplace injuries should they occur, and they do, and so it’s kind of a win-win. So injured workers get unlimited medical care and wage replacement should they be out of work for, it varies by the amount of time by state. It’s a statutory product. So each state has their own kind of work comp system and rules, but in most states, if you’re out of work from say three to five days due to an injury, you get wage replacement from workers’ comp, uh, which is a critical component of the coverage. The other thing that’s critical is unlimited medical care. So many of us have auto insurance and auto insurance comes with a limit of liability, how much in damages if you’re at fault for the accident you would pay towards others or how much coverage you have on your own vehicle should it be damaged for your first party collision coverage. Workers’ comp coverage, because it’s medical care which is extraordinarily subject to rising costs and inflation, can get extraordinarily expensive. And injuries can also be lifelong and so there is no cap. Really, it’s just until the work comp claim is over. There’s insurance companies out there that have been around for a long time that have workers’ compensation claims that are 40, 50, sometimes even 60 years old. They can provide lifetime care if someone is truly debilitated for an injury. That’s what we as workers get if we’re injured in the course and scope of employment. What business owners get and what your listeners may be wondering is what do I get in this deal, this thing that I have to, in most states, I’m required to carry and cover my employees. Well you’re also covering your business because what a business owner gets is something that we call exclusive remedy. So in the tort system in the United States, we remediate a lot of these injuries through liability or through the tort system, right through the courts. Like auto accidents can often be settled in courts or sometimes outside of courts, but they’re still subject to our tort law. Well, in the workers’ compensation system, since we’re providing unlimited medical coverage and wage replacement to your employees, in return, the small business owner gets protections from most liability. There can still be some suits out there for, you know, alleged egregious work conditions that would slightly circumvent the work comp system, but by and large, it’s governed by something that we call exclusive remedy. So the business owner is protected from lawsuits by, uh, his or her employees because again, his or her employees are made whole by the coverage. So it is a win-win. Business owners get a tremendous amount of protection and we as workers get a tremendous amount of protection. There’s not many other insurance products out there that are unlimited, like work comp. It really does take care of us as workers.

JAIME: And to clarify, this only applies to businesses that employ others, 

CRAIG: Yes.

JAIME: Not to someone as an individual or someone who is renting a space in a salon.

CRAIG: It’s a great question, Jaime. Yes, in most states and it does vary a little bit that you are required to carry workers’ compensation as soon as you have employees. So you are transacting. You’ve got payroll. That being said, there are instances that we see at Cerity where contract employees take out policies on themselves. Industry jargon, but we call these ghost policies cause typically they’re just they want to have a contract policy in place cause it’s required by the terms of their deal. And so sometimes, a business owner will want to see that someone taking contract space at his or her establishment has work comp coverage covering themselves, or at least protecting themselves so it can’t come back to them cause they may not have a policy in force. And if they don’t have a policy in force and they could be liable for workplace injuries. And so we do have scenarios where independent contractors do buy policies for themselves, but it’s typically not necessary.

JAIME: You mentioned that every state has its own system and I know that not every state requires workers’ compensation insurance. Is Texas one of those states and what?

CRAIG: It is.

JAIME: And, and why would you want it if you were operating in Texas even though it’s not a requirement?

CRAIG: Yeah. you’re right. Texas is, I believe, actually the only state where you can totally opt out. If I remember right, North Carolina gives you a choice up until your third employee. So if you have one or two employees, you can opt out of the work comp system. Once you have a third employee, if I have that right, you’re required to carry it in North Carolina. Everywhere else, you’ve got to have it. In Texas, you can opt out and you may do that to save the cost of your premium. A couple reasons why that’s not a good bet. The average work comp claim, even if it’s only a medical claim, is typically a thousand dollars. For a small business, policies in Texas are frequently far below a thousand dollars. In fact, the minimum premium in Texas is just 250 bucks. So if you have a small business in a relatively low hazardous class like salon and beauty, your premium if you’re not a very large operation is probably below a thousand dollars. And so what you’re protecting yourself is just one claim. One claim in the work comp policy more than pays for itself for most businesses. So I do think it’s a pretty bad bet. There’s a work comp claim. Yeah. It could only be a thousand dollars. You know, someone’s got to cut out of work for a couple of days. It’s some stitches and back at it, right? But there’s other injuries, like carpal tunnel, soft tissue back injuries, that could be more severe and in a work comp claim can really escalate. In my career, I’ve seen claims, they were not in the beauty and salon industry, that were some of the claims that were this high, but six, seven and $8 million. So workers’ compensation claims can be really significant.

JAIME: What determines the rate that an employer pays? You mentioned classes before, and how does the beauty industry rank, and are we considered collectively when we were doing hair, skin, or nails, or does it matter what type of service we provide?

CRAIG: That’s another good question, Jaime. So, yeah, so what we pay for our premium is a function of how much payroll you have, and what your class, what type of business you are, what the rates are for your state, and then insurance companies have their own multiplier on top of that to account for their cost of doing business: handling claims, paying staff, keeping the lights on, and then last, but not least, there’s often additional consideration as to the quality of the business. It, consider it the underwriting. It could be sophisticated pricing dependent upon how many prior claims a business have relative to how many years they’ve been in business, things like that. So if you’ve had few claims and you’ve been around for awhile, chances are you’re going to get a good price. In terms of class rates, the things set by the states and the bureaus, a salon business is pretty benign. It’s on the lower side of rates. Your contracting and manufacturing risks would be at the higher end, right, because the frequency of injury and the severity of injury is a lot higher say for a plumber than it is for a salon. And so that difference in hazard, as we call it in insurance, is reflected in those kinds of base rates. Now, salon rates are at the lower end, but they’re not the lowest. I say office work is probably the lowest. So it’s important for your listeners if they have a large salon group where they have some office employees and some in the beautician space,  they’d want to class those employees differently to get the lower rate on the office folk relative of the folks in the shop. And so it’s important to work with your insurance company to make sure that each set of employees is classed so you get the best price possible.

JAIME: Do we pay one more for coverage obtained through an independent insurance broker compared to the service that you provide as Cerity?

CRAIG: That’s a tough question. So maybe? So each insurance company has a fair degree of latitude in each state to set their rates. So that base rate, what we call a loss cost, is set by the state, but then that multiplier that we put on that base rate to cover our own expenses and small profit load varies by insurance company. And at Cerity, we do work directly with the customer and we’re highly digital and automated. And so there are efficiencies in our operating model that I am confident we are more competitive than many in the insurance space because of the way we do business. But it’s a crowded marketplace. It’s highly competitive. Could there be somebody else out there with a lower price than us? Sure. And could they sell through an agent? Absolutely. So, you know, I think it’s important, like we all do for auto insurance, I think it’s important to shop and certainly please give Cerity a shot. We’re confident we’re putting out a really good price and a great product. And it’s tied to the way we do business and we specialize in small commercials so we don’t have to think about large complex businesses and build a rate structure around doing those things. We only serve small businesses, and so we’re highly efficient, and we think we’re very competitive.

JAIME: We connected because I use Employers to provide coverage for my business. And I obtained that through my independent broker, but had I not done that, I might have gone through Cerity, which is the newer product. Can you explain the relationship between Cerity and Employers, which Employers may be a name that our listeners are more familiar with?

CRAIG: Sure thing. So Employers is our parent company and they do a great job. Broadly, Employers distributes through independent agents nationwide and we distribute direct to consumer, also nationwide. So some years back, Employers looked at the marketplace and recognized that some people are starting to buy a little bit differently. Many of us still want to go to an independent agent, and get that expertise for our business, and that is a great way to transact insurance. But there are other small business owners that want to get their insurance decision done and done quickly, whether it’s on their mobile tablet, laptop, desktop, doesn’t matter, but they just want to get, pick it, make their insurance buying decision, and get back to what they really care about which is their salon. And for those business owners, Employers invested in us and we now exist. So me and a couple other officers were hired to stand up an insurance company from the ground up. And so we started in 2018 and here in early 2 21, we are now national and live everywhere where we can sell workers’ compensation insurance.

JAIME: You mentioned previously soft tissue injuries and other types of injuries. 

CRAIG: Yeah.

JAIME: Do you have any sense of what would be a common injury in the salon space?

CRAIG: Yeah. So there, there are some times, you know, scrapes and cuts, from things like scissors. Those happen, but there’s also slip and falls in salons. That’s one of the more common claims and slip and falls can lead to then, they can result in sort of soft tissue injuries. They can be more severe and be breaks, but those are the most common claim types that I’m aware of, Jaime.

JAIME: And you knew that I might ask you this question, but how does COVID play into workers’ compensation insurance these days?

CRAIG: Yeah, that’s a, that’s a really interesting question because we’re starting to see it vary a little bit by state. So in some states like California, California has been exploring should there be a presumption that the exposure happened in the workplace where other states have not done that. But, I guess, in simplest terms, it should always be reported to your work comp carrier, report the claim, and an adjuster will work with the business and the injured worker, or in this case the sick worker, to determine if that exposure happened in the course and scope of employment. So if we think about any work comp claim, the workers’ comp claims investigation is broadly, is the policy in force, right? Did the accident happen in the course and scope of work and could there be any other disqualifying factors at play? There’s very few, but if the, if the injured worker is inebriated in some sort of way, it’s typically disqualifying for workers’ comp. That shouldn’t happen while we’re on the job, right? So those are the big three in the work comp claims investigation, but that middle one, did it happen in the course and scope of employment is the really challenging question an injured worker, and a claims adjuster, and a business have to kind of work through. Because as much as we are all trying to quarantine and social distance, it is difficult to say with certainty where anyone is exposed to COVID, whether it was the grocery store or that day I went into the salon, right?

JAIME: Right. What are our requirements as employers beyond having the insurance? What do we have to post and what do we have to make available to our employees so they can be assured that we actually have coverage in force?

CRAIG: That can vary a bit by state. Some states will have breakroom type of flyers that they want posted. It does vary some. Typically, some states have a proof of insurance system so when you buy a policy, there’s actually a backend data feed from your work comp carrier that goes to the state system, and it’s registered there. It’s one of those tough questions, Jaime, where it really varies a bit by state.

JAIME: Because the workplace safety issue is governed by OSHA regulations, how can we reduce our risks? What role do those regulations play in making our workplaces safer for our employees?

CRAIG: One of the things that we’re building at Cerity is a massive content library to help business owners find safety program information and best practices particular to their industry. So this is really critical and what we’re on the cusp of rolling out we couldn’t be more thrilled about, Jaime, is restaurant owners who we ensure will have content curated specifically for them, salon owners content specific to the hazards of their workplaces. They’re, they’re not necessarily the same. I mean the kitchen and the salon are very different work environments, right? But where, I think, the more proactive carriers can help their customers is in what we call mitigating risk. The best claim is the one that never happens. From staffing issues to the potential expense of insurance when claims happen, it’s better for all concerned to avoid the claim before it even happens. So we’re particularly invested in that at Cerity and at Employers to mitigate claims with our customers the best we can.

JAIME: Well that commitment to creating content specifically for our industry will serve you well because that’s one of the frustrations that we have as beauty professionals. We’re certainly not as large as the restaurant industry, but we do have our own needs, and many companies have not catered to us in this way, and yet they would answer so many questions by having that content available upfront.

CRAIG: Yeah, I think so too. It’s one of those areas where the work comp system is not perfect. We talked a little bit about class specific stuff before. And today, in most states, the work comp rates for tanning salons, barbers, salon/beautician and tattoo parlors, believe it or not, are all the same. They’re all just kind of lumped together. And when we think at Cerity that these are all pretty different risks, and so we internally categorize them differently cause we expect that we’ll see differences over time. And we also want to deploy content and resources to these businesses differently over time. It’s, they’re not all the same to us. We know that a, a beautician’s business is different than a tattoo parlor’s business.

JAIME: We’re not puncturing people with needles.

CRAIG: Exactly right. Yeah. And that, that’s, that matters, right? 

JAIME: So what agencies regulate workers’ comp? Is it just the system within each state at the state level that regulates?

CRAIG: Yes, mostly. So there are bureaus. Each state has its own department of insurance that approves carrier-specific rates, any carrier-specific variation in form or product, which aren’t as common in workers’ compensation. It’s a more tightly regulated space cause we’re talking about both, you know, injured worker protections. So where liability and property can have more customization in those products, workers’ comp has less. And that’s a good thing because really we have to make sure that workers are protected and that coverage is largely the same from product to product. So the departments of insurance, they do weigh in on form, and rule, and price.   Most states also are part of a system, a bureau that’s called NCCI. And so that brings a little bit of homogeneity to work comp classification and rules in states to some extent, but there are still differences place to place. And then there are about 10 states that are independent bureaus and that those states, those departments of insurance, actually have work comp specific bureaus that govern the rules of those states. And those are some of your bigger ones. So California and New York, New Jersey, are independent bureau states and they can be a bit different than some of the others.

JAIME: Let’s say you opt not to follow the law and get insurance, what happens? What are the legal and financial consequences of not caring workers’ comp, whether you have a claim or not against you?

CRAIG: Most states it would be a fine, and they tend to increase dramatically over time and so it, it’s ill-advised. Honestly, those fines though aren’t as bad as having a claim and not being covered. The worst thing, from my perspective, a small business owner could do would be to not buy work comp is, God forbid, you have a claim, and then you’re liable, and as I said, workers’ comp claims can be just a thousand dollars for a, a couple stitches and back to work, but they could also be six, seven, $8 million for something more severe.

JAIME: In terms of how the rate is calculated and how much you actually pay, is that something that gets figured out in advance or can you pay as you go as you process your payroll?

CRAIG: Oh, that’s a great question. So, it is both. So the standard work comp product is built on estimated annual payroll, and it’s really an estimated annual premium too. As, but we all know payroll fluctuates over the year. Business is great and you add staff. And so at the end of the year, there’s an audit typically within three months of the policy expiring. You share your year-end payroll with a workers’ comp auditor. It could be an online form at a carrier. It could be a phone call. They’re usually pretty quick and not very intrusive. And then your, your premiums adjusted. Sometimes, you have to pay a little bit more. Sometimes, you get premium back. But we know that when we buy insurance, we’re doing it on a projected payroll and it’s not what you’re actually going to pay down to the dollar by year end. There is, as you said, a pay as you go product out there. It is the same policy so the terms and conditions are the same. Pricing is also identical. But what pay as you go does is, it actually fluctuates, as you said, pay period to pay period. It’s a great product to have right now in these uncertain times. So at Cerity we’ve seen an increase in our sale of pay as you go. Through the first two months of this year, in fact, it’s becoming an increasing share of our new business. And I think it’s very reflective of the time. So we’ve seen businesses, our customers go from a large amount of payroll to almost nothing. Some of our restaurants last year went from, you know, half a million dollars of payroll to almost nothing overnight. But they were doing some takeout business, they had some staff and they wanted to keep their work comp policy in force, of course. If you have people working, you need to. But a pay as you go product was, was fantastic for them because by consuming their payroll every time it’s run, we’re adjusting that premium in real time. So their premium is a made up example, but the premium could have been $200 a month and then because of the reduction in payroll, it dropped to $30 a month.

JAIME: In the 15 years that I’ve employed others, I’ve done both. And right now, I’m on a system where it’s pay as you go. And I like it in real time. I think the audit process should be a lot easier. Should we just be pennies instead of, instead of dollars, right? But let me ask you this about this whole process. When we’re looking for insurance, understanding what the base rate that the state charges, that’s just the starting point and anything above that is the quality of the service that you’re getting from an insurance company, because it’s not the same from company to company. The resources that you make available and the knowledge that you bring to the space I think is something that we need to take into consideration as business owners. So that Cerity may seem new to people, Employers certainly is not.

CRAIG: No, that’s, that’s exactly right. Our parent company has been around for over a hundred years now and they’ve always been in the work comp business. it is, in fact, the only product we currently sell. It’s what we know and I think they do a tremendous job. I, I think importantly, while pricing is often above a state’s base rate, it can also be below. We’re fairly sophisticated at pricing at Cerity, and so we look at things like how long the business has been around, and how few claims they’ve been, and we take that into account in every state that allows us to. Again, we’re, confident we’re putting a price out there that’s reflective of a particular business’s risk and is very competitive.

JAIME: As an industry, the more of us who are following the obligation of having workers’ comp, and have it, and have safe workplaces, that should just demonstrate how safe we are as an industry. 

CRAIG: Yeah. It’s, it’s like all ships rise and fall with the tide. So more businesses, more salons, more barbers have workers’ compensation and continue to not have very many claims, those state-based rates, what we call loss costs, fall. Every state uses an actuarial board that is running those loss costs annually to semi-annually depending upon the state, and they’re literally predicating that number on what they call experience, which is how are those types of businesses performing in a state. They have a lot of claims, those numbers go up. They don’t, and they go down. And that’s, that’s really why I say a plumber’s base rate is higher than a salon’s. They literally see the claims data. The states take all that information from every carrier. It’s a requirement we have. We all have data feeds to the states so they all, the states see the claims and they’re making the base rates based upon those claims.

JAIME: If we do need to file a claim and we’re contacting our workers’ compensation insurance company first, do we need to separately report or does the company handle the report to the state?

CRAIG: We certainly handle the report to the state. I don’t want to speak for other carriers out there, but the process with Cerity would be a phone call. We prefer a phone call, but we, you know, we can take in claims other ways, but we think, well let me tell you a little bit about the process. We use a nurse case manager to actually intake the claim and find that this is most effective in triaging it. So the nurse case manager with his or her training can direct the injured worker to care and make sure they get to the right place, like that would be appropriate to see a GP and oh no, go to the emergency room right now. Whatever that looks like, right? And can help that injured worker get to the right place. And that initial consult in getting that injured worker to the right place, we know, from a hundred years of experience at our parent company, leads to better outcomes. And that better outcome is a healthy injured worker who can get back to work sooner. It benefits everybody: employee, business, carrier.

JAIME: And if you were to file a claim, how does that impact your rate going forward?

CRAIG: You know that, that varies from carrier to carrier. What I will tell you about how we use claims at Cerity is we do price for claims relative to the business’s age. One claim would not be a very meaningful price change at Cerity in most states. Really what we’re looking for is a degree of frequency relative to a size of business and there can be a price impact. I wouldn’t want to speak to another carrier’s practice there. Everybody’s a little bit different. That is part of how we price and take in experience. What I will say is that most small business owners don’t have a claim in a given year and you know, another reason why we prefer small business and want to work with small businesses.

JAIME: Here’s a bonus question for you. Misclassification in our industry is huge. So the number of individuals who are being told they are independent when in fact they are really being treated as employees and should be classified as such. We’re sensing that the government’s getting pretty smart about establishing that by sending letters. The district attorney’s office can send a letter to a business and say, we understand that you have individuals working in your business. Show us your workers’ comp insurance as a way of having the business go on record as declaring themselves as either a workplace of employees or a workplace of independent contractors who are renting space from that establishment.

CRAIG: I didn’t know that was happening, Jaime. It makes sense. I mean, we’re an increasingly digital economy and so there’s truly a paper trail or an electronic material in this case for just about everything we do. I would encourage business owners to think about the classification of folks in your shop and if they are employees, make sure you’re covering them with workers’ comp. It protects you from liability and if they’re ultimately classed as employees at some indeterminate future, it protects you from audit too.

JAIME: I think one of those things about workers’ comp is that it’s in the background. It’s something that you have to have, and you’ll only really appreciate it when you need to use it, when you need to file that claim. 

CRAIG: And that’s exactly true. So the stats vary again from carrier to carrier, and in different types of industries, and all that, but I think on average, maybe 10% of small business owners have a claim in any given year. And of course, like some years you could have three, four, five, seven, and then go years, and years, and years without another one. What’s shocking is that even though only 10% of small business owners have a claim in a given year, you see where the rates are and the rates are predicated on what does it cost to pay all of those claims. And that’s what we’re buying for. So when the state sets those rates, the base rate they’re setting is this is what it costs to collect from every salon owner to pay all the salon claims in a given year. The last one was like, I have to carry work comp. It’s like a tax, but I’m never going to use it. This is something that other salons use, right? And it’s just not true. The fact that there are rates means that there are claims, and, yeah, more than we’d think.

JAIME: So how do we learn more about obtaining insurance through Cerity? Where do we go online to find your product?

CRAIG: Yeah, please visit us at the link found in the podcast description below. Your best bet to getting a quote would be to click that link, and give us a shot. And you can look at information at cerity.com, which is C-E-R-I-T-Y.com.

JAIME: We’ll be looking forward to not only following through with you, I’m excited about the possibility of accessing information that’s geared towards us as an industry because you providing that information will help us create safer workplaces.

CRAIG: That’s the dream and we’re so excited about it, Jaime. A couple more weeks and we expect to be rolling that out. It has thousands of thousands of assets ready to go and it goes beyond even insurance. So there’s tips in there on when you’re hiring new employees, how you could do background screens, tips for interviewing, and making sure you get the right person. It really is designed to be a resource for small business owners. Its primary focus is limiting hazards in the workplace and helping business owners educate themselves to do just that, but it goes well beyond it.

JAIME: Will you need to be a customer of Cerity to access those resources?

CRAIG: Today, yes, though we are looking at different ways we could deploy it more broadly. But when we release it in a couple of weeks, it will be available for Cerity members only to start.

JAIME: Well that’s good to know. I’m so grateful that you were able to join us today and share with us about workers’ comp insurance.

CRAIG: Thank you very much, Jaime. Anytime.

JAIME: If you’re enjoying Outgrowth, please leave us a review on Apple podcasts with one click. Just visit bit.ly/outgrowthpodcast. As always you can follow us and comment on recent episodes on Instagram at @outgrowthpodcast.