All Dividends are Not Created Equal
All dividends on worker’s comp policies are not created equal. I don’t care what your agent’s telling you, it’s simply not the case. There are a lot of things to consider when you get put on a workers’ comp program that has a dividend. The first one is whether or not you’re even going to get it, and the answer is, it’s not guaranteed. A carrier cannot guarantee dividends at all in the State of Florida. Dividends have to be declared by the board of directors, and then they’re issued.
When is my Dividend Valued?
The second thing you need to know is when you’re going to be able to get your dividend. When will it be valued, and a lot of that depends on the wording in the quote. Once the policy’s in place, it’s not going to be able to be changed. So if you’re looking at two workers’ compensation quotes and all things appear to be equal, guess what? One may pay you a dividend six to nine months after the policy ends. Another one might not pay it for 18 months. You need to know so that you can project your cash flow and understand what your return on investment’s going to be in your insurance and risk management program.
What Type of Loss Development Factors are Applied?
The next thing you want to know is what type of loss development factors are going to be applied. How are they going to ultimately value claims that are still open? If you have open claims, you’re more than likely not going to get the entire dividend, but even if you don’t, the value that you get hinges on how much they value what’s left to pay before a claim is closed out. Know what they think a loss is going to develop because that becomes a huge issue.
Is There a Recapture Provision?
Know whether or not there’s a recapture provision. What happens if you have a great year, you get an awesome dividend, and then all of a sudden, through no fault of your own, a claim is reopened, and a carrier comes back looking for some of that dividend money back. Not a good conversation to have, but one that’s entirely possible if there’s a recapture provision in your dividend program. Again, not something you want to be surprised about when a claim happens or when you don’t get paid on a dividend check. You need to know when everything gets quoted.
What is the Insurance Company’s Dividend Payment History?
And last but not least, you need to make sure that the company has a good history of paying them out. How does the stair-step provision look? Meaning, how quickly do I fall off in terms of a percentage of the premium I get back when I go from no losses to 5% losses to 10% losses to 15% losses, because every single company that offers a dividend, has a matrix just like that.
Again, you might be at 20% with no losses, but one company may be at 18% on a 5% loss ratio, and the next one drops to 10%. Take the time to figure that out. And here’s a bonus. I thought I had finished, but I’m not.
Don’t Immediately Jump to a Flat Dividend
Don’t go for a flat dividend if you have excellent performance. Right now, carriers are trying to slide 20% flat dividends in front of high performing accounts, and you know why? Because they make more money if they do that. If you have had a loss ratio of 5% or less for the last five to 10 years, why would you cap yourself at 20% back on a dividend if you could ultimately get 40% if you took a sliding scale dividend and had a high topside to it?
If you don’t understand how to look at all this stuff, if your agent’s not talking to you about it, feel free to reach out. We’re happy to give you a dividend projection based on the exact plan you have in place right now at absolutely no cost. Click the button down at the bottom of this post. Request a time for us to talk, and I can assure you, we won’t put the hard clothes on you. We’re not going to try and sell you anything. Our work product sells itself.