orkers’ compensation is a no-fault insurance system that protects workers and employers from financial losses caused by on-the-job accidents and job-related illnesses. In Alaska, coverage is mandatory, not voluntary. Unlike other states, there are no “opt out” provisions under the Alaska Workers’ Compensation Act. This insurance provides employees with medical benefits and compensation for lost wages due to injury, occupational disease, or death arising from their employment.

Companies with more than one employee are required to carry workers’ comp insurance. Under Alaska Statutes Title 23, Chapter 30, an employee is generally defined as, “a person who is not an independent contractor as defined in AS 23.30.230 and who, under a contract of hire, express or implied, is employed by an employer.” Section 230 lists a few exceptions to the workers’ comp requirement (which can include but are not limited to): officers of a nonprofit corporation, part-time babysitters, non-commercial cleaners, sports officials for amateur events, contract entertainers, and commercial fishermen.

An employer can also elect to self-insure in Alaska. In Alaska, the laws state that an employer must go through a detailed qualification process to obtain a certificate of self-insurance from the Alaska Workers’ Compensation Board. This process requires formal loss control and safety programs, a tangible net worth of at least $10 million, and 100 employees, among other criteria.

Typically, employers obtain this coverage from a voluntary market commercial insurance carrier. For various reasons, some employers are unable to obtain workers’ comp insurance in the voluntary market. If a company is working in good faith and is unable to obtain coverage from a commercial carrier, the company may purchase insurance through Alaska’s assigned risk pool (commonly referred to as “the pool”), which is administered by the National Council on Compensation Insurance. Companies in the assigned risk pool are there involuntarily; however, the pool offers a solution that allows businesses to legally operate.

There are many reasons why an employer may not be able to acquire workers’ comp insurance from the voluntary market. Some factors include unstable financial status, poor loss experience (previous insurance claims), a new business venture with little or no prior experience, small company size, or the inherently dangerous or hazardous nature of the work performed by the employer. Although the commercial insurance broker is doing all they can to find coverage in the standard market, the risk appetites of insurance companies still prevail, as insurance is, after all, a business.

The assigned risk pool has a few downsides. First, assigned risk pool rates are higher than those in the standard market for the same classification codes and will likely include a 25 percent surcharge, resulting in higher premiums than companies with competitive rates. Second, the company cannot choose its insurance carrier, as a servicing carrier is assigned to the business, which may limit options for businesses accustomed to working with a particular carrier.

Another important consideration is a mandatory, no-cost loss control inspection. Depending on the size of the operation, class of business, experience modification factor, or other requirements, the insurance carrier will notify the insured that an inspection is required, which can be surprising if a business has never experienced this type of survey. The goals of the required visit include risk assessment, loss trend analysis, safety program review, confirmation of operations, and an evaluation of the company’s hazards and controls. The company must comply with the request and complete the inspection promptly to avoid policy cancellation due to non-compliance.

If the loss control consultant finds unmitigated exposures upon inspection, written recommendations are sent to the insured. These recommendations are aimed at reducing risk in the workplace and should be completed in a timely manner. Any items marked “critical,” defined as “exposures of imminent danger of serious loss potential, or continuing losses,” must be addressed and mitigated within a specified time, or the policy may be canceled.

The loss control consultant will also address other discovered exposures and recommend controls that would improve the overall risk and help protect workers.

Another potential pitfall is the requirement of audit compliance. If the assigned carrier determines that an employer is noncompliant with a policy audit or fails to pay premiums on time, the policy may be canceled. Since the assigned risk pool is the last resort for workers’ comp insurance, the company becomes “bare,” with no insurance in place, and is no longer able to legally operate in Alaska. According to the Alaska Department of Labor and Workforce Development, “employers may be served with a stop-work order if they fail or refuse to insure employees. Continuing to utilize employee labor after service of a stop-work order results in a $1,000 per day penalty for each day of violation.”

If a business is currently in the standard workers’ comp market, the goal is to remain in that market to get the best competitive pricing and avoid falling into the assigned risk pool. Doing so takes effort, and protecting workers from injury is the main priority. If a company begins to suffer worker injuries or illnesses, it’s time to mitigate risks before the frequency of claims add up. While three $10,000 claims are worse than one $30,000 claim, large or shock losses, especially with uncontrolled exposures, tend to make insurance carriers nervous. Frequency of workers’ comp claims are often more of a red flag than severity in many cases, and having no claims is the best scenario.

Solutions can come in many forms, but it is a good idea to work with your insurance carrier’s loss control consultant to solicit ideas for quality controls that adequately protect workers. This shows a good faith effort to the insurance company, and an outside-looking-in approach from a professional could discover creative controls that may not have been considered previously. Conversely, failing to act—or, worse yet, choosing to not work with loss control—can distance the insurance carrier from the company and reduce the chances of policy renewal. If the number of losses and lack of controls relative to exposures are great enough, and no insurance carriers wish to write the workers’ comp risk, the assigned risk pool becomes the only available option.

Like many other aspects of business insurance, it is important to work with your commercial insurance broker to understand why a company is in the assigned risk pool and what can be done to improve the situation. An honest discussion of operations can help create a proactive plan that improves the business’ chances of avoiding the pool altogether.

If the assigned risk pool is the only option available for the business at the time, it is important to create a strategy that makes the business more attractive to the insurance carriers’ underwriters over time. It may not be as difficult as imagined.