Traditional workers compensation policies, often structured as guaranteed cost plans, are common in the marketplace, but they don’t work for every client. For insurance retailers working with mid-sized and larger businesses, it’s essential to understand the full range of alternative workers' compensation models available today.
Alternative options can offer more flexibility, cost savings, and control, especially for accounts with strong safety records, good cash flow, or an appetite for risk-sharing. As a wholesale brokerage, Novatae helps agents place these alternative workers' comp solutions for clients who have outgrown standard policies.
Traditional workers compensation is a guaranteed cost model where the premium is fixed and claims don’t impact cost mid-term. While this simplicity can be ideal for small or higher-risk businesses, larger companies may benefit from more nuanced programs that reward them for safety and low claims.
Alternative workers comp refers to any model that deviates from this fixed-cost structure, typically through risk-sharing, self-insurance, or third-party partnership models.
Large deductible workers comp programs let businesses assume more financial responsibility for each claim in exchange for lower premiums. Under this model, the insurance carrier handles the claims but gets reimbursed by the insured up to a specified per-claim deductible, often $25,000 or more. These plans are ideal for companies with strong safety programs and a solid claims history. They improve cash flow by reducing the upfront premium, but they also require collateral and diligent oversight of claims activity. For the right client, they offer substantial long-term savings.
A retrospective rating plan adjusts the client’s premium after the policy period based on actual loss experience. The final cost is subject to a minimum and maximum premium, giving businesses a performance incentive. These plans don’t require collateral and are less cash-intensive than large deductible programs, but they can result in unexpected additional premiums if claims come in higher than projected. They’re best suited for clients who have consistent claims management and want a balance of risk and reward.
Captives are self-owned insurance companies that businesses or groups form to insure their own risk. They offer maximum control over underwriting, claims handling, and policy structure. The potential benefits include underwriting profit, investment income, and premium stability independent of market cycles. However, captives come with high startup costs, governance requirements, and regulatory complexity. Retail agents should only recommend captives to financially strong clients with long-term strategic goals and the infrastructure to manage them effectively.
Sliding-scale dividend programs operate within the framework of guaranteed cost policies but reward policyholders with dividends if claims perform well. Offered primarily by mutual insurers, these plans return a portion of the premium based on favorable loss ratios. They’re a lower-risk way to introduce clients to performance-based insurance structures. However, dividends are not guaranteed and are often distributed after the policy ends.
An Administrative Services Organization (ASO) model allows a company to retain full liability and control over its workers’ compensation program while outsourcing administrative functions to a third-party provider. The ASO handles key tasks like claims processing, data entry, reporting, and some compliance activities, allowing the employer to focus on operations without giving up control over policy decisions.
Unlike a Professional Employer Organization (PEO), an ASO does not create a co-employment relationship. This gives businesses more flexibility in plan design and provider selection. ASOs can also offer cost-saving advantages by reducing internal administrative overhead and leveraging expertise in claims management and loss control. Additionally, many ASO models offer pay-as-you-go premium options, aligning premium payments more closely with actual payroll and improving cash flow.
The ASO model is ideal for companies that want to maintain ownership of their workers’ comp risk but streamline the day-to-day administration through a knowledgeable third party.
One of the most widely used alternatives to traditional workers compensation is partnering with a Professional Employer Organization (PEO). In a PEO model, the client and the PEO become co-employers. The PEO becomes the employer of record for tax, payroll, and insurance purposes, bundling workers comp coverage with HR, payroll, and compliance services. The client retains day-to-day operational control but outsources administrative and legal employment responsibilities to the PEO.
PEOs offer access to master workers comp policies, which can provide significantly better rates, especially for smaller or higher-risk businesses that struggle to secure competitive coverage in the open market. Beyond pricing, PEOs reduce administrative burden by handling payroll, tax filings, compliance training, and claims management. This turnkey solution is attractive to businesses looking to consolidate vendors and reduce overhead.
While the PEO model can solve a lot of coverage headaches, it’s not a one-size-fits-all solution. Employers with decentralized workforces, high employee turnover, or complex risk profiles may find PEOs too restrictive. Additionally, working through a PEO means the employer gives up some autonomy, and commission structures can differ from traditional placements. Retail agents must assess whether the client's business model aligns with the operational trade-offs a PEO entails.
At Novatae, PEOs are a core part of our alternative workers comp strategy. We find them especially effective for hard-to-place risks, clients with poor mod history, or those entering new markets without a compliance framework in place. Our team works closely with insurance retailers to evaluate fit, structure the engagement, and secure favorable terms. It's not just about placing coverage, it’s about giving your client the right long-term strategy.
Insurance retailers should explore alternative options when:
At Novatae, we work closely with insurance retailers to assess client risk profiles and recommend the best-fit workers comp structure, whether that’s guaranteed cost, PEO, or a loss-sensitive model. With access to national carriers, captive options, and PEO networks, we help you deliver smarter, more strategic comp solutions.
Ready to explore alternatives for your client? Contact Novatae today.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.