All you are doing is giving them a discount on your services. A pretty big one at that if they are taking a percentage of your gross that you are invoicing them for. Besides that if you of someone were to get hurt on their site you will be hard pressed to recoup any medical exp or lost wages. Their WC policy covers their employees not their subs. Ask your agent he will enlighten you.
Basically what they are doing is covering their end for when they get their WC audit. If they are paying you on a 1099 and they cannot show that you have WC coverage then they must pay the premium on that amount they paid you.