Workers
Compensation: Reducing
Out-of-Pocket Costs
Why worker injuries are sucking the profit out of your bottom line
The cost of workers compensation to you goes way beyond premium. Worker Injuries incur huge out of pocket costs to you in two different, but substantial ways:
The first are costs that aren’t reimbursed by
your insurance company for worker injuries.
Industrial safety experts state that for every dollar of worker injury
loss paid by your insurer there is another 3 to 5 dollars paid by you the
employer out of pocket. These are
costs directly incurred due to an accident for issues such as: lost
productivity, partial or full shutdown of an assembly line, or
facility/location for accident investigation, retraining costs, management time
lost to filling out forms, OSHA investigations, fines, etc. Unfortunately they are not easily
identifiable by you today, so they are difficult to control. Obviously, fewer claims will curtail out of
pocket costs but how do you create an environment that achieves that? And, how do you measure those costs
accurately in order to better manage them?
The answer is a combination of several
factors: Management involvement and commitment to a safer work environment,
professional advice, program design, communication, and control. An asset to helping you achieve this goal is
CompEraser which is a powerful software tool to measure,
gauge, and control costs.
The second out of pocket cost you incur for
worker injuries lies in the added cost of premium due to higher experience
modifiers in your workers comp policy.
And like the first, you are at the mercy of the unknown here to allow
profit to be sucked out of your bottom line!
The experience modifier in your workers
compensation is supposed to be a measure of your prior loss experience. If you have little to no claims your
modifier is generally going to be less than 1.0 (a credit modifier) and if you
have above average claims activity your experience modifier is going to be
above 1.0 (a debit modifier). A company
with a 1.21 modifier is essentially paying 21% more for workers’ compensation
insurance because of “alleged” experience.
What do I mean by “alleged” experience?
Well, in my experience and the experience of
my peer group, we estimate that over 65% of published experience modifiers are
incorrect. They are incorrect due to
clerical errors, mathematical errors, and unfortunately just plain laziness on
the part of agents, brokers and insurance companies.
Here’s the problem.
Insurers must report your claims history 3 to
4 months before the expiration of your policy to your state rating bureau. Contained in that report will be all the
loss dollars PAID, as well as
dollars RESERVED for the last
four years. A reserve on a claim is an
estimate of what the insurer’s claim department thinks a claim will ultimately
settle for. Regrettably, insurers
regularly will “over” reserve claims and may “sit” on those reserves for an
unreasonable period of time. The insurer
benefits two ways from doing this. They
can carry reserves as losses in GAAP accounting rules so they get a write off;
and second, since the reserve will be used to calculate your loss experience
modifier they will get the benefit of collecting higher premiums from you. There’s almost a built in incentive for your
insurer to not aggressively work down reserves and this is where you get
hurt. Worse yet, is that most insurance
brokers do not get involved in managing this costly problem for their clients.
My unique
and systematic method to evaluate claims and experience works to your
benefit. I will research your modifier,
your loss experience, and your final premium for accuracy. If there are questionable loss reserves, I
will engage and challenge your insurer on the accuracy of those reserves. In short, I will provide you 100% client
advocacy to make sure your insurer isn’t taking advantage of you, and you’re
modifier is where it should be.
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