A poorly managed workers’ compensation program could cause your insurance costs to skyrocket, and impact your balance sheet.
“Your internal costs/expenses affect the pricing of your goods or services, so if your internal costs are high, you may not be able to charge enough on your products or services to make the profit you need to stay in business,” says Shane Moran, vice president at ECBM.
Smart Business spoke with Moran about how to better control these costs.
How can workers’ compensation costs ripple out?
Experience modifiers (ex mod) are a measure of past workers’ compensation losses. Let’s say your company has an ex mod of 1.5, which is high. That may result in a 50 percent increase in insurance cost.
A poor ex mod could also mean a loss of business. Companies may not hire your firm because they feel you don’t run a safe operation and loses will happen.
As an example, company A takes bids on an expansion of its facility where company B’s employees will be on company A’s premises. Company A specifies that the winning bidder must maintain an ex mod factor of less than 1. So, a high ex mod not only drives up your insurance cost but also prevents you from generating new business.
What are the best businesses doing to manage their overall costs?
Smart companies have a safety committee. This committee provides many benefits, the least of which would be reviewing work accidents to help determine if it was preventable and what steps should be taken to help reduce a repeat occurrence.
Another key component is to have an active return to work/light duty program. While the safety committee focuses on preventing loss, a light duty program works to control the ultimate cost of the loss. Getting your employee back to work, even on a limited or modified basis, greatly reduces the overall cost of the claim while improving the employee’s mental well-being.
How else can companies start to better control these costs?
You need to understand where your costs are coming from and the types of claims that are occurring. You should be getting claims summaries or loss runs on a periodic basis, but many times the company’s decision-makers aren’t aware of the number of claims and/or the costs associated with them.
Companies also need to talk with their insurance broker and risk manager to develop a strategy to monitor claims. These meetings help target loss control services based on the types of claims that are occurring.
In addition, you should do some ex mod projections or forecasts so you have a general idea of what costs might lie ahead.
What are the biggest cost concerns, and how much does industry play into it?
Insurance rates have been pretty steady, so the pure rate charged by carriers isn’t the biggest concern. What is a concern is the increasing cost of treatment, which obviously drives up the cost of each claim. There also are big increases in prescription costs.
Industry type certainly plays a role in the severity and frequency of claims. A roofer has a much higher risk of having a claim than an office employee. Thus, the roofer is charged a higher rate per $100 of payroll, but the cost of treating the injury in either case is rising due to higher medical costs from providers.
How can companies reduce claim frequency?
Companies need to start looking behind the curtain to see what’s really driving their workers’ compensation claims, if they haven’t already. You can no longer just look at the total claim cost; you must look at each facet of the claim to see what can be done.
You can partner with your insurance broker to analyze this data. If your current broker doesn’t have the expertise to do this, partner with someone who can provide this service.
Then, develop and implement a plan that includes a safety committee, return to work/light duty program, and strategies to monitor the results and make necessary adjustments. You must be active in managing the process.
Insights Risk Management is brought to you by ECBM
