Terry Ewing

Wednesday, 31 August 2005 11:36

Taming workers’ compensation costs

Workers’ compensation insurance is the financial bane of many employers. Wrestling with a system that seems stacked against the employer is an expensive distraction most companies would like to avoid. Many simply buy a policy of insurance and assume that it’s the insurer’s job to administer the policy.

Would you believe there is a way for managers to proactively work with these expenses and perhaps even turn lower workers’ compensation costs to the company’s competitive advantage? It can and has been done. There are some key issues to consider when reducing comp costs.

  • Don’t hire potential problems. A complete hiring process, including a credit report, motor vehicle operators record (if the employee will be operating company vehicles or their own on their employers behalf) and a criminal history record check will save you many headaches and, at a minimum, screen out repeat offenders and potential hires with questionable judgment.
  • Take action. Actively monitor and review workers’ compensation claims with your agent and insurer regularly. Here the squeaky wheel gets the grease. You want your claim coming to the adjuster’s attention as frequently as possible. Some adjusters may have as many as 600 files they supervise. At a minimum, there should be an annual claim review conducted on every open claim. More frequent reviews are recommended if you have a larger number of claims.
  • Make modifications. Explore opportunities to return employees to work as soon as possible, especially in a modified-duty position. Employers are entitled to offset wages earned at modified duty against the wage indemnity portion of a workers’ compensation claim. Every dollar diverted from the workers’ compensation claim is not subject to insurance program markup and will not impact your experience modification.
  • Speak up. Ask your agent to make sure that your experience modification is accurate. The rating system was changed in 2004 and there can be errors resulting in higher premiums. In one case, and insurance company returned $16,000 in premiums just by correcting an experience modification.
  • Trust, but verify. If your company is experiencing a number of workers’ compensation claims, make sure that employees are not abusing the system by extending disability or magnifying symptoms. Ask your claims adjuster if surveillance to verify the extent of disability may be required. Employers should also consider whether employees are making claims because of a negative work environment or other symptom of dysfunctional management-labor relationships.

Self-audit tools to evaluate workers’ compensation coverage

  • Are your insurance companies rated at least A-Financial Size VII by A.M. Best? Financial staying power is important, as comp claims can go on for years.
  • Have you collected and reviewed insurance certificates from vendors and subcontractors for compliance with Best’s rating, limits of liability and coverage, and to see if you have been named as additional insured? Did you know that in some cases your insurer can charge premiums for uninsured workers on your premises?
  • Depending on the size of your business, it may be possible to save fixed premium dollars by investigating a deductible for workers’ compensation.
  • Have you formed a safety committee for your company to seek employee input about safety issues and to determine if you can qualify for the safety committee discount?
  • Has the actual cost of insurance and annual claims been reviewed with employees so that the connection between low claims experience, lower insurance premiums, company profitability and job security been explained?
  • Have you posted a panel of physicians and other health-care providers as required by your state’s workers’ compensation act? If so, you maybe able to direct workers to those approved providers in the early and critical part of medical treatment for their injury.

Hopefully these suggestions and recommendations will help management discover methods to control and reduce workers’ compensation expenses.

Eric Ewing is CEO of Citizens Insurance Services. Reach him at (877) 467-7767 or eewing@thebank.com.

Monday, 24 January 2005 19:00

Can you afford a $1 million power surge?

Most business owners recognize the need to plan for obstacles and bumps in the road by purchasing business insurance. And, these same business owners would likely acknowledge that their operations continue to become more and more dependent on electrical systems and equipment.

With those facts, it's hard to believe that out of the approximately 9 million U.S. businesses that purchase property insurance, more than 8 million overlook the purchase of equipment breakdown coverage.

Equipment breakdown insurance covers your loss of business income if a breakdown interrupts operations. It covers costs to speed restoration of operations and, in the case of temperature controlled goods, spoilage loss. This coverage fills the gaps in fire and property policies and becomes increasingly important when compared to warranties and maintenance contracts that don't typically cover damage to or breakdown of a piece of machinery or equipment.

Sometimes the best way to show the value of coverage is by example. Consider these actual claims.


Office building: Electrical arcing destroyed three main electrical panels and left an office building without power. Temporary measures were taken to restore power to tenants, particularly to an accounting firm at the height of the tax season crunch.

Total loss: $1,597,389

Furniture manufacturer: Sawdust in an electrical distribution panel severely damaged the interior of the panel. Overtime was required to make up lost production.

Repair cost: $21,087

Business interruption: $14,600

Total loss: $35,687

Business equipment and systems

Service station: A power surge damaged a service station's electronics, including the computerized diagnostic, telephone, paging and security systems.

Total loss: $33,388

Office building: Electrical power supply voltage fluctuation caused two telephone system terminal boards to burn out.

Total loss: $52,500

Air conditioning and refrigeration

Food processor: An ammonia line ruptured when a compressor crankshaft and its connecting rod broke. Fresh scallops were contaminated with ammonia. Rental units were needed while the new compressor was installed.

Total loss: $65,289


Machine shop: A power surge from a utility line damaged two computer circuit boards, halting a metal shearing operation for nearly a week. Materials and workers were sent to another plant several hundred miles away to meet production requirements.

Repair cost: $9,485

Extra expenses: $42,541

Total loss: $52,026

Dependence on electronics and equipment

Businesses rely on costly and specialized equipment for day-to-day operations. Phone systems, scanners, computer-controlled machinery and even a building's electrical system are examples. As technology moves forward, the complexity and vulnerability of these systems moves right along with it.

Equipment and systems can be rendered inoperable by relatively simple problems such as loose connections, moisture, line disturbance or short circuiting, among others. The likelihood of this type of loss is greater than many business owners realize.

Equipment breakdown coverage

None of the scenarios described above is improbable. Yet all of these losses would have been excluded from the common property coverage form many business owners purchase.

Make it a priority to review your equipment challenges. Then contact your insurance agent for more information about equipment breakdown and other business solutions.

Reach Terry Ewing, senior commercial lines analyst, at (330) 887-6865 or terryewing@westfieldgrp.com. In business for more than 156 years, Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product it offers is peace of mind and its promise of protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.