If you recently reviewed your workers’ compensation insurance renewal bill, you likely shared in the same experience of shock and dismay as many other business owners who saw sizable increases in premium. If you have not yet received your increased renewal bill, rest assured, it’s coming, says Tage E. Peterson, Commercial risk consultant with Momentous Insurance.
After the passage of the Workers’ Compensation Reform Senate Bill 899 in 2004 under Gov. Arnold Schwarzenegger, California businesses enjoyed reduced workers’ compensation premiums.
“This was a welcomed reform considering the subsequent economic challenges, where the trimming of business costs was celebrated across every industry,” he says. “While our economy has yet to fully recover, premiums are starting to rise again, upwards of 15 to 20 percent. Many business owners are scrambling to figure out a viable plan to manage this increase. After all, the extra bags of money are simply not laying around in accounting to hand over to the insurance companies.”
Smart Business spoke with Peterson about what businesses can do to mitigate these higher premiums.
What is the history of workers’ compensation in California?
The passage of the Workers’ Compensation Bill in 2004 was a much-needed answer to the cries for help from California business owners. At the time, workers’ compensation rates were out of control with year-over-year increases tipping as much as 25 percent. Businesses had to make tough decisions to keep their doors open, including relocating to other states where the costs to operate were more affordable.
With the passage of a single bill, the complex system of handling claims changed, producing immediate results that greatly reduced the insurance companies’ claims costs. The insurance companies worked to see how much they could reasonably drop pricing to gobble up market share from their competitors. Seemingly overnight, California business owners experienced much-needed relief in their insurance budgets, while the insurance companies couldn’t slash prices quickly enough. From 2004 to present, the bill is associated with overall decreases between 50 to 60 percent for businesses.
Why the increases now?
The saying goes, ‘What goes up, must come down.’ Unfortunately, the opposite applies in the insurance world — what went down eventually had to go up. The insurance companies, in their price slashing fury, eventually discovered where the pricing floor existed — some too late. Many insurance companies are now filing for rate increases with the California Insurance Commissioner to cover the increase in actual workers’ compensation claims. Those rate increases are being approved and passed on to the business policyholders. For 2012 renewals, you can expect to see workers’ compensation increases averaging between 15 to 20 percent.
What you can do to help your business?
Time for a shopping spree — The insurance market is changing. The workers’ compensation insurance companies that were well known for delivering the lowest rates for years are not necessarily the ones leading the way in 2012. If your insurance program is on autopilot with your insurance broker, they are doing you a disservice. Now more than ever, the value of shopping your insurance is producing staggering results. Shopping your insurance will help you discover who is looking to win your business with more reasonable pricing. If your insurance broker is not putting in the work for you to shop the market, it may be time to infuse a little competition into the mix.
Manage claims and experience mod — The double-edged sword that is your company’s experience modification factor (ex mod) plays a large part in the cost for your workers’ compensation insurance. This is your business’s merit rating system tracked by the Workers Compensation Insurance Rating Bureau that can provide you with incentives for controlling your work-related injuries, or penalize you for excessive claims. Controlling your claims can reduce your ex mod, determining your ultimate debit or credit pricing.
If you have pending claims open, work to close these before your next ex mod is released. Not every claim can be closed due to specific circumstances but certain ones can if responsibly followed up on and resolved. This can eliminate a sizable reserve held by the insurance company that negatively affects your ex mod and your renewal pricing. Monitor all open claims to make sure you are receiving the most favorable rating.
If your business has a high experience modification, you should be meeting with your insurance broker regularly to review all of your claims. Together you can develop an action plan that addresses the recurring injuries, frequency of claims and identify hazards in your operation that can be remedied. If your insurance broker is not partnering with you when you need them most, you should be concerned. Keeping your finger on the pulse of your claims and workplace safety is the best way to manage workers’ compensation costs.
Safety plans pay dividends — A safety plan consisting of regular employee safety meetings to reinforce best practices, combined with bonuses or prizes for safety benchmarks, creates an organizational focus on safety, resulting in reduced claims and oftentimes, additional insurance credits. While the investment in a good safety plan may take time and a little money, the dividends can equate to saving thousands or tens of thousands of dollars in premiums.
Whether in a great economy or a weak one, every dollar saved on your insurance is a dollar earned. Make sure your broker is getting your business the biggest bang for your insurance buck. Finding a qualified broker to work through the ‘pain’ and manage your premiums is one of the best plans you can make for 2012.
Tage E. Peterson is a commercial risk consultant with Momentous Insurance. Reach him at (818) 453-9643 or email@example.com.
Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.