Protecting your insurance Featured

11:35am EDT December 27, 2005
Legislation was enacted that required workers’ compensation for employers for several reasons. Two significant reasons are as follows.

  • For employees, the law provides a no-fault system requiring a safe workplace environment and financial compensation in case of injury.

  • For employers, it provides a system whereby an employer can fulfill their requirement to provide protection for employees and have a better way to budget a cost for workers’ compensation injuries.

However, due to increased litigation, costs for employers have skyrocketed in recent years in California. The key to avoiding exorbitant costs, says Ken Kessler, president of Sander A. Kessler & Associates Inc., is to create a safe environment.

“If an employer subscribes to running a safe organization, no matter what type of market we have in California, they will be able to obtain the best rates that are available. Creating a safe environment should be the guiding light for all employers,” Kessler says.

Kessler spoke to Smart Business about the effects that litigation has had on workers’ compensation rates and steps that a business can take to minimize this outlay.

What are some of the factors that are pushing up workers’ compensation costs?
First, realize in California today prices are going down. For the last year and a half, the California market has been adjusting. Previously, the cost of workers’ compensation rose substantially. The days of open rating (1995) and rate slashing brought workers’ compensation premiums below the cost of the workers’ compensation claims.

Carriers did not anticipate the expansion of what was considered a claim in the scope of employment. Costs rose and carriers in turn tried to pass the increase cost to employers.

What part did litigation play in the rising costs?
Litigation was a key factor in the rise of premiums.

Litigation helped drive a disability claim from an average cost in the State of California from $17,000 to $55,000. This, as well as other factors, caught several carriers off guard and as a result several carriers folded or severely restricted their writings in California.

Prices rose to cover costs and California became a difficult state for insurance carriers as well as employers who had to pay the rising cost of the workers’ compensation.

What are some steps that a business can take to minimize workers’ compensation costs?
Workers’ compensation costs are driven by claims. The higher the cost of claims, the higher the premium. To minimize the cost, I would suggest the following.

  • Top management must become committed to creating a safe place in the work environment. This should become the culture of the organization.

  • Appoint a safety organization with accountability and authority that can implement ideas and actions to create a safe environment.

  • Look to identify hazards or conditions that may lead to unsafe acts, and correct them.

  • Monitor results to be sure that the organization is moving in the right direction.

In addition, there are several financial alternatives available today that could minimize the cost of workers’ compensation, including deductible programs (partially self-insured), retro programs and group self-insurance

These are three considerations that, if your company is qualified, can substantially reduce the cost of workers’ compensation.

What is your forecast for workers’ compensation costs in 2006?
On January 1st, 2006, an additional 15 percent rate decrease was suggested both by the California Commission and the Workers’ Compensation Bureau.

Premiums will continue to go down for much of the 2006 year.

However, a word of caution: As the result of the losses of Katrina and Rita, the reinsurance market has begun to raise prices. Some of the reinsurance carriers also reinsure workers’ compensation carriers and we may see some pressure to increase prices.

More probable is the fact that the reforms provided in the recent legislation for workers’ compensation are under attack by applicant attorneys. Should they win some of their arguments, claims costs will increase leading to a rise in premiums.

The best safeguard for controlling workers’ compensation costs continues to be creating an organization that has minimal losses. That way, you can prevent human loss as well as take advantage of the insurance marketplace, regardless of the fluctuations in the insurance market.

Ken Kessler is president of Sander A. Kessler & Associates Inc. He functions as the leadership liaison in charge of the Commercial, Personal Lines and Claims departments, and actively participates on advisory councils for several major carriers as well as professional organizations. Reach Kessler at (310) 309-2225 or