Maximizing savings

The cost of premiums on workers’ compensation insurance is a major portion of total overhead for many Florida companies.

Yes, the Florida workers’ compensation landscape has improved over the last few years, primarily due to legislation that capped attorney fees. Yes, the average rate decrease the last two years has been 29.2 percent. But given the overall economy, astute companies still
search for ways to cut their costs.
“Many different workers’ compensation program options are available for mid-size to large commercial insureds,” says John Korpics,
area senior vice president for Arthur J. Gallagher & Co. in Miami. “In order to maximize savings, an insured must be committed to loss
control and claim management and pick a broker partner that has the necessary resources.”

Korpics believes that broker partners should have loss prevention and claims advocacy to help reduce claims frequency and severity.
The broker also needs the ability to survey the various programs and carrier alternatives that match the client’s needs.

Smart Business talked to Korpics about the steps a company needs to take in order to minimize its workers’ compensation.

How are workers’ compensation premiums developed?

Your workers’ compensation cost is based on four major factors.

  • Estimated payroll

  • Loss frequency and severity

  • Experience modification

  • Employee classification codes and rates established for all carriers in Florida

How can a company reduce its workers’ compensation costs?

It’s a matter of selecting the right program to match to your ability to prevent losses and manage claims.

Various programs are available. The more risk you assume, the more you can save if you control your losses. In order to justify taking
additional risk with a goal to save money, you must get control of your losses and prevent future losses. Deal with a broker that has loss-prevention specialists on staff who work with insureds to control losses.

In order to reduce and close out claims, you need to also review and manage them. Claim advocates are typically former adjusters who
are well versed in how a claim should be handled from start to finish. Their focus is on (1) reserve amounts set by the carriers that helps
them close claims, and (2) projecting historical losses into the future to help select the appropriate workers’ compensation program.
Select a broker who provides claims advocate review and is involved with your ongoing claims.

Briefly describe the alternative workers’ compensation programs and which plans fit where.

Guaranteed cost: In Florida, an insured pays a set premium to an insurance carrier based on payroll and set class codes and rates.
There is a premium discount based on the premium size of the account, and some credits are available — such as workplace safety (2
percent) and drug-free workplace (5 percent). Guaranteed cost programs return no premium for good experience and do not debit premium for adverse experience. A company that is struggling to control its losses should choose a guaranteed cost plan.

Dividend plan: This is a guaranteed cost program that will return a portion of your premium if you meet certain loss ratio requirements. There is no risk of additional premium if the insured has adverse loss experience. A conservative company that does not want to
take risk is a good fit.

Retrospective plans: These plans are based on standard premiums and will either reward the insured with premium refunds for a
low loss ratio or penalize or debit the premium for adverse experience. A company that feels it can control its losses and assume some
risk should explore this option.

Large deductible plans: These plans are very similar to self insurance. The insured pays a smaller premium to protect itself from catastrophic claims and to aggregate its total losses. Then the company funds its normal losses within its selected large deductible.

Self insurance: The state of Florida must approve an insured to become self-insured. This plan works very similar to the large
deductible and is only applicable to very large companies.

Note that large deductible and self-insurance should be chosen by companies that have a strong feel for their probable future loss experience. Both plans require a large standard premium. These companies should be willing to take risk in exchange for cash flow benefits
and for possible substantial savings if they can minimize loss experiences. They must also be able to post security, usually in the form of
a Letter of Credit.

JOHN KORPICS is area senior vice president in the Miami office of Arthur J. Gallagher & Co. Reach him at (305) 639-3114 or [email protected].

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