Workers' Compensation 101

Controlling Your Costs

Here are some particular areas you may want to focus on to make sure your workers' compensation insurance costs aren't out of control.

. Determine if you're in an assigned risk plan. Sometimes an insurance agent handling the workers' compensation insurance for a small employer doesn't make it clear that the policy procured is an assigned risk policy. And in many states, the rates and premium for an assigned risk policy are much, much higher than for the same policy written through the voluntary market. An assigned risk policy doesn't look different from any other workers' comp policy, except for some subtle differences. So make it a point to insist on knowing if your policy has been written through an assigned risk plan.

If you're in an assigned risk plan, check with your state's insurance regulators to see if assigned risk policies in your state have higher rates and premiums. If this is the case, then do everything in your power to find coverage outside the assigned risk plan. Talk with other agents, talk with direct-writing insurance companies, talk with employee leasing companies, investigate group self-insurance programs available in your state-but don't let it be your agent's responsibility to get you out of the assigned risk plan. Your agent just may not have a viable alternative for you, but that doesn't mean that such an alternative doesn't exist.

. Check what credits may be available to you in your state. If you're not in an assigned risk plan, make sure your policy gives you whatever credits you might be eligible for in your state. If your state offers credits for a drug- and alcohol-free workplace, find out if you're eligible. If your state offers merit rating, see if you're eligible for that from an insurer. If your premium is appropriate, make sure you're getting the proper experience modification factor. If your state offers a small-deductible credit, look into obtaining it.

. Insist on getting audit workpapers after any audit. If the insurance company sends out an auditor to determine your final premium, make sure to request a copy of the audit work papers so you can review them carefully and make sure payroll computation adjusts overtime properly and allocates payroll of different employees correctly.

. Check into alternative sources of workers' compensation insurance. Many business and trade associations sponsor insurance programs that include workers' compensation insurance. Check into all organizations to which you belong or that you might be eligible to join; they may offer sponsored insurance programs that could reduce your rates or premium.

Operating a Safe Workplace
Most of this article focuses on actions employers can take to reduce workers' compensation insurance costs by spotting common mistakes made by the insurance industry that inflate premiums. But keep in mind that workplace safety is also a necessary part of any program to control the cost of workers' compensation insurance. As you've seen earlier in this article, there are direct mechanisms that tie the cost of workers' compensation insurance for most employers to their own company's past losses. The experience modification factor is the most well-known and obvious such mechanism, but there are others as well. The simple truth is that controlling workplace safety is a very effective way to control your company's workers' compensation cost. In the long run, catching the typical insurance industry mistakes that inflate premiums is only half the battle. Here are some tried and true steps that employers can take to improve their workplace safety.

  • Discuss safety at every opportunity. Make workplace safety efforts an important part of every meeting. Don't just make it a part of your managers' meetings-make it a constant topic at meetings with workers. Make sure you communicate to them why safety is so vital, and how it affects the cost of workers' compensation coverage and thus the bottom-line of the company. You might be amazed at how many of your employees don't really understand how expensive workers' compensation coverage is for the company-or even that it's a cost for the company at all. Some employees think it's just some kind of government program that doesn't really translate back to direct costs for the company. So share information about the cost of the company's workers' compensation insurance and how the cost of claims drives up that cost. Post the company's safety goals, and how well the company is doing in regard to meeting those goals. Compare current injury information (without disclosing confidential information about injured workers) with information on recent years.
  • Examine trends in workplace injuries. You can't rely solely on your insurance company to analyze this data and alert you to trends you need to address. Get all the information you can about what kinds of claims are occurring and in what part of your operations. Only by understanding what's causing your claims can you begin to address the causes. It's a terribly overworked clich�, but it's also very true: Safety is no accident. It takes planning, effort and thought.
  • Utilize modern resources. Don't be afraid to search the internet for information about what's working at other companies, safety advice from government agencies, insurance companies, insurance regulators, or even special interest groups. Do a Google search under "workers compensation safety programs," and you'll get over six million sites with information.

Some good sources of information:

This is just a small sample of the wealth of information available over the internet that can help your company improve your workplace safety efforts.

Edward J. Priz has worked in the insurance industry since 1976 as an agent, consultant and expert witness. Currently, he heads Advanced Insurance Management, an insurance consulting company that works with employers nationwide to identify and correct workers' compensation industry overcharges.

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