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WEB EXCLUSIVE: Five Steps to Lower Workers' Compensation Insurance Costs
19 Jun, 2007 By: Rob WilsonOne of the fastest growing expenses affecting small businesses is workers' compensation insurance, which covers expenses associated with injuries to employees while on the job. In fact, 33 percent of small business owners identified workers' compensation as a critical problem in 2004, according to the National Federation of Independent Businesses (NFIB).
Workers' compensation includes medical bills as well as payment for lost time and for any permanency of injuries. Coverage is required by all states and rates vary. In 2004 rates ranged from 5 to 40 percent of payroll depending on the state where coverage is provided. Average premiums continue to rise in most states just behind labor costs and health insurance while coverage availability decreases. In most cases, the rate is charged against all payroll, including double time. This is a fast growing expense across industries, and one that cannot be ignored.
So what can a company do to protect itself? Keep your claims to a minimum and be diligent about your policy's coverage.
1. Make safety a priority. Develop a written safety control program. Better workplace safety leads to fewer claims, and fewer claims directly affects your workers' compensation rate.
Include a disciplinary section in your written plan. You have to make employees accountable for breaking the rules. Your plan should also provide rewards for correctly following safety procedures.
Even if you put together an excellent written program, it will not work if top management doesn't endorse and implement it. Managers and lead workers have to take responsibility for safety enforcement of each work area. This includes scheduling and conducting regular safety meetings and discussions of specific work environment hazards.
You might also consider conducting random drug testing for all employees. Be upfront about telling all potential employees that submitting to random drug tests is a requirement for employment, which should decrease any potential drug-related claims.
2. Take action when a claim occurs. When an employee experiences an injury on the job require a drug test. While a positive drug test will not allow you to deny a claim in most states, it will certainly help.
Complete an accident report with as much detail as possible. Take photographs of the scene and talk to any potential witnesses about what happened. Send the first report of injury within 24 hours to the insurance company to ensure prompt handling and to help fight fraudulent claims. If you suspect fraud, inform the insurance company.
3. Take action behind the scenes. Review your workers' compensation policy for accuracy and ensure the claimant is not a repeat offender. Is the payroll correct? Are the class codes correct?
Second, check your experience modification factors (or "experience mods"). Every business that spends more than $5,000 on workers' compensation has an experience mod. Each company starts at 1.00 and it goes up or down depending on its claim experience. The lower your claims, the lower your experience mod. Your rate is typically multiplied by your experience mod to arrive at the final rate. For example, if your rate is $10 and your experience mod is .8, your rate becomes $8. Make sure your experience mod is correct. Are the claims listed actually yours? The "mistake" ratio in the insurance industry is higher than 27 percent, so review everything carefully. Errors that go unnoticed can cost you.
Third, explore a deductible. Most deductibles vary from $1,000 to $500,000 per claim and are charged from the first dollar incurred. Premium is typically reduced by 4 percent for a $1,000 deductible per claim.
4 Be aware of possible fraud. Again, review your policy for accuracy of the claim. Realize that sometimes it pays to investigate what you suspect is a fraudulent claim. For example, a recent case of a worker who claimed a bad back was later photographed digging out a tree stump. It's unlikely the employer could have won the suit without the photographic evidence.
5 Consider a PEO. With all this to worry about, it is not hard to see why there is a growing trend in small businesses to outsource these functions to a professional employer organization (PEO). Advantages for the business owner include reduced premiums, safety and loss control expertise, nationwide coverage, and professional payroll processing and tax filing.
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