Controlling Comp Costs, A Broker Perspective - Part 1

Saturday, November 8, 2003 | 0

This is the first of a series of articles providing tips and advice to employers from the insurance brokerage perspective - the level of interaction that is most frequent and common to the employer experience with workers' compensation. The right broker can have a significant impact on the cost of your workers' compensation program beyond just shopping for the best deal. A broker that is doing his or her job will work with you to reduce injuries, assist in claim investigation, and be the front person in your interactions with the carrier.

This article looks at what the proactive employer can do to keep costs low before an injury occurs.

Before an Injury Occurs

Having an insurance carrier that will work with you and that is pro-active is an important first step. Unfortunately, in today's marketplace, many employers are faced with only one option, "the carrier of last resort". However, what happens before a work injury takes place is something that is definitely under the employer's control.

California law requires employers to provide a safe and healthy work environment. You can lower the chance of injury through a proactive employee safety and healthy program, commonly called the Injury and Illness prevention Program.

What Workers' Compensation Insurance Buys

For your injured employees it buys:
- Medical services needed to treat work-related injury or illness.
- Temporary disability payments to help replace lost wages.
- Permanent disability payments to compensate the injured employee for their inability to perform in the open labor market
- Vocational rehabilitation if the employee is not able to return to the kind of work performed at the time of injury.
- A death benefit for survivors in the case of fatal injury.

For the employer it buys:

Coverage for financial liabilities for job related injuries and illnesses. If you have workers' compensation coverage through a policy, you pay only the cost of your insurance premiums -unless serious and willful misconduct or discrimination is involved. A policy also provides you with legal representation by the insurance carrier if a case is disputed.

Workers' compensation insurance premiums are generally based on the industry you are in (classification), the claims you have had in the past (loss experience) and the size of your company (payroll). In California there are more than 400 different classifications.

Most employers are subject to experience modifications, which is applied to the premium. This ex-mod, as it is called, is used to determine what premium you will be charged. An ex-mod of 100% means your claims history is 'average' compared to others in your industry. If you are better then the average, your experience modification will decrease. For example, a company with an ex-mod of 70% would only pay $70,000 if the manual premium is $100,000. The converse is also true, a company with more claims than the average could have an ex-mod of 150% and would pay $150,000 using the same example.

Employers have the right to dispute the classification codes that they are assigned by requesting an inspection. It is important to note that it is the Workers' Compensation Rating Insurance Rating Bureau (WCIRB) that determines the classifications assigned to your company and also promulgates your experience modification, not your insurance company. You have the right to request a copy of your annual Experience Modification Worksheet and Bureau Inspection Report directly from the WCIRB or your insurance carrier. Savvy employers request copies of these and make certain they are analyzed for correctness. A wrong classification code can result in significant overcharges on your premium. It is estimated that over 20% of all experience modification worksheets contain errors, which also can result in overcharges.

10 Best Practices of Companies with Low Injury Rates and Costs

1. Management has 'found religion' and is committed to safety.
2. No expense is sparred when it comes to safety and the quality of medical attention injured employees receive.
3. Education and training. Top companies understand the workers' comp system, the costs and know their rights.
4. They use best-in-class vendors and solution providers and are willing to spend money above and beyond their premiums. "Hire the best, fire the rest and invest".
5. They benchmark their results against previous years and other companies. Annual goals are established and reported on at least quarterly.
6. They utilize best hiring practices and spend the necessary money on background checks and post-offer physicals.
7. Supervisory buy-in and accountability is necessary. Supervisors have incentives to keep injuries to a minimum.
8. They maintain an aggressive return-to-work program by returning all employees back to work.
9. They focus on improving the employer - employee relationship, and genuinely care about their employees.
10. They act with urgency, by reporting claims quickly, fixing hazards immediately and being involved with safety on daily basis.

Review Past Injuries

Before you write your renewal premium check, take a look at your company's safety record.
· Are injuries going up or down?
· What types of injuries are most frequent?
· Do you notice any trends or problem areas?
· Are the employees who are doing one particular job, or working a lot of overtime, the same ones who are getting injured?

Your insurance carrier should provide you with a breakdown of your claims, called a loss run, of your past injuries and costs. You should have four years of currently valued loss runs (printed within the last 30 days) on hand to conduct a review. If you are a larger company, ask to have the loss run broken down by job classification and compared with the previous year's experience. You should also examine first aid cases and near misses - the fall or burn that almost happened. These may show where safety training needs reinforcing.

Key parts of an Injury and Illness Prevention Program:

· Name a person(s) who is responsible for day-to-day implementation of the program and has authority for assuring its effectiveness.
- Identify and correct general, and specific workplace hazards.
- Communicate safety information to employees; give them a voice in forwarding concerns and suggestions to management.
- Investigate accidents, actual and potential.
- Conduct required training for employees and supervisors
- Document and maintain the records required by the program.

In the next article of this series we will review employee training, supervisor training and the proper use of communication as a part of your overall workers' compensation control program.

Brent Heurter is a partner and President of the insurance brokerage firm Pavlo, Weinberg & Associates. He can be reached by phone toll-free at (877) 591-2663, or by e-mail at bheurter@employerbenefits.com.

Having adequate coverage for workers' compensation and an insurance carrier you can work with in an important first step. However, what happens before a work injury takes place is under the employer's control.

California law requires employers to provide a safe and healthy work environment. You can lower the chance of injury through a proactive employee safety and healthy program, commonly called the Injury and Illness prevention Program.

What Workers' Compensation Insurance Buys

For your injured employees it buys:
* Medical services needed to treat the job injury or illness.
* Temporary disability payments to help replace lost wages.
* Permanent disability payments to compensate for the permanent effects of the injury.
* Vocational rehabilitation if the employee is not able to return to the kind of work performed at the time of injury.
* A death benefit for survivors in the case of fatal injury.

For you it buys:
Coverage of financial liabilities for job related injuries and illnesses. If you have workers' compensation coverage through a policy or self-insurance, you pay only the cost of your insurance premiums - unless serious and willful misconduct or discrimination is involved. A policy also provides you with legal representation by the insurance carrier if a case is disputed.

Who pays for workers' compensation insurance?
The cost of workers' compensation insurance is the employer's responsibility. You cannot legally require an employee to pay any of the costs of your workers' compensation coverage. This includes any out-of -pocket medical expenses.

Workers' compensation insurance premiums are generally based on the industry you are in (classification), the kind of injury claims you have had in the past )loss experience) and the size of your company (payroll). In California there are more than 400 different classifications.

Most employers are subject to experience modification, which is applied to their premium. This ex-mod, as it is called, is used to determine what premium you will be charged relative to other employers in your classification. An ex-mod of 1200 percent means you have an average injury rate. Those with more than the average number of injuries would pay a higher premium.

Employers have the right to dispute the actions of their insurance carrier. For example, you may request that your insurance carrier reconsider the classification they have given to your company and employees. You can also ask for a review of your experience modification.

Characteristics of Companies with Low Injury Rates
* Management commitment to safety
* Routine safety and health activities
* Supervisor and employee involvement in safety program
* ]Effective training of supervisors and employees
* Proactive insurance broker

Review Past Injuries
Before you write next year's premium check, take a look at the company's safety record.
* Are injuries going up or down?
* What types if injuries are most frequent?
* Are the employees who are doing one particular job, or working a lot of overtime, the same ones who are getting injured?

Look for Patterns
Sources of injury data are your employees and supervisors, insurance carrier, injury or first aid logs and Cal/OSHA Form 300 for recording reportable injuries and workers' compensation records.

Your insurance carrier should provide you with a breakdown, called a loss run, of your past injuries and costs. If you are a larger company, ask to have the loss run broken down by job classification and compared with the previous year's experience. If you company is experience rated, your experience modification number will tell you how well you are doing compared to similar companies.

You should also examine first aid cases and near misses - the fall or burn that almost happened. These may show where safety training needs reinforcing.

Involve your Employees
Where can you get the most practical suggestions for improving tools and work layout or avoiding dangerous work habits?
* From you employees - the people doing the work
* Employees can help conduct safety inspections, participate on safety committees and contribute good ideas for doing the job safer and better.

Employees who carry out safety policies or insist upon safe and healthful working conditions are protected by law from discrimination, retaliation or other reprisal.

Key parts of an Injury and Illness Prevention Program:
* Name a person(s) who is responsible for day-to-day implementation of the program and has authority for assuring its effectiveness.
* Identify and correct general, and specific workplace hazards.
* Communicate safety information to employees; give them a voice in forwarding concerns and suggestions to management.
* Investigate accidents, actual and potential.
* Conduct required training for employees and supervisors.
* Document and maintain the records required by the program.

In the next article of this series we will review employee and supervisor training and communication in the prevention of work injuries as a part of your overall workers' compensation control program.

Brent Heurter is a partner and President of the insurance brokerage firm Pavlo, Weinberg & Associates. He can be reached by phone toll-free at (877) 591-2663, or by e-mail at bheurter@employerbenefits.com.