The Eight Major Mistakes Employers Make When Workers’ Compensation Rates Go Down
Workers’ Compensation is a core business practice and a means for improving the bottom line- not just a business necessity or commodity.
These are 8 common mistakes employers should avoid to achieve long-term Workers’ Compensation savings:
1. Confusing lower premium rates with cost reductions.
A reduction in rates does not always mean a reduction in costs. Each business’ experience modifier is specific to that business. The cost of insurance is based partially on the individual loss performance of an employer; therefore a reduction in rates will not always translate to a lower cost if the employer isn’t actively managing claims.
2. Becoming Complacent.
With lower prices it’s easy to shift focus away from injury management and cost containment to other business matters. Increased attention to safety led to a decline in the number of workplace accidents, which resulted in a fewer claims and lower rates. Claim frequency is only part of the equation and employers need to understand what is impacting medical costs as well as the cost of indemnity.
3. Focusing on direct cost only.
Employers tend to focus totally on the price of their premium- yet the direct cost of Workers’ Compensation often represents only 20-30% of the overall injury expenses. Indirect cost such as overtime, temporary labor, increased training, supervisor time, production delays, unhappy customers, increased stress and property or equipment damage can represent the other 70-80%. It’s important to keep in mind that both direct and indirect injury costs will have a much greater impact on an employers’ overall cost than a rate decrease could balance out.
4. Thinking that rates will stay low.
Historically the Workers’ Compensation price repeats in a predictable cycle. The trend has been that rates decline, insurance is purchased for a lower price and employers shift focus away from Work Comp, this leads to mismanaged claims, which contributes to increased experience modifiers and claim costs that do not decrease. This in addition to legislative reform as well as diminished insurance company profits lead to another rate increase. Any savings generated from the declined rate will be lost due to increased experience mods and ultimately the rate increases.
5. Viewing Workers’ Compensation as an expense
Employers should recognize that Workers’ Compensation is more than a necessary expense; it is a controllable aspect of business that if managed properly will have a measurable and positive return on investment.
6. Separating Worker’s Compensation from Employee Retention
If a work- related injury is not managed properly it can result in the unnecessary loss of a skilled, trained employee. The longer an employee is away from the job the less likely they are to return. Statistics show that if employees are not back to work within 12 weeks, there is only a 50% change they will ever return to work.
7. Devaluing the relationship with the insurance company or agency
Chasing the lowest rate can result in poor service or having to deal with an insurance company’s unstable finances. In every “soft market” cycle, insurance companies have gone bankrupt and been unable to pay claims. Selecting an agent and carrier with an excellent understanding of Workers’ Compensation is important. An experienced agent should work with the employer to help drive down claims and ultimately the experience mod. A reduced mod is a guaranteed way to drive down costs over the long-term.
8. Measuring the wrong thing.
If employers are not measuring the true financial impact of work-related injuries, they cannot effectively manage them. Shifting focus from price to the tangible metrics that drive claims costs allows employers to address underlying circumstances and conditions that increase work-related injury costs and measure the value of their actions.
To learn more about how you can consistently manage and drive down the over all cost of your company’s workers’ compensation program please call 1-888-366-1000 or visit us online.
The Seltzer Group, located in Eastern Pennsylvania, specializes in developing safety, workers compensation, human resources, claims, and risk financing programs. They are a proud member of the Keystone Insurers Group and are nationally recognized for their expertise in workers compensation solutions. The Seltzer Group serves businesses and individuals locally, regionally, and on the national level.