Several years ago we shared our thoughts on what employers can do to control workers' compensation costs. At that time the insurance market was soft and insurance options for employers were plentiful. Now, workers' compensation rates are climbing rapidly. This didn't happen overnight and it is not entirely related to the cost of medical treatment and benefits as many industry experts would have you believe. But regardless of the reason, employers need to utilize practices that will help them manage and control their workers’ compensation costs. And, when we talk about costs we mean workers' compensation premiums. Very few employers are self-insured or are participating in large deductible programs and therefore they don't directly pay losses or reimburse the insurance company for losses paid on their behalf. Most employers buy a guaranteed cost insurance program and pay premium based on their payroll and an insurance company filed rate.
Not every employer has the same resources available to address their exposures to loss or claims once they've occurred. But, there are a host of measures they can employ that will help them address their loss exposures and manage workers' compensation claim costs. Let's consider several practices that can help you gain a measure of control in a workers' compensation insurance environment that is now considered a hard market.
1. Select the Right Broker with Workers’ Compensation Expertise
Not every broker has expertise in workers’ compensation. They may be competent in finding you coverage and in the soft market everyone could find low rates even if you had a history of losses. But, in a firming or hard market, insurance companies underwrite as opposed to just pricing the insurance coverage. They need to write business profitably. Your broker must be able to help you strengthen your loss prevention program so that you avoid work related injuries. That will help you manage workers’ compensation costs over the long-term.
There are a large number of brokers available with this expertise. In particular, brokers offering CompWest as an underwriter of workers’ compensation insurance have demonstrated to CMTA that they understand what affects the cost of workers’ compensation insurance. Additionally, they have the necessary resources to help you develop effective loss prevention programs, as well as, post-injury loss reduction programs.
Admittedly, brokers do not set reserves or close claims. But they can ensure that the insurance company has your best interest at heart when decisions are made with respect to accepting claims or bringing claimstoaresolution. Webelievefindingthiskindofbrokeristhe starting point for developing a successful workers’ compensation cost management program.
2. Select the Right Insurance Company
A good insurance broker will understand your needs and help you find a workers’ compensation insurance carrier that, in combination with the broker, will deliver the necessary services to help you manage workers’ compensation costs over the long-term. But, as we’ll see in a moment, your role in this cost management process is not passive.
Do your due diligence. When CMTA selected CompWest as our workers’ compensation partner we thoroughly evaluated their capabilities and commitment. Among the criteria we established were five critical concerns for selecting a partner we would recommend to our members:
California Focus - California is different. A company that does not make California priority for their claims operation may tend to process claims instead of managing issues. If they do not have service offices in California it may suggest that California is an afterthought.
Workers’ Compensation Specialization - Workers' compensation is different for a variety of reasons. First, the individual filing the claim is not the person/ entity that is paying the premium. In fact, these two parties can be adversaries. You should be concerned if the person handling your workers' compensation claims also handles property or liability claims as well. Good workers’ compensation examiners balance the employer’s position on liability with being sensitive to the injured workers needs.
Commitment - Is California a key part of the insurance company’s business model? Do they invest in California as a business source? If not, when profitability declines in this line of insurance, as it has, you may find yourself left high and dry. You can always find coverage, but at what cost? And, if claims are mismanaged you will live with the bad outcomes for many years to come.
n-House Services v. Outsourcing - Investing in claims and loss control services is a reflection of the insurance company’s commitment to workers’ compensation, California and you as a policyholder. Having oversight of underwriting (premium inflow) and claims (premium outflow to pay losses) is critical to sound cost management. Outsourcing is a cost cutting measure that, when ineffective, drives up losses and loss ratios.
Results – Is the insurance company profitable? If not, are they putting measures in place to become profitable? Historically, unprofitable businesses don’t last long. National insurance companies that have not been profitable in California usually react by leaving the state. Since they are not wholly dependent on profitably underwriting business in California, their commitment is unsubstantial. They can cut their losses and move on. Remember two things:
- You can't sell something very long for $1.00 or less that costs you $1.22 to produce. Your claims remain with the insurance company even if you and California are no longer their priority.
Now that you've selected the right broker and insurance carrier, what can you do as an employer? Here are seven more cost management practices we recommend:
3. The Hiring Process is Critical
Unfortunately, you hire your next claim. It is critical to make qualified hires, for both productivity and safety reasons. Ensure the employee can tolerate the physical requirements of the position. That enhances your chances of avoiding a work related injury down the road. Reducing the frequency of your claims begins with hiring people suited to the physical duties they must perform. This will not only decrease your workers' compensation costs, but also improve the productivity and efficiency of your company.
Prospective employees that have a history of "job hopping" and short-term employment relationships may also have a history of worker’s compensation claims. A common characteristic of people who tend to embellish theirclaim (s) was they often quit jobs and had many periods of non-employment. You cannot discriminate against an applicant on the basis of filing a claim or presenting a disability, but employers should be on guard for applicants with spotty employment records. Completely research every applicant, confirming employment dates and the reasons they left their jobs. Make sure you are consistent in the candidate research practices you use when selecting employees.
4. Make Safety Training a Priority
Make certain that employees are consistently made aware of the hazards that exist in the workplace and their potential injury or illness consequences. Employees that are not adequately trained can be an indirect contributing cause of work related injuries to those around them. California has a no-fault workers’ compensation system. The insured must provide benefits regardless of who is at fault unless the injury was self-inflicted. Many employees injured on the job point to their lack of knowledge of job hazards or insufficient training as contributing causes of their work related injury.
Training and "re-training" are fundamental to developing and maintaining a safe work place. Sometimes seasoned employees take safety practices for granted. Periodically re-train employees on proper safety techniques and practices. This also enhances employee skills, reinforces the importance of safety and makes the workplace more productive. Make good results public. Display signs that proclaim the number of days since the last lost-time injury or any injury. Consider recognizing and rewarding employees caught in the act of being safe. Remember these basics of maintaining a safe workplace:
- Keep your Injury and Illness Prevention Plan (IIPP) up to date. Ensure your employee handbooks require that employees immediately notify the company of any injury and that obtaining medical care is the primary concern. Have an established injury reporting procedure. Hold monthly, compulsory safety training meetings. Conduct periodic inspections looking for hazards and unsafe acts. Address and correct hazards you identify to avoid injury (document this in your IIPP binder). Consider group and individual safety incentives for results within goals.
8. Get Involved and Investigate
Whenever an injury occurs, your injury and illness prevention plan (IIPP) requires you to launch an investigation of the accident. The purpose of that investigation is to identify the direct, indirect and root causes of the accident. Your investigation should include:
Pictures of the accident site.
Notes regarding the facts about the accident and detailed descriptions of the physical characteristics of the claimant(s), machinery, equipment, facilities, conditions and environment.
Identification of any witnesses.
A prompt report the injury to the insurance company.
Including the investigation records in your IIPP.
Updating your OSHA 300 log.
Recommendations as to how the accident/injury couldhave been avoided
9. Understand Your Experience Modification
Claims of all sizes affect your experience modification. Claims open too long have a greater adverse impact on your experience modification and drive up your workers' compensation premiums. What can you do as an employer? After a claim is reported to your workers' compensation insurance carrier, a loss-reserve is set based on the anticipated future costs of the claim. Such costs can include medical costs, temporary disability and permanent disability. Make sure these reserves accurately reflect the probable exposures to loss and not the worst possible case.
Once a year, your workers' compensation carrier sends a report to the Workers’ Compensation Insurance Rating Bureau (WCIRB) to determine your experience modification. This "Unit Statistical Report" provides the WCIRB with information on both your payrolls by occupational class and losses incurred as a result of injuries. Ask your broker to provide you with the payroll and loss data that will be part of that report. This ensures payrolls and losses are accurate and consistent with your expectations. It is recommended you meet with your broker in advance of this report being filed to ensure it is accurate.
Be sure to request a copy of your experience modification once it is issued. You can get this directly from the WCIRB. This document provides the Calculation model and factors involved in the development of your experience modification. The experience modification is a calculation based on the relationship of your actual losses, payroll by occupational class and the expected losses for all employers by those occupational classes. A credit experience modification will serve to reduce your workers’ compensation premium, while a debit experience modification will increase it.
In closing, like many issues that plague California employers today, there is only so much that you as an employer can do. But, you can manage your workers’ compensation costs. Focus on what you can control such as selecting a broker and an insurance company, as well as, your hiring practices. Get help when you need it. Tap into CMTA’s workers’ compensation expertise and safety programs. We’re here to help you take control of your workers’ compensation costs in California.
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