Are there any financial benefits that come from implementing a rigorous safety culture? Yes, absolutely — most obviously with reducing the cost of workers’ compensation insurance. You may not realize just how much control you have over your experience modification rate (EMR or mod rate), which is used to adjust the “book rate” for workers’ comp premiums. A company’s EMR is based on how its claims experience compares to industry averages, with a 1.0 rating representing the average within each class code.
Workers’ compensation operates like a line of credit where the insurer spreads the cost of a company’s predicted future losses over time. Premiums are, in essence, a way of financing a company’s cost of accidents and injuries. So, if a company can reduce its claims over time it will reduce its cost of business, which can translate to a measurable effect on the bottom line.
For example, in Virginia the premium for carpenters (Class code 5403) is $9.05 per $100; on a payroll of $100,000, the total is $9,050. But look how a different EMR changes the premium:
EMR 0.80: subtract $1,810, for a modified premium of $7,240
EMR 1.2: add $1,810, for a modified premium of $10,860.
The dollar amounts in the example may seem small, but the 1.2 EMR premium is 50% higher than the 0.80 EMR premium. The size of your payroll determines the real-dollar impact of this differential.
If your company has any EMRs above 1.0, that’s a tangible area on which to focus cost-reduction efforts.
Modifiers are also applied to a company’s general liability and auto insurance, but insurance carriers view the EMR as a key indicator of a company’s performance. As such, smart business owners need to focus on what drives risk in their companies and implement mechanisms to control the cost of risk. Some of those mechanisms include diligent hiring practices, strong training programs, aggressive injury investigation/correction efforts, and claims management procedures (e.g., bringing injured employees back to work ASAP). Accidents and injuries affect other business costs such as state unemployment compensation billing (which increases with the turnover rate), so there’s no excuse for not making safety a central part of your company’s culture.
The good news is that there’s plenty of help out there, starting with your insurance carriers. They offer training programs, educational resources, and topics for safety meetings. Many will also advise their clients on how to control losses, identify risks, and develop appropriate action plans with proper follow-up. The objective is a reduction in hazards and risk factors, fewer accidents and injuries, and a lower cost of business. That’s a great way to make more money.
—Rick Provost has more than 20 years experience helping to build the country’s largest design/build franchise network. He is now a principal in SMI Safety, a safety consulting and staffing business. firstname.lastname@example.org