Workers’ compensation is an insurance program that provides limited benefits to injured workers in the form of medical treatment, compensation for lost wages, and compensation for the loss of—or the loss of use of—parts of the body.
It is a “no fault” system, in that coverage does not depend on either the employer or the employee admitting fault related to the accident and its subsequent injury.
Everest National Insurance Co. estimates that workers’ compensation costs account for about 40% of an employer’s total insurance-related costs.
While some employers simply write premium checks every few months to cover the costs of their standard workers’ compensation programs, others play a significant role in reducing these premium costs by creating and managing an integrated and holistic workers’ compensation management program.
One of the most important elements of a holistic system is taking steps on the front end to set up a program that will meet your needs, as well as creating an effective safety program that will reduce injuries in the first place.
Pick the Perfect Provider
When selecting a carrier or other insurance/claims provider, don’t just go with the lowest price. Ask prospective providers about their philosophies, their ways of doing business, their success rates, and the level of support they provide clients.
A well-managed claim can save you thousands of dollars more than simply going with the least expensive insurance provider.
Along the same lines, it’s important to select an insurance adviser who understands your industry and your business, and takes the time to properly design an ideal insurance program. While price is a consideration, other features—which include coverages, safety assistance, and claims service—can help contribute to significant savings over time.
Statutory requirements and administrative rules related to workers’ compensation vary from state to state. You, as an employer, are not expected to research this information. Instead, you should rely on your insurance carrier or broker to provide you with the information.
Differences in the various state programs generally relate to five different areas.
- Claims reporting requirements. How soon a claim must be filed
- Waiting periods. The period of time between an injury and when an employee can receive indemnity benefits.
- Medical direction. Whether an employer can require an employee to see a specific medical provider for a workplace injury, or whether the employee is free to select his or her own provider.
- Medical cost reimbursement. Whether medical providers can receive standard/customary fees, or whether there is a special workers’ compensation injury treatment fee structure in the state.
- Impairment ratings. The different rates of indemnity benefits that employees receive based on injury severity. Work with your insurance provider to make sure that employee jobs are properly classified for workers’ compensation purposes. An improperly classified job can unnecessarily increase your premiums.
Understand your carrier’s Experience Rating Plan, since it determines the Experience Modification Factor that determines your premiums and other elements of your workers’ compensation program. The Experience Rating Plan is a tool designed to tailor the cost of insurance to the individual characteristics of each employee. Part of setting up the Plan involves analyzing the employer’s payroll and loss data for a period of usually the past three years. Employers with favorable ratings will usually see rebates going forward. Those with unfavorable ratings will usually see debits. Ask your broker or carrier to explain their Plan and what you can do to improve your own rating. It’s also important to ask your provider for as much information as they have on accident prevention and other workers’ compensation cost reduction strategies, whether it be literature they can send you, seminars they may be offering for employers in your region, or even inspections they will conduct for you.
“We conduct a safety inspection every year with our insurance provider,” says Mark Scott, president of Mark IV Builders in Cabin John, Md., “This is a service that they provide.”
Create a relationship with your insurance provider. Get to know the people on staff personally. This makes it easier to get personalized service if and when you need to discuss your program, either in general or related to a specific claim.
Get a list of qualified medical providers from your insurance provider. These should be medical providers who specifically understand workers’ compensation claims, the importance of helping workers recover and get back to work in a timely manner, how return-to-work programs work, and the importance of providing information on how you can accommodate the needs of workers in a return to work program. These providers should also have a history of working closely with insurance providers and employers on workers’ compensation cases. Post this list of medical providers so that employees can see it.
Put Together a Safety Program
It should go without saying that the fewer accidents and injuries you have in your workplace, and the less severe those injuries are, the lower your workers’ compensation premiums will end up being. For this reason, it is extremely important to create, implement, publicize, and manage a workplace safety program, complete with safe working procedures.
“If you don’t have someone responsible for safety, it tends to fade into the background,” says Scott. “A few years ago, I arranged for one of our superintendents to become our safety officer, with both the responsibility and authority to manage safety.”
Another remodeling contractor with a commitment to a strong safety program is Phase II Construction in Lakewood, Wash. “In order to qualify for our annual insurance policy, there are certain requirements, such as meeting all of our state and OSHA requirements,” says company president Rick Hjelm. “However, we view that as a minimum, and we go beyond these requirements. For example, every employee has their own safety manual, and we review the information on a regular basis.”
According to Federated Insurance, part of any effective safety program should be the implementation of a drug-free workplace initiative, which implements pre-employment, random, and post-incident drug testing. One of the many benefits of such a program is that, currently, more than a dozen states offer workers’ compensation discounts of 2% to 7.5% for a certified drug-free workplace program. In addition, insurance carriers in other states may have discretionary underwriting credits available to recognize the value of these programs.
Be extremely careful and thorough in your hiring practices. There are some workers who have a personal commitment to safety and, as a result, will bring these philosophies and behaviors to the workplace.
Conversely, there are other workers who have natural risk-taking personalities. For example, they may drive without seatbelts, drive while intoxicated, take illegal drugs, or engage in risk-taking stunts at home. You don’t want these people working for you, because there is a good chance they will find ways to get injured on the job. These injuries will likely be 100% their fault, but since workers’ compensation is a “no fault” system, you will still have to pay.
One way to get a sense of worker attitudes toward safety and responsibility is to conduct a background check. For example, according to a study conducted by American DataBank, a pre-employment screening provider, 45% of potential employees have either a criminal record, a bad driving record, a workers’ compensation claim history, or a bad credit history.
“If I happen to hire someone who ends up having a disregard for safety, he’s gone,” says Hjelm. “I don’t care how good he is at his job or otherwise.”
Provide safety training in order to keep safety front and center in the minds of employees. Training should occur when workers are first hired, prior to each new large work project, and annually.
“Every Monday, we have a safety meeting, covering a certain topic,” says Hjelm. “After the discussion, all of the employees initial the document and date it, indicating that they attended the meeting, heard the presentation, and understood the information.” Phase II also works with a company called Safety Services, which provides information on safe work processes. “We also use these for our Monday safety meetings,” Hjelm says.
Finally, conduct worksite safety inspections on a regular basis to look for potential risks that could cause subsequent injuries.
