Not only is it good business to provide
a safe workplace, it is a legal responsibility. Accidents do happen, no matter how many reasonable safety measures
have been taken. To protect themselves
from lawsuits, businesses must purchase,
as a separate policy, insurance that provides medical care and compensation for
lost income to employees hurt on the job.
This applies whether they’re hurt on the
workplace premises or elsewhere, or in
auto accidents while on business. It also
covers work-related illnesses.
“In many cases, worker’s compensation
(WC) is the third largest expense in the
budget after payroll and employee benefits,” says George L. Moody, licensed risk
manager at Arthur J. Gallagher Risk
Management Services Inc. “While many
business owners feel they have no control
over that cost, it is actually an area over
which they can have the most control.”
Smart Business talked with Moody for
more insight on how to save on WC insurance.
What are some ways to reduce the cost of WC?
There are four primary areas that should
be monitored to assure business owners
that they are paying no more than they
should for WC. These areas are: experience modifiers, payroll audits, hiring and
claims management/return to work.
How can hiring practices affect WC costs?
It is vitally important to make sure that
you are hiring people who can do the job.
Of course you must follow ADA guidelines,
but provide a conditional offer of employment when you think you have the right
person. The offer is contingent on them
passing whatever physical and medical
tests are necessary to determine if they can
do the job. Have a detailed job description
that outlines the requirements. Make sure
that all your forms are reviewed by an
experienced attorney to assure that they
meet all legal requirements.
What should be included in payroll audits?
Monitor the premium audit closely, since
most errors favor the insurance company.
Make sure the premiums are accurate.
Look closely for any clerical errors. Verify
that payrolls are correct and that you are
only including the correct amounts. The
insurance company is entitled to a premium based on the actual work the employee
is doing. Bonuses for ideas should not be
included. In Texas, safety bonuses should
not be included in salary figures used for
the premium.
Each state has different rules, so make
sure that you and your insurance adviser
are up to date on your state’s laws.
Contractors that are doing government
work and must pay prevailing wages
should look at that closely. There are ways
to set aside the difference between normal
wages and prevailing wages and only pay
the premium on your normal wage.
Severance pay is another item that should
not be included in the premium calculation.
What are some experience modification
strategies?
The experience modifier is calculated by
comparing expected losses against actual
claims. As long as actual claims are lower than the expected losses, the modifier will
be less than 1.00. Check for any mistakes in
the calculations, and when identified, bring
them to the insurance company’s attention.
In most states, large claims are capped and
anything over that cap should not be
included in the experience modifier rating.
Again, it is vital that you work with someone who knows the state rules. Since
claims are included in the calculation for a
three-year period, any savings found are
three-year savings.
What are some claims management/return to
work strategies?
Have a package of information available
so if an injury occurs the employee understands what to expect and how the company will help him or her. Set up a team of
individuals to make sure an injured
employee is getting the care he or she
needs and making progress they should to
get him or her back on the job ASAP.
Communicate with physicians what the
job entails so they understand and can help
get the injured employee back on the job
without undo delay. This reduces care
costs and replacement worker costs,
which translate into premium savings. This
is important since, as a general rule, every
claims dollar costs the employer about two
dollars in additional premium. Continue to
provide good communication so the
employee knows you care, feels important
and will do all he or she can to get back on
the job.
Finally, take a risk management
approach. Don’t just find a policy and pay
the premium. Work with an experienced
person who can help assure that you are
getting the coverage and service for you
and your employees without paying more
than you should.
GEORGE L. MOODY, CIC, CWCA, CWCP is a licensed risk
manager with Arthur J. Gallagher Risk Management Services Inc.
Reach him at (281) 655-6824 or [email protected].