Your past and your future can shape
your present reality. As an employer,
your choice to learn from previous claims and prevent future workers’ compensation costs can save you money. Workers’ compensation expense largely consists
of the cost of claims and the expense of
insurance premiums.
“Rates charged today are designed to
fund the predicted future financial need of
the business to cover its losses and the
costs incurred by its insurance carrier to
handle the claims,” says Robert S. Sprague,
regional underwriting manager with
Westfield Insurance.
Underwriters base premiums on your
claims history and on your probability of
future claims.
Smart Business discussed with Sprague
how to evaluate and reduce your company’s workers’ compensation expense.
How can businesses calculate their past
workers’ compensation expense?
The direct cost of past claims is a matter
of record that is provided to all policyholders as part of the services covered by their
premiums. However, in addition to the
straightforward financial costs, other indirect expenses due to claims include losses
in productivity, disruptions in customer
relationships, declines in internal efficiency
and decreases in peer group morale. The
indirect expenses can add up to almost as
much as the direct expenses involved with
the claim. The bottom line is that claims
adversely affect the bottom line.
How can companies project future workers’
compensation expenses?
Predicting future expense of workers’
compensation incidents at the finite
employer level is very nebulous. It is difficult for a company to accurately project
the costs that may arise because they are
based on a multitude of variables. These
different factors may cross legal, medical,
statutory or legislative boundaries. And the
severity and circumstances of the injury
event can have a dramatic effect on the
expenses associated with it.
How do insurance companies determine
workers’ compensation premiums?
Premiums paid by a policyholder are the
most apparent routine cost of workers’
compensation. Underwriters decide whether
to grant workers’ compensation insurance
and how to set premiums based on the premium potential for a business, along with a
variety of pricing techniques.
The mathematical calculation of premiums can be influenced by numerous factors both inside and outside of the insured
business’s control. For instance, the actual
scope of a business’s operations in certain
states can change the amount of rates
charged as a multiple of payrolls in a given
state. Underwriters look at a variety of risk
tables that help them determine the potential future cost involved in insuring a business.
How can businesses get lower premiums?
Depending on the size of the premium
computed over a measured historical period, an employer might qualify for experience
rating — an integral part of the final premium that employers pay to their insurance
company for workers’ comp protection.
Experience rating is designed to more
intimately reflect the particular operational
characteristic of an employer above or
below the norms of his competitors in the
same industry. It gives an employer who
gets a valued, injured employee back on the
job faster a financial incentive. The experience rating encourages businesses to
engage in state-of-the-art safety practices,
return-to-work programs, and promotion of
operational safety and heath initiatives.
What is the number one way a company can
lower workers’ compensation expense?
The best defense for escalating workers’
compensation expense is sound risk management and safety administration at the
employer level. Partnering with a great
workers’ compensation insurance provider
can further contain cost.
The employee is the most important
asset to the company. Preventing employee
injury is the best way businesses can lower
workers’ compensation expense. Risk
management plans that constantly evaluate how to avoid known safety dangers can
decrease the number of claims and
improve the response to accidents.
Having an effective system for promptly
restoring an injured worker to gainful employment is another crucial element of
lowering workers’ compensation expense.
The sooner an employee returns to the
work force, the lower the cost of workers’
compensation to the employer.
These proactive strategies are not only
prudent for day-to-day operations but also
mitigate longer-term financial distress to
the employer. The loss of valued employees, temporarily or permanently, will always influence the bottom line.
ROBERT S. SPRAGUE, regional underwriting manager for
workers’ compensation, has more than 25 years in the property
and casualty insurance industry with multi-line underwriting
experience in the U.S. and Canada. Reach him at (800) 243-0210
ext. 8386 or [email protected]. In business for more
than 159 years, Westfield Insurance provides commercial and
personal insurance services to customers in 17 states.
Represented by leading independent insurance agencies, the
product we offer is peace of mind and our promise of protection
is supported by a commitment to service excellence. For more
information, visit www.westfieldinsurance.com.