The Seven Deadly Sins of Workers Compensation

7 deadly sins of workers compensation

Workers compensation is often the biggest insurance pain point for manufacturers in New York.  Rates are high, a company with “average” claims usually will have an elevated experience rating modifier or mod, and there seems to be a perverse element in the workers compensation system that keeps employees out on comp longer than seems necessary.

Frustrating and helpless just don’t describe how owners of manufacturing firms feel about workers comp in NY.  But there are solutions to get to the root of the problem and make workers comp runs smoother and less expensively then you may be experiencing now.

Here are what we call the Top 7 Deadly Sins that many employers commit when it comes to workers comp that end up costing a ton of extra premium and indirect costs that suck profit off the bottom line.

Workers Compensation Top 7 Deadly Sins

7. Not having an aggressive Return to Work Program.

Allowing workers to stay off the job, and not getting them back to the work environment at least on some modified or light duty is a recipe for disaster.  The longer an employee stays home and gets comfortable watching daytime TV on the coach, the more recalcitrant they become.  Rehabilitating work ethic and independence becomes more difficult with each passing day, and all along the way you’re footing the bill.

6. Not communicating with injured workers from the inception of an injury all the way through their treatment.

This “sin” is very connected to the prior sin of not having a return to work program.  By not giving an injured worker a clear understanding of how workers comp works, and how you as the employer are interested in getting the worker healthy and back to work as soon as practical, leaves the injured worker wondering what their future will look like.  That lack of direction can only fuel worry, confusion and speculation of future problems.  None of those are good, you want to have a formal program to assure an injured worker that they will be taken care of, their medical bills are paid for, and that you as the employer value them and their contribution to your company’s success.  Having an open channel of communication with them benefits them, you, and the disposition of their claim.

5. Not having a formal claims management process.

Many employers file their initial report of injury; the C-2 Form in New York with their insurer, and then the HR Department puts that form in the employee’s file and it’s often forgotten about.  They assume their broker is “watching” the claim.  Mistake!  Unless your broker has a regularly scheduled claims update meeting with your team, you as the employer need to keep an eye on every claim and how it progresses through the system.  Turning a blind eye to open claims allows them to run away, drag on, and impact you in several negative ways.  In short, claims will stay open with large reserves for a longer duration than needed unless someone is challenging your insurer’s claim reps regularly.  This will negatively impact your experience rating modifier or mod, limit your opportunities to negotiate renewal premiums effectively, and cost you more money over the long run.

4. Not being prepared or having a process in place for your workers compensation premium audit.

At the end of your workers comp policy term, you will get a notice that your insurer’s audit department needs to pay you a visit to conduct a premium audit.  Without a formal process in place to assure that your payroll records are communicated properly often will yield an audit premium that is higher than it needs to be.  We recommend being prepared, and conducting the audit on your premises, not your CPA’s.   There’s multiple errors that can be made on an audit, and making sure your’s is done right will help eliminate overcharges.

3. Not knowing what your minimum experience rating mod or controllable mod is.

Many insurance brokers and consultants will focus on making sure your mod is correct, and while we agree with that and can perform the mod audit for accuracy, we also believe that there is a bigger picture here that needs to be addressed, and that is understanding where you are compared to where you could be, in the best case scenario.  Understanding the dollar spread between your current modifier and the minimum modifier for your business gives you a goal to work towards.  If your standard premium is $300,000 as an example and your current modifier is 1.05, but the minimum modifier is .78, that 27-point spread could be worth about $80,000 a year.  Would that motivate you to improve safety and other attributes to reduce claims frequency and severity?

2. Thinking that a safety committee is a waste of time, or not empowering your safety committee.

I’ve worked with several firms that hadn’t given their safety committee a lot of support or commitment; until we got engaged.  The common element I saw in these committees was apathy, members of each firm’s committee went through the motions to satisfy their boss or their old insurance company.  This is a huge mistake.  Management must make a commitment to their safety committees and take a leading role in the committee.  Not doing so sends a clear message that safety and risk control aren’t that important in you organization, and it will show up clearly in your claim results.  Want to see how risk management and a commitment to safety changed a company?  Read this about Alcoa and how risk management and good habits around safety created a world class company.

1. Believing that all workers’ compensation programs are the same.

For larger employers there are a variety of workers compensation rating plans available to you beyond the common “Guaranteed Cost” rating program.  Guarantee Cost is what most of us are familiar with – you pay a premium based on rates which are fixed for the policy term and you accept no risk or cost increases unless your payrolls are higher than what you anticipated at the beginning of the policy term.  Loss Sensitive rating plans differ from guaranteed cost in that the insured/employer accepts a certain amount of risk for an offset of lower premiums.  The most common loss sensitive plan is a high deductible program.  Here the deductible per claim can be $100,000 or higher, so the employer accepts a fair amount of risk but is rewarded with significantly lower premiums than in guaranteed cost.  Other loss sensitive rating plans include retro-rated programs, self-insurance plans and hybrid plans.  Exploring these different options for larger employers who have control over their claim experience makes sense.  Don’t get stuck into believing that guaranteed cost is your only option.

Need help avoiding these 7 deadly sins?  Want to learn more about gaining control over your workers comp program?  Contact me for more information.   I’m one of the few insurance professionals who has earned multiple professional designations including the Professional Workers Compensation Advisor (PWCA) designation, and has the knowledge and skill to help put you on the right path for workers compensation, risk management and business insurance.

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