If you lead a manufacturing company then Workers Compensation Insurance is probably on your mind a lot, as are the workers’ comp costs. Even though rates for workers compensation have fallen over the past 5 or so years across the country, it still is expensive in manufacturing and industrial class codes which often begs the question how do you lower workers’ comp costs?
Manufacturing executives often tell me that the only way to reduce workers’ comp costs is to shop their insurance every couple of years to force competition to reduce costs. While that may be somewhat true, it ignores the fundamental cost drivers in workers comp, and the underwriting going on behind the scenes.
Let me pull the curtain back for a moment and give you an insider’s view of how the price you pay for workers comp is arrived at.
The biggest factor governing your premiums in workers compensation is your claim history which impacts a company two ways.
The first is through the experience rating modifier, which is a debit / credit factor intended to add fairness to the workers comp system.
Employers with above average claims get a debit factor and pay more than their peers with less than expected claims who earn a credit factor or mod.
But the second way your claims history impacts the premiums you pay is sort of like a gatekeeper function. Every major insurer has a variety of pricing levels.
If your claims history is very low you’ll have access to the big insurance companies best rating tiers or levels. If your history is “so-so” than you’re not going to get the most competitive pricing tiers and end up in the middle ground, and if the claims are bad you may not even qualify for some insurance companies and for those that do offer you a price, it will be in their higher priced tiers.
The difference between a great pricing tier and a terrible one can be a 50 point spread – add in other rating factors and that spread could be as wide as 100 points or more.
As an example, take two similar companies with similar payrolls – one has no claims and the other poor claims performance and say they’re both insured with The Travelers Insurance Company. The company with great loss history may pay $100,000 and the one with poor loss history is going to be at $200,000 or more.
This puts the company with poor claims at a serious competitive disadvantage.
So, where am i going with this?
You may be saying I can’t do anything about claims that have already happened so I’m not going to worry about it. That may not be necessarily true, but let’s just focus on the future.
Something I have learned over my 40 year career is that firms with poor claims history will continue to have poor claims experience into the future until something major changes, so what is that major change?
Typically it’s a mindset shift of the owners and leaders of the company to be more safety focused and in a broad sense they work towards a company culture that is safety first – it’s often called a safety culture – which is a combination of attitudes, values and perceptions that influence how something is done in the workplace.
But, leaders that want to shift to a safety culture don’t know where to start or what they should do or how to do it.
The first step in making this shift in lowering workers’ comp costs is risk identification – what are the big risks in your company?
How are you addressing them now? Do you have the right policies and procedures in place? What are the major trends in your claims history?
Then, what controls do you have in place to reduce risk and mitigate the cost of claims that do occur?
How do you communicate and document risk control procedures and processes? How do you implement best practices when it comes to safety and risk reduction?
Finally, what reporting tools do you have to monitor your progress?
How do you continually improve the safety systems? What early warning or lead indicators are present to help identify and isolate problems before they get worse?
It sounds complicated, but it doesn’t need to be.
We’ve worked with a variety of industrial type clients in the past on projects like this and we’re now using an online platform called Smarter Risk to help through the process and then blend in our experience and expertise to help get these projects done.
If you’re looking to lower your workers’ comp costs – it starts with reducing your claims and improving safety – this is a long game play, there’s no overnight shortcuts.
But we can help get this process started and work with you through it – there’s no need to recreate the wheel and go it alone.
Yup, it’s complex and challenging but on the other side of this process is not only a long term premium reduction potential, but a safer, more productive workplace.
Want to learn more? Reach out and let’s connect.
Thanks.
