By John B. Williams
From AA&B April 1935
Compensation insurance is a great social vehicle bringing to employer and employee alike an orderly plan, whereby, without regard to negligence, those occupational injuries arising out of and in the course of employment are compensated for by a fixed proportion of the wage loss plus medical care. It is reasoned, and rightly, that the cost of such injuries is as much a cost of production as the labor necessary to convert the raw material into a finished product. Employer and employee alike benefit from the workmen's compensation insurance system; the employer because compensation insurance reduces to a fixed cost an otherwise unpredictable expense factor; the employee, or his dependents, because he has the certainty of being compensated without regard to negligence, and of prompt payment, without resort to the courts, the uncertainty of the ultimate outcome of litigation and long delays in trial procedure, which brought added suffering and privation under the old common law system, being eliminated.
Compare the status of employer and employee under the workmen's compensation statutes with the situation under the old and harsh common law doctrine of "master and servant," under which an injured employee could recover only for those injuries which was caused by the negligence of the employer; and the master had three defenses in every suit before valid claim could be established against him. These three defenses were: (1) that the injury was caused by a fellow worker rather than the employer; (2) that the employee had assumed the risk in the course of his employment; and (3) that the employee had been guilty of contributory negligence.
The first workmen's compensation law of record in this country was in 1902. Recognition of the fundamental justice of the underlying principle that industrial accidents are inevitable results of our modern mechanical and mass production system and consequently that industry itself should bear the burden of compensating workers and their families for injuries sustained in the course of their employment has now become well nigh universal in the United States, until, at the present time, forty-four of the forty-eight states have workmen's compensation laws. Only Arkansas, Florida, Mississippi, and South Carolina remain out of the workmen's compensation fold.
Workmen's compensation statutes as they now stand are by no means a closed book. Changes are going on all the time.
There have been abuses to workmen's compensation insurance, and some of the increasing cost of the coverage is due to demands made upon workmen's compensation insurance that it was never designed to fulfill. There is a tendency to liberalize the system to make it take care of "health insurance," that is, insurance against losses due to ill health, however originating, merely aggravated or accelerated by the employee's continuing to work instead of going to the hospital; to include "old-age insurance," that is to insure high percentages of full wages throughout disabilities originating from industrial accidents but prolonged immensely by superannuation; to include "life insurance," that is to insure gratuities to dependents of deceased employees far in excess of the losses caused to them by the injuries to the deceased; to include much insurance against the consequences of neglect or mistreatment of industrial injuries by the injured; and finally, and just now most extensively to operate as "unemployment insurance," that is, to insure against inability to obtain reemployment after recovery from industrial injuries; besides which, through faults in the laws of their maladministration, insurance funds are being drained by fraudulent and exaggerated claims, unethical doctors and lawyers aiding in the process. But notwithstanding such abuses, neither labor nor industry has lost sight of the soundness of the intent of the laws which were written into our statutes. The first workmen's compensation insurance was written in 1912, and the insurance system sets up a triangular relationship, involving, in addition to employer and employee, the insurer, and it is of course this third leg of the equilateral triangle which you who read this represent.
Each side has its responsibilities, some defined by statutes, others based upon principles of prudence, diligence, honesty and fair play. As representing the insurer, let us outline the carrier's principal duty as the realization that insurance funds are trust funds, and their administration as such, keeping the funds sufficient to pay the bill but at as low a cost to industry as is humanly possible. Further, the insurance companies are the depositories of a fund of information drawn from their country-wide administration of workmen's compensation insurance and in their role of minimizing the cost of accidents, it is their duty to analyze this information and make it available to industry for its safety campaign of reducing cost both in dollars and cents and human suffering by reducing accidents.
No one can fail to be concerned that in 1934 the average cost of workmen's compensation payments for every $100 of payroll had increased about 35 percent over the cost of the previous eight years. No insurance buyer is oblivious to the mounting premium cost of his workmen's compensation insurance. A part of this increase is due to the abuses previously noted; a part of it is the toll we pay for increasing mechanization and mass, production, and this increase is inevitable and beyond our control; but a part of the rising rates grows from matters which can be controlled, and it is such matters that we, as agents, must bring to the attention of insurance buyers.
For instance, to take one example, in the "building operation and maintenance" classification in Texas the total loss cost for the five years ending with 1932 amounted to $118,568 and total payroll exposure for the same period amounted to $16,312,100. The total loss cost of $118,568 is broken down into three classes. Serious losses, involving death, permanent total disability, and major permanent cases, accounted for $27,376 of the total. For the class designated "Non-Serious," $43,482 was incurred, and "Medical Loss," the third class, amounted to $47,710, making a total of $118,568 for all three brackets. Dividing the total payroll exposure of the period, $16,312,100, by the ' total loss cost of $118,568, produces a pure premium cost of 73c per $100 payroll. In order to achieve a more credible result by using a broad distribution of exposure, the rating schedules of the State provide for modification of pure premium loss cost by injecting the country-wide experience into the local experience, which injection, in this instance, raises the cost by 1c to 74c per $100 payroll.
The loss cost in Texas is now predicated upon 58.8 per cent loss cost plus an expense loading of 41.2 percent. The expense loading naturally is made up of service items, such as claim adjustments, inspection and payroll audit expense, acquisition cost, home office expense and taxes. Dividing pure premium (74c) by loss cost (58.8) gives the resulting manual rate of $1.25 per $100 payroll, which is applicable to those employers whose operations are not sufficiently large to create a premium bringing into operation the experience plan for rating individual risks. The experience rating plan gives to those better than the average a credit in the base rate and to those worse than the average a penalty over the base rate.
A general survey of the accident reports reveals that of serious claims reported for building operation, the largest number were due to falls down elevator shafts, but several were from slips and falls elsewhere, others to falling objects and bumping into objects, and lastly-and very serious from a catastrophe standpoint-gas explosions.
Roughly 50 percent of the pure premium loss cost entering into the present rate is made up of medical cost, an item which can be controlled, when the full interest and cooperation of the employer is obtained.
Each employer has his own compensation problem, depending upon the type of building he supervises and the hazards to which his employees are exposed. Size alone brings about a wide variation in working conditions. There may be practically no division of labor, as in a small apartment building, differing from a private dwelling only in having a pump and an elevator, where a jack of all trades janitor with perhaps an extra cleaner functions practically independent of all supervision; or labor may be highly departmentalized as in a large self-sustaining building where there is a resident superintendent, maintenance engineers and their helpers, a battery of elevator operators, and a corps of cleaners, every workman busy at his highly specialized job under the constant supervision of foremen and department heads. It is obvious that the type of employee is as different as the type of building, and equally obvious, so far as machinery is concerned, that the worker whose sole duty it is to operate machinery is better trained in avoiding the hazards of operation than the employee who combines other duties with machine operation.
Size is but one of the factors tending to bring about a diversity of working conditions. Consider, for example, the peculiar problems of the manager of a "medical arts" building. A cleaner in such a building is undoubtedly subject to a greater variety of hazards than a cleaner working in a general office building. Some types of building call for more maintenance work of carpentry, plumbing, and painting; some buildings maintain garages for the storage of tenants' automobiles, bringing in a type of activity in handling cars which, at first glance, is entirely alien to building operation. These classes of operations are simply mentioned here to point out the wide scope of the activities covered by only one classification, upon which a compensation rate is based.
But whatever the size of buildings and whatever operating activities are carried on within, there are certain common factors constantly functioning to make accidents possible. Generally speaking, the underlying causes of all accidents can be divided into two classes: (1) mechanical and physical hazards; and (2) the human element hazard of the careless employee.
Bad physical condition of the premises and defective mechanical appliances have caused both insurer and assured much trouble. It is to point out such conditions and to aid owner and superintendent to minimize such hazards that the carriers maintain their inspection and engineering departments. Agents must cooperate in stressing the importance of such services. Employers and managers should avail themselves to the highest degree of the services offered. It is true that many recommendations to eliminate accident-causing conditions incur a good deal of expense. The owner of a building may rightly contend that the cost of replacing an elevator cable will exceed by far the ultimate cost to him, as reflected in his compensation rate, of injuries due to a weak cable; but if he quits the subject here, he has not argued far enough. In addition to medical and compensation costs, accidents involve unfavorable publicity and the loss of tenant good will. What business concern or private family wishes to expose itself to danger from elevators in poor repair, bad stairways, broken plaster, or slippery floors? Not only is proper maintenance of concern to the individual owner; it is a concern of the industry as a whole. An accident affects not only the experience of the individual risk, it affects the experience of the class, and finally is reflected in the cost of workmen's compensation insurance generally.
Responsibility for some accidents lies with the careless owner; for the rest, the careless employee we have always with us. In some cases, he is not properly instructed; in others he is told day after day what to do and what not to do, but the instructions bear no fruit. Routine and repetition have a mentally dulling effect upon the employee. Good experience and low compensation cost call for constant close and careful supervision, even of employees who have received the proper instructions as to the way to go about their work to avoid accident hazards and who are mentally and physically fit for the tasks they are set to do.
Physical examination of employees seems to be imperative to enable the management to select the employee best suited for the task assigned. For example, where cleaners are women, and they almost invariably are, the age and physical condition of each of these employees has a very material bearing on whether or not she is efficient in her work, is easily subject to injury, or, perhaps, due to physical infirmities, is unduly careless. Or, take for another example, elevator operators. They go a long way with tenants toward exemplifying the personality of the management and the efficiency of the building. Is it not important that they should be mentally and physically fit for their tasks not only of "running the elevators" but of "meeting the public"?
I have mentioned two classes of employees for purposes of illustration, but physical examination should be the normal prerequisite for any type of employment, and such examination of the employee, together with check-up of his previous employment will go far toward eliminating the hazards due to guesswork and chance in employing and assigning workers to tasks.
Every accident reported, whether or not there is an injury, should be made the subject of careful investigation by the management to determine the cause and take steps to prevent its recurrence, and, in case of gross negligence, to undertake whatever disciplinary measures are proper. Nothing will ever take the place of the interested supervision of the executive management, as no situation better exemplifies the old adage of "Like Master, like Man." If the executive management loses interest in accident prevention, the interest of superintendent, foreman, and workman will lag all down the line. Accidents will begin to increase and loss cost to mount. Apart from the direct influence on compensation insurance cost, physical examination of employees and the management's efforts in accident prevention and safety work will most certainly yield valuable by-products in efficient workmanship, better preservation of property, and better tenant relationships. When the employer and his representatives fully comply with the requirement of maintaining close and careful supervision both of the physical and mechanical hazards of the building and the employment hazards, not only will medical and compensation costs be cut, but there will also be a reduction in the "hidden cost" of accidents, which has been estimated at four times the measurable cost.
Compensation insurance, as I have already said, is a triangular relation-ship. There sometimes arises a feeling between employer and employee that the insurance company will foot the bill. This would make a right triangle, with the insurance carrier on the hypotenuse, carrying the long end of the load. But the relationship between employer, employee, and carrier, is an equilateral triangle; so the employee must realize that in a broad sense he can never be adequately compensated for his injuries; and owners should appreciate that in the end it is they who pay the medical and compensation costs of accidents, as well as such other intangible losses as the good will of tenants, present and prospective, for which loss there is no reimbursement.
