In today's litigious environment, claims against industrialcompanies are inevitable, and off-the-shelf solutions to manageliability risks are too often inadequate.

In the high-risk manufacturing sector, where large-dollar claimsare common, small to middle-market companies struggle to findexperienced partners capable of providing targeted risk control andeffective techniques to lower loss results and reduce the effect onthe total cost of risk. Here are four tactics industrial companiescan implement to reduce the cost of claims.

Related: Risk management techniques to reduce Workers'Compensation costs

1. Understand your claims history

Effective claims management begins with an understanding of whathas happened in the past followed by corrective actions to addressloss trends and improve financial outcomes. For casualty lines ofcoverage, this process should involve:

• Analyzing claim trends that negatively affectloss experience and total cost of risk.
• Developing a risk control plan based on thisreview.
• Spelling out clearly the financial improvementto be expected by implementing the recommended plan.

This process of improving safety in targeted areas can helpreduce insurance premiums by up to 15 percent in the first 12months.

Case in point: Amanufacturer and installer of equipment for large industrialprojects could not improve its Workers' Compensation experiencebecause of increased injuries from inexperienced workers. This waspreventing the company from qualifying for new projects.

The company had its Workers'Compensation claim results analyzed, and then isolated theactivities and jobs that were creating the most claims. Followingthat, a targeted safety program that addressed the specific causesof those claims was designed and implemented.

This effort reduced the company's annual claims by more than$1.25 million in the first year, and led to premium savings of$386,000. Additionally, the improved results allowed the company tobid on and win two large contracts worth more than $10 million.

Related: Here are the top 10 most costly U.S. workplaceinjuries

2. Close your claims quickly

The best way to keep claims costs low is to get them closedquickly. To help accomplish this, companies should conduct a claimreview in person with insurance carrier claim adjustors todetermine whether:

• Claim reserves are too high and need to be adjusteddownward.
• Open claims should be closed based on the claim'scircumstances.

This has proven to be particularly effective at reducing theoutstanding open claim amounts which, in turn, improves premiumpricing. Quarterly claim reviews, such as the one described, canresult in an annualized reduction in claims of 20%.

Case in point: Amanufacturer of high-end leather furniture achieved significantbenefits as a result of the claims review. The company, which has asophisticated manufacturing assembly line process and 300employees, had experienced several consecutive years of frequentand severe worker injuries. Adding insult to injury, several of theclaims had remained open for years without the manufacturer knowingwhy or how decisions were being made.

Upon conducting an analysis, it wasdetermined quickly that claim reporting delays were common, noformal reporting or tracking process existed, and there was a lackof accountability within management. As a result, the companyestablished a quarterly and ongoing claims review process, whichincluded closing open claims at least six months prior to renewal.This effort reduced total claim reserves by $85,000 and a renewalpremium the first year by $51,000.

3. Putting Workers' Comp premiums in check

Workers' Compensation experience modification ratings (EMR) arecomplex formulas but understanding the way they're calculated cango a long way in helping to keep workers' comp premiums incheck.

To help manage Workers' Compensation claims more efficiently,manufacturers should routinely evaluate the experience modifier thesame way that regulators do to determine its accuracy and toforecast its future financial impact on premium.

Inaccurate EMR calculations are typically the result of errorsin payroll amounts, inaccurate job classifications, improper claimreserves and open claims that should be closed.

Case in point: Alarge service provider that performs work on both public andprivate projects was struggling to qualify for new contractsbecause of its high EMR of 1.16. A review of the company's openclaim reserves identified many excessive claims that needed to benegotiated down.

Following negotiations with theinsurer, the company was able to lower its excessive claims, whichaccounted for nearly 20% of the experience modificationcalculation. The improved reserves were reported to the NationalCouncil on Compensation Insurance, resulting in a reduction in thecompany's EMR from 1.16 to 0.94.

Subsequently, the company was able tobid on and win several new contracts worth more than $15 million,and also realized a premium savings of $264,000 over a three-yearperiod.

Related: How Workers' Compensation bureaucracy drives costs

4. Screening new hires

Preventing Workers' Compensation claims from occurring is highlycorrelated to the quality and scope of a company's hiringpractices. Loss control representatives and claims advocates canprovide the framework for a pre-employment screening procedurewhereby medical providers evaluate candidates' physical abilitiesbased on detailed job descriptions. With pre-employment screening,employers are able to avoid candidates more likely to be injured onthe job.

Case in point: Acustom woodworking company that makes cabinets and doors developedan extensive pre-employment screening process, reducing employeeinjuries by 25%. Prior to putting the screening procedure in place,the business incurred several employee injuries, thereby driving anincrease in its workers' compensation premium.

The solution included reviewing thecompany's existing hiring practices and identifying several areasto improve the screening process and reduce post-hire claims.Eventually, enhanced screening led to a reduction in both the EMRand OSHA [Occupational Safety and Health Administration] Frequencyand Severity Rates. The company achieved premium savings of $68,500over the first two years.

This recommendation and the others cited are only a few examplesof how employing smart risk management strategies can help tomitigate the financial effect of adverse loss trends, lead tobetter managed claims and increase your overall competitive edge inthe industry.

Randy Crawford is Valhalla, N.Y.-based USI InsuranceServices' national industrial practice leader, specializing inalternative risk structures product development and riskconsulting. Crawford is based in Houston and can be reachedat [email protected].

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