“Comp is comp is comp. There’s nothing you can do about it.”
Some version of this refrain is often repeated each year by insurance agents and buyers.
They’ve been trained to accept that because workers’ compensation coverage is statutory, the only way to buy it is to find the lowest price. Why not? Each policy offers the same coverage, and injured employees receive the same benefits when they suffer a disaster. Don’t they?
But the truth of the matter is that workers’ compensation costs can be controlled. And the path to controlling them begins with making certain that all relevant information is current and accurate, down to the smallest detail. Think of a detective speaking with a witness to a crime:
“Tell me everything you know, even if you think it’s not important.”
So where to begin?
Step 1. Business classification
Classifying the business correctly is the first step. In most states there are more than 500 different workers’ compensation classifications, which can make it a challenge to find the correct codes to apply to the business. Getting it right requires truly understanding the client’s business and having access to the relevant rating bureau’s classification definitions. What does the business do? How do they do it? What materials do they use? These questions can all be critical to determining the correct classification.
The most common mistake we see is agents copying the information from the existing policy when submitting the new application. Businesses and classifications change, so even if the code that was on the policy before was correct at the time, it may not be correct today!
Why is getting the code correct so important? The correct code may determine the rate the insurance company charges but more importantly, it will determine the rating values that are used on the experience modification. Although it may seem like a good idea to choose a less expensive classification because it will lower the premium, in the long run that lower rated code will result in an experience mod that is higher than it should be.
A higher mod may lead to an increase in premium or even an inability to be hired for jobs if the mod gets too high. If you find multiple classifications that are similar, talk to the business owner. Show them the classification descriptions and ask which seems like the best fit.
Don’t have the classification descriptions? Many independent bureaus make them available for free on their websites. If you’re in a state governed by the National Council on Compensation Insurance (NCCI), you’ll need to subscribe to the Scopes Manual. We recommend purchasing NCCI’s “Mini E-Library,” which contains the Basic Manual, Experience Rating Plan and the Scopes Manual. Access to the rules that govern workers’ compensation in your state is critical to being able to do good work for your clients.
Step 2. Premium audit
Once the business is properly classified, we fast forward to the end of the policy and the premium audit. In most businesses (excluding construction, agriculture and staffing, plus some other special circumstances), employees are assigned to the governing classification unless they meet the standard class exceptions. For most class codes, these exceptions are clerical workers, outside sales and drivers.
Agents should work with the employer to ensure that each employee is properly classified before the auditor arrives. If a clerical employee is misclassified as someone exposed to the general risk of the business, the business is being overcharged.
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Beyond classifying the employees correctly, it’s critical that employers keep track of money (or substitutes for money) they give to employees that does not count toward the workers’ compensation premium calculation. Rules on this excluded money vary from state to state, so check your state’s Basic Manual for specifics. What’s taxable and what you pay workers’ compensation premiums on are two different things!
The majority of workers’ compensation premium audits are incorrect. Although some of these errors certainly fall on the auditors themselves, most of the overcharges are the result of employers not keeping their records in a way that allows the auditor to complete the audit correctly. It’s up to agents to make sure their clients are prepared.
Step 3. Recovery at work
Building an effective Recovery at Work program is another crucial piece in controlling workers’ comp costs. This program should be designed to make sure that any injured employee has productive work to do, even if the employee can’t return to the full duty job right away.
Employees who recover at work, and their employers, reap many benefits. Employees tend to recover more quickly when back on the job. Employers can reap the benefit of not losing 100% of the employees’ productivity while they are unable to perform their regular duty job.
Being at work makes it less likely that an employee will hire an attorney during the workers’ comp claim process. Complex cases may benefit from the involvement of legal professionals, but most cases are not complex and attorney involvement serves to dramatically extend the cost and duration of the workers’ comp injury process.
On top of these benefits, in most states, if the employee returns to work before lost wage payments from the insurance company kick in, the employer will get a 70% discount on the injury when it is calculated into the experience mod. Keeping an injury “medical only” dramatically reduces an injury’s actual cost and also reduces the impact that injury has on the employer’s premium costs.
Driving an employer’s workers’ compensation costs to their lowest legal minimum can be a challenging process. Taking the steps to accurately classify the business, being sure the audit is completed correctly and building a recovery at work program are three steps that every agent can take with their clients to start the process.
Kevin Ring is the lead workers’ compensation analyst for the Institute of WorkCompProfessionals, the Asheville, N.C.-based organization that trains insurance agents to help employers reduce workers’ compensation expenses. He may be contacted at 828-274-0959 or firstname.lastname@example.org.