Risk management techniques to reduce Workers’ Compensation costs

Although there is willingness in the marketplace to adjust pricing there has to be a reason for underwriters to do so. You can't get the best pricing just by asking; you have to do something. And, if you do something measurable, the market generally responds pretty well,"

Nonetheless, a popular tactic is to simply approach insurance companies for workers' comp quotes, allowing the carrier to dictate the pricing. The more successful approach is for companies to work with their partners (that is, agents, brokers and carriers) that can help them apply proper risk management techniques and evaluative services that will clearly define their exposures before going to the market.

The following are three risk management techniques your company can use to reduce your workers' compensation costs.

(Photo: Shutterstock/Marten_House)

Loss sensitive plans

An employer that's comfortable retaining a greater portion of its workers' comp risk can opt for a loss-sensitive risk transfer program over a traditional guaranteed cost plan. This technique can help drive down premium costs while providing companies greater control over the claims process. Through such plans companies also can improve cash flow by paying for claims as they occur instead of at renewal via premium charges.

With the right loss sensitive plan, companies can achieve as much as a 50% premium reduction, and a number of businesses are choosing this option.

Example: A valve manufacturer that was paying more than $1 million in premium for workers' compensation in its high-hazard Texas operation, recently switched to a large deductible program. Initially the company's executives were skeptical, but after an in-house actuarial analysis was performed—which indicated a deductible of $100,000 would save them $500,000 in premium at the next renewal—they were convinced of the plan. The losses to be paid within the deductible were spread out over the next seven years, thereby improving the cash flow of its risk capital.

(Photo: Shutterstock/chinahbzyg)

Classification review

Payroll classifications are a major factor used in calculating workers' compensation rates. Generally, industries with lower injury frequencies and risks are assigned lower classification rates than those with higher injury frequencies and risk. What you might not know is that classification reviews are essential and could be the difference between your company paying 10% to 30% in additional premium.

Example: An architectural metal products manufacturer and installer experienced this recently. A classification review was performed on the company's workers' compensation policy in response to an audit it generated, resulting in additional premium charges. The review determined that the classification the underwriter used to develop the audit charges was incorrect, however. Using this forensic information to reverse the underwriter's position on the classification used for certain job descriptions saved the company $12,000 in premium costs at renewal.

(Photo: Shutterstock/Olivier Le Queinec)

Targeted risk control based on claim review results

An all-important service that could reduce workers' compensation costs involves targeted risk control based on claim review results. This solution aims to improve workplace safety in targeted areas, helping companies cut premiums by as much as 30%.

Targeted risk control identifies claim trends that adversely impact loss experience and the total cost of risk. Companies need to ask their partners to evaluate the cost of adverse claim trends, create a risk control plan to address those trends, and project the resulting financial improvement expected after implementation.

Example: A large mechanical contractor was having difficulty qualifying for projects due to its poor workers' compensation claims experience. The company's workers' compensation claim results were analyzed and the major causes and trends that were creating the most claims were isolated. A targeted risk control program that addressed the specific causes of those claims was designed and implemented. This program included fall protection procedures as well minimizing slip and fall exposures.

As a result, the company's annual claims were reduced by more than $450,000 in the first year. The improved claims experience resulted in a 0.11 points reduction in the company's experience modification ratings (EMR) over three years, and the company enjoyed more than $550,000 in premium savings. This allowed the company to bid on and win several contracts worth more than $12 million.

Companies look to invest in manpower and growth opportunities, however, investing in these risk management techniques can help drive down workplace accidents and associated costs. Doing so helps businesses achieve the optimal balance between increased workplace productivity and safety. Be sure to discuss these risk management techniques with your agent, broker, risk manager or workers' compensation program manager to see whether you can use any or all of them in your organization.

Randy Crawford is USI Insurance Services' national industrial practice leader, specializing in alternative risk structures product development and risk consulting. John Campbell is USI's construction practice managing partner and serves as the president of the Company's wrap-up practice. Both leverage the USI ONE Advantage™, a holistic, risk management approach that uses proprietary analytics technology and local and national resources to solve real business challenges. To learn more about USI ONE, contact Randy at: Randall.Crawford@usi.biz or John at: john.campbell@usi.biz. Visit www.usi.biz for more information.