With rising costs due to inflation, escalating salaries, and increased cost of debt, everyone is searching for ways to reduce costs. One area that companies can look at is reducing Workers’ Compensation insurance premiums. One component of Worker’s Compensation premiums that are not subject to change are the loss cost components that are developed by the Worker’s Compensation Board. Each insurance carrier has a Loss Cost Multiplier that is determined by the carrier’s own loss experience. Loss costs coupled with the carrier’s loss cost multipliers make up the final rates used by each carrier. Given this, there are several areas where there may be significant opportunities for savings.
The initial area to review is the Experience Modification factor. This is a 3-year calculation of a company’s claims experience. This factor determines whether a debit (additional premium charge) or a credit (premium reduction) will be applied, therefore affecting a company’s final premium. This factor is extremely important within the construction industry as many public projects or General Contractors will not allow contractors on a job with an Experience Modification Factor above 1.00. If your loss experience is poor, you may find it difficult to qualify for certain projects. Hence it is vital for contracting companies to focus upon their experience modification factor.
In working with clients on workers compensation audits, we have seen instances where the Experience Modification factor utilized to calculate rates was outside the 3-year period being applied or losses being applied at incorrect settlement values. We have even seen losses applied to experience modification factors that didn’t belong to the insured. The Experience Modification factor should be reviewed annually as part of the renewal process to determine if it is correct. If a review identifies errors in an Experience Modification factor there may be the ability to go back to prior years premiums generating further savings.
Another aspect that has a dramatic effect on cost is the Worker’s Compensation classification or description being applied to a particular risk. While one might think that there is little “room for interpretation” we have found many instances that a risk can be reclassified to a less hazardous code. In addition, some employees within an organization may be re-classified in less hazardous (less expensive) codes, reducing Worker’s Compensation premiums further.
The most important risk aspect that a construction entity has control over, to reduce the cost of Worker’s Compensation insurance, is the “human element.” By implementing and maintaining a Safety Program, companies can monitor and analyze their losses. The reduction of losses will have the greatest effect on Worker’s Compensation premiums. At SterlingRisk our in-house loss control professionals work with our clients to design and implement safety programs created to reduce and eliminate claims.
In addition, claims reviews should be done regularly. By analyzing the prior losses, adjustments to the loss control program can be made to address the needs discovered by the claims analysis. The goal is to reduce and eliminate losses creating a safer work environment for the employees which will benefit the organization as well.
Some key components of every loss control program for the construction industry must include procedures to combat the “Top 4” construction hazards. The goals are to:
- Prevent Falls
- Prevent Stuck-bys
- Prevent Caught-in- or-between Hazards
- Prevent Electrocutions
These are exposures that are at all construction sites and should be addressed as a part of your risk management and loss control programs. Effective safety and loss control programs are available, that when supported by top management, can reduce the frequency and severity of the “Top 4” accident types.
While there isn’t much that can be done to “drive down rates,” there are components of a Worker’s Compensation policy that can be addressed to reduce premiums. These include ensuring the EMR is accurate, analyzing losses for trends, conducting periodic claims reviews, and adopting a robust safety and loss prevention program. While cutting costs are surely important, improving safety and reducing claims frequency/severity are crucial to your organization’s success.
SterlingRisk is ready to consult with you to identify areas of your risk management process that can be improved. While cutting costs are surely important, improving safety and reducing claims frequency/severity are crucial to your organization’s success.
Michael Fleischer
Senior Vice President
SterlingRisk Insurance