Workers compensation coverage for a business owner can be a serious and painful bill to pay every month. Let’s play out a scenario as a small business owner that has started their business with a great idea or a business model they think they can grow into a significant revenue-producing opportunity.
Imagine the company is off the ground and soon grows to 5 employees and you experience a claim with one of your workers when they are injured on the job. At first glance, this doesn’t seem like a big deal because your premiums only go up a little and your experience modifier increases, but the small increases in premium are still manageable enough that you can absorb the cost.
Let’s fast forward a few years and imagine that you now have 50 employees, an annual payroll of four million dollars, and gross sales in excess of 15 million dollars. Your business is thriving and life is great! However, you have experienced 3 or 4 small claims a year since opening and do not have a deductible in place on your workers’ compensation coverage. Now your experience modifier is up to 1.5 or higher and it just seems like a lot of expense has been going to cover these claims every year. The question is, what do you do now? An additional piece to understand is the severity of claims versus frequency of claims and how these affect the experience mod. This subject can often be overlooked and can help decide what deductible amount to choose.
Maybe your agent has discussed a deductible plan or even cost containment certification in the past, but you just couldn’t make sense of it all. Perhaps the injuries and claims that seemed so insignificant in the past have increased the cost of worker’s compensation to the point where they are eating into the company’s profits. Or worst case scenario, you can’t compete for certain jobs because your experience modifier is keeping you off the job sites. Your agent might be helpful to a point, but you feel stuck and need to figure this out. You don’t want to just limp along because you still have big dreams and goals for the company.
As an insurance agent, I have talked with many clients and prospects over the years that are all about the bottom line when it comes to the cost of doing business, and rightfully so. Over the years, I have learned that for companies that make insurance purchasing decisions based solely on these bottom line numbers, there are a number of methods and strategies when it comes to controlling workers’ compensation costs and insurance in general. A good agent will help you understand how these strategies can help you gain control of rising costs by looking beyond just premiums and surface-level options.
Here are a couple of the strategies that business owners should be considering when working with their agent when finding coverages for their company.
- Deductible Analysis: This is the process of looking at a deductible expense to optimize long-term savings. This typically entails looking at past claims and examining how having a deductible cannot only influence the experience modifier but could be a cost savings tool. A recent study we provided for a client showed them how a $5K deductible generated a cost savings of nearly $40K savings over a three-year period.
- Cost Containment Certification: This is a state-run program that workers’ compensation carriers recognize which generates a 5% savings on their workers’ compensation costs. This indicates to carriers that their client not only takes safety seriously but have established a comprehensive program to support their efforts in maintaining the standards throughout the entire company. Since the program takes a year to complete, we are pretty involved in helping our clients achieve this accomplishment, but it can be completed by doing some research online as well. Here is a link that is very helpful in understanding cost containment certification https://www.pinnacol.com/knowledge-center/cost-containment-certification.
- Claims Management: Another simple thing that a company or agency can do is to help manage claims. Turning claims in to your carrier within 24 hours is very important. This ensures that the carrier is involved and that the employee is getting the high level of attention they deserve if they were injured on the job. Many people think that claims and injuries are fraudulent, but the reality is that most people want to work and provide for their families. The care that an injured worker receives immediately after an injury is critical in the timeliness of getting them better and feeling good about being back to work as soon as they are able. I would also say that Worker’s Compensation is designed to protect the employer. When the injured worker files a Worker’s Compensation claim they give up their right to sue the Employer. So, although the claim could appear to be “fraudulent” the reality is that the carrier is doing whatever it takes to make the injured worker whole and protect the employer.
- Medical Provider Discount: This is a discount that most workers’ compensation carriers offer for a discount. I recently worked with a local tavern that did not have this endorsement on their current policy, and while it might not sound like a lot of money to some people, it did save them 2.5% on $20K. That $500.00 savings was meaningful to them and they were able to put that money to good use in the business.
The thought process behind using some of these strategies is to help the client to not only feel in control but so they can truly know what drives the premiums for the coverage that they are purchasing. Some of these strategies can be time intensive to put into place properly can have a significant impact on costs and your company culture around safety.
If you'd like to discuss how a work comp analysis might be beneficial to your business, you can reach out to me here.
Jeff Mostek is dedicated to helping businesses find the best functional insurance strategies and products. He specializes in construction, manufacturing, and a variety of traditional and unconventional businesses. As the Vice President of Sales for Alliance Insurance, Jeff is able to share his passion for insurance with integrity with others.
Contact Jeff by emailing him here, calling 303-279-9700, or connecting with him on LinkedIn.