Workers' Compensation--Six Ways to Reduce Your Premium.
What is Workers' Compensation?
Workers' Compensation is basically a compromise between the employee and employer. Workers' Compensation is "no fault" coverage--that is, benefits are paid regardless of who is to blame for the accident or injury. In exchange for losing the right to sue the employer, the injured employee receives payments to make up for lost wages (normally two thirds of their average pay, subject to a weekly maximum) as well as all medical costs associated with the injury. However, no benefits are paid if the injury was self-inflicted or the employee was intoxicated when injured.
All employees have to be covered by workers' compensation--even independent contractors have to be covered if they do not have their own insurance. Some states exclude farm workers, business owners, domestic employees in private homes and unpaid volunteers. Railroad, maritime and federal employees have their own worker compensation laws (which, incidentally, generally pay better benefits than state laws).
In North Dakota, Ohio, Washington, West Virginia and Wyoming you can only buy your insurance through a state agency. But note that these monopolistic states do not provide employer liability, so this has to be purchased from a commercial insurer.
Six Ways to Reduce Your Premium
The best claim is one that doesn't happen. Since your claims count against both your experience modifier and in your ability to get a competitive workers' compensation policy, it is worth investing in a prevention program. Many insurance companies offer loss control services and will offer a checklist to conduct a self-audit or will conduct a physical survey of your operations. These can cover OSHA regulations as well, so you are getting a double benefit.
Each job has a Workers' Compensation code assigned by the National Council on Compensation Insurance (NCCI) or by the state. These codes identify the occupation of the worker, and rates are set by the state for each code. The rates vary with the chance of a claim for each occupation. For example, clerical employee rates may be 50 cents per $100 of pay, while restaurant workers could be $2.50 per $100 of pay. This suggests that restaurant employees are five times more likely to get injured than clerical workers. If your employees are wrongly classified into a higher code, this could be costing you more than necessary. However, if your employee does some higher rated occupation part of their workweek (for example clerical duties four days a week, but helps in the warehouse on Fridays), then the entire payroll is at the higher rate. (About $6.50 per $100 of payroll for warehouse employees).
Use the Correct Payroll
As discussed above, workers' compensation policies are rated upon annual remuneration per employee. While accommodation and meal allowances are included, the extra part of pay due to overtime is not. For example, if the regular hourly rate is $8.00, but overtime is paid at time and a half, only $8.00 per hour is used when calculating the workers' compensation premium--even if some of the hours were at time and a half.
You should aim to be available when the insurance company auditor visits your business. Carefully check the audit before accepting it, and ask your agent to predict how much additional premium you will pay or how much you can expect to get returned. Unlike policy premium, insurance companies generally do not offer payment plans on additional premium resulting from an audit.
Proactive Claims Handling
Once a claim occurs, and it is serious enough to warrant medical attention, you should immediately report it to your insurance carrier. Studies have shown a delay in reporting the claim is one of the major causes of claims getting out of control and ultimately settling for large amounts. Without contact, the injured employee feels unwanted and confused. Statistically, workers' compensation cases where the injured employee was not contacted within a week settle for about 30 percent higher than claims where contact was timely. It is better to return an employee to work on "light duty" than to allow them to stay at home until 100 percent fit. Not only does the employee add to productivity, but the return to work stops bad experience building in your claims history, and so adversely affecting your experience modifier and your chances for a competitive policy renewal.
Check your Experience Modifier
All employees with workers' compensation premium greater than $5,000 have an experience modifier published by the state or NCCI. The experience modifier reflects how your business is performing against a statistically average similar business in your state. For example, an experience modifier of 0.75 would indicate that business has 25 percent better experience than the average. A modifier of 1.50 tells us that this firm has 50 percent more claim costs than average. All insurance companies report the incurred claims (paid amounts on a claim plus reserves assigned to the claim by the insurance company adjuster) to the state rating bureau or NCCI. The experience modifier is created from three years historical claim information, excluding the most recent year. In the formula, large claims are capped (over $5,000), and so have less impact than frequent small claims--so it is claim frequency that affects the premium, more than claim severity. Ask your agent to get you a copy of your experience modifier worksheet so you can check that only your claims are in your experience and that the reserves set by the insurance company are reasonable.
Get a Competitive Quote
It is surprising how many business owners believe that all workers' compensation policies have the same premium since they are based upon state produced rates. In the majority of cases, alternatives exist among insurance carriers that can reduce premium. These include scheduled credits, deviations from state rates, dividends, retrospectively rated programs, drug free workplace credits and managed care credits. Using these plans can reduce your premium from the state-published rates by 20 percent to 30 percent.
While workers' compensation may be a cost of doing business, applying these methods can easily reduce its impact on your bottom line.
* Workers' Compensation exclusively for IFA members
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Call Scott Kennedy at (800) 285 0456.
Timothy J. McNelly, CPCU, ARM, AMIM is director of special risks for Riedman Insurance. He can be reached at email@example.com.
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|Author:||McNelly, Timothy J.|
|Date:||Sep 1, 2000|
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