By Patrick Keightley, CIC, Vice President
Georgetown Insurance Service, Inc.
The easiest way to reduce your workers’ compensation premium is to prevent losses for occurring in the first place. While that might seem like an obvious answer, it’s much easier said than done in some cases. However, it’s true nonetheless.
If your company’s workers’ compensation premium is more than $5,000 annually then you are likely familiar with experience ratings and experience modifications. An experience rating is the amount of loss that an insured party experiences compared to the amount of loss that similar insureds have. This information is then used to calculate the experience modification factor, which is an adjustment of an employer’s premium based on the losses the insurer has experienced from that employer. Each loss in a firm’s experience rating lasts for three consecutive years. Therefore, each loss impacts your workers’ compensation cost three times. The larger the loss and the more you have, the larger your experience modification will be. For example, if your experience modification is 1.50 then your workers’ compensation cost will increase by 50 percent. And the reverse is also true. If your experience modification is .70 then your premium is reduced by 30 percent because of your good experience over the three-year period presented in the rating.
So, what can you do to reduce losses? The number one thing is to increase the time, effort and money being spent on your company’s safety program. Work with the loss control department of the insurance carrier writing your workers’ compensation policy to help with your safety plan. It’s free and many will offer training classes or online modules as well as job site or plant visits to help identify problem areas. Also, make safety results part of the performance review process for supervisors and managers. The key to any safety plan is to make sure it’s done with the best interests of the employees in mind. You want to prevent injuries because you don’t want to see your employees injured. A premium savings is the result of good experience but it’s not the intent. Otherwise, you won’t have buy-in from your employees and supervisors and the program will be ineffective.
While having effective safety measures is important, it won’t prevent all losses. When a loss does occur, it is very important to get the employee back to work in some capacity as soon as possible. Each state’s workers’ compensation law has a defined elimination period before the indemnity payments (loss of wages) are paid. In some states it’s three days while in other states it’s seven days. If the injured can return to work prior to the elimination period running out, even in a “light duty” capacity, and the carrier does not make any indemnitee payments to the injured employee, then 70 percent of the claim total is not used in the firm’s experience rating. Meaning, 70 percent of medical-only claims for a company are not used in the experience rating calculation. For larger companies with a lot of smaller claims this can have a major impact on the experience modification factor.
Even with more serious claims where an employee has been out for several weeks, it is very important to get the employee back working on a light duty basis before they are released by their doctor for a full duty return. This gets the employee back in the routine of work and makes the transition back to normal work duties much easier.
Lastly, a lower experience modification will increase competition amongst insurers for your business. There is a lot of discretion in terms of pricing available to all carriers writing workers’ compensation policies and a relatively low experience modification will help lead to more aggressive pricing.
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