Unless you’re self-employed without any other employees, every business is required by law to have workers’ compensation (work comp) insurance. This important regulation helps protect the livelihoods and well-being of workers in the event of injuries sustained on the job. Employers can expect significant consequences for noncompliance and to be fined for each day they are without coverage until it’s obtained or reinstated.
There are four major factors that impact how much your work comp premiums will be, and proactively addressing each of them can help bring costs down over time. Let’s take a look at all four along with some insights into how you can leverage each in your organization.
The Experience Mod, as it’s often called, is a factor calculated by the state or the National Council of Compensation Insurance (NCCI) based on your organization’s claim history. This complex calculation involves a certain threshold of losses over time that is used to determine a company’s performance or “experience.” The industry average is set at 1.0 — if your calculated factor goes above that, you can expect your work comp premiums to increase. You can, however, be rated lower than 1.0 (e.g., 0.9, 0.8, etc.) and be rewarded for your good “experience” in the form of a discount. For every point your company goes over 1.0 (e.g., 1.1, 1.2, etc.), you can expect to pay as much as 10% more in premiums.
The size of a company’s payroll and how its employees are classified directly impacts work comp premiums. To ensure accuracy, every company is required to complete and return a workers compensation payroll audit a few months after their policy renews or be subject to an audit non-compliance penalty charge.
If the audit reveals that your payroll was actually higher than you originally reported, you’ll be required to immediately pay the additional work comp premium that should have been charged for that higher exposure. This can be a major burden on a company’s cash flow. On the contrary, overestimating payroll will result in a premium refund after the audit. While this sounds appealing, it’s much better to have access to that money throughout the year when it’s needed most.
One of the greatest ways to improve your experience mod and lower premiums is by decreasing the number and severity of your worker’ comp claims. No matter what type of business you run, you should have a safety program, policies and procedures in place to help prevent injuries.
The range and types of programs vary greatly depending on your industry, and can include:
But what happens if a claim does occur? Are there ways to mitigate the potential impact? Properly managing claims makes a big difference. For example, if a worker is injured and can return to work within three days, the impact on the Experience Mod will be considerably lower than if he or she takes an entire week off. If the worker is unable to return to normal duties within three days, assigning lighter tasks or office work until he or she is fully recovered is encouraged.
An absence of more than three days due to an injury ends up having a full impact on the Experience Mod, impacting your workers compensation premium. Work with the employee and his or her doctor to help determine appropriate return-to-work duties and timing. Also work with your broker who can help manage claims and may be able to help develop training protocols, especially for new employees who don’t know how to operate machinery properly.
The insurance company you choose can help or hinder your efforts. Some carriers specialize in certain industries, such as agriculture, construction, manufacturing, food service, etc., and can provide better resources and guidance. Ask if the carrier has in-house claims adjusters. Those that do will have more on the line; they generally manage claims more effectively and care more about positive outcomes. Sometimes smaller regional carriers are a better fit for small and mid-sized companies because they can provide more personalized service and offer more safety resources.
When looking for a broker, work with one that represents several carriers and can recommend the best fit for your industry. A good broker will also make sure your business is coded properly with the state to ensure you’re paying the correct rates. For example, a sewer and water company typically has a greater risk and higher premiums than a standard plumbing business, but one or the other is often coded improperly. They can also recommend and work with an insurance carrier that has a team of loss control advisors to provide additional safety training and help identify areas of improvement for higher risk industries.
Most companies don’t have risk managers on staff. At McClone, our brokers serve as advisors to fill the gap, provide recommendations and work with your business to help ensure the safety of your employees and mitigate the risks of rising work comp premiums. There are many more benefits of working with an experienced broker that can help identify additional savings and opportunities to reduce risks. Take a moment to see the results of our process on one company's approach to reducing workers compensation premiums or reach out to us today to schedule a meeting to discuss your unique challenges.