It’s the tail that wags workers’ comp costs

by Tom Helbach

It must seem that workers’ compensation coverage is often closer to a chronic disease than protection for injured workers. Every time someone says, “It’s finally fixed,” we can just about count on workers’ comp rates going up again. Perhaps workers’ comp is a chronic condition since at any given moment, it’s in trouble in one of several states.

Worse yet, injury claims drive up rates for employers for years. In insurance lingo, workers’ comp has a “long tail.” When an injury occurs, the insurance company sets aside “reserves” to cover the estimated cost of the injury until the case is closed. In many situations, a case can go on for years––and sometimes even longer.

In other words, workers’ comp is quite different from other forms of insurance where a loss has a specific cost that’s paid immediately. If you have an accident with your car, repair estimates are obtained and the job is awarded to a shop for a specific price. Claim closed.

To control auto insurance costs, we do everything possible to help drivers avoid accidents. It should be the same with workers’ comp. Providing injury prevention training is a must.

The nation’s trucking companies invest millions of dollars each year in driver safety programs. And when it comes to safety awards, trucking firms are fierce competitors. They’ve learned that when safety is a round-the-clock commitment, claims drop and profits go up. When a truck is sidelined because of an accident, that’s a serious, measurable loss.

Because of the notable success of trucking company safety efforts, safety directors have earned the respect of management and the drivers.

In smaller companies, safety is often a lower priority. Getting the work out every day takes precedence over everything else, including safety. If someone has been appointed safety officer, it’s a name-only title. This is the person who supplies the injury forms when there’s been an accident.

Most business owners and managers are surprised to discover what it takes to recover the costs of a $2,000 accident. According to findings of a leading national accounting firm, it would take a soft drink bottler 244,200 cans of soda or 952,000 donuts for a bakery.

If those figures seem exaggerated, consider what goes into the “cost package” of an injury. There are the direct insurance and claim costs, of course. But the indirect costs run more than four times the direct expenses: the injured employee’s lost time, the cost of a replacement, additional training and supervisory time. On top of that, as the trucking industry knew so well, there are delays, schedule changes and legal fees.

In a day when reducing costs and maximizing productivity are critical components of profitability, taking injury prevention seriously makes good business sense.

If the costs are so enormous, why isn’t more being done to reduce workers’ comp expenses? As might be expected, large companies are generally in the forefront when it comes to loss prevention. To stay competitive, smaller firms need to catch up fast.

Here’s what can be done.

Enlist your insurance broker in helping you build a loss prevention program. Take the initiative; don’t wait for the broker to come to you. Rattle the broker’s cage. Remember, it’s your money that’s paying workers’ comp costs.

If your broker sends an insurance company loss prevention representative to assess your operation and make recommendations, that isn’t enough. Don’t settle for it; it’s probably bare bones. For the most part, the recommendations are minimal and are made from the insurance company’s viewpoint, not yours. If you’ve gone through this, you know there is little or no follow up and training is almost nonexistent. In other words, it’s inadequate.

You should also require your insurance broker to audit your workers’ comp records. Start with the view that there are mistakes, and they’re costing you money every year. 

Have the broker do the following.

• Audit your premiums. Are they correct? Workers’ Comp reports are known to have errors. They cost you money.

• Audit the Experience Modification Factor. Are your employees classified properly? If the experience mods are not correct, you’re paying too much.

• Audit your claims history. You may be surprised to discover that paid claims are still open, again costing you money.

• Audit the way employee injuries are managed. Are there procedures in place for medical care and are they being followed?

When mistakes are found, expect your broker to take action to help you correct them.

Expect your broker to prepare your company for its annual Workers’ Comp audit. You wouldn’t think of making a sales presentation without proper preparation. The audit is your workers’ comp presentation. Don’t assume that everything is correct and proper. If the broker finds there are overcharges, get that information ready for presentation to the auditor.

Unless you’re a workers’ comp expert, look to your insurance broker for the assistance you need to be ready for the audit. Your goal is to present your company in the best possible light.

Develop a company culture that’s committed to loss prevention. Again, look to your insurance broker for assistance. Here is some of what needs to happen. And don’t think that this just applies to manufacturing, trucking or contracting. Carpal tunnel syndrome injuries are rampant in offices, as are stress-related illnesses and back problems. The current costs of these injuries are enormous. Here are some of items worthy of immediate attention.

• Make safety a hiring issue. Reference checks of prospective employees should include safety and injury records. The best way to avoid unnecessary workers’ comp costs is to hire people who work safely and do not abuse workers’ compensation.

• Develop a loss prevention program. Avoid trying to do either too much or too little. Working with employees and your insurance broker, create a program that fits your needs. Its success will depend on the commitment of top management, however. If it isn’t a priority for management, it won’t be taken seriously by anyone else.

• Arrange for proper medical care for injured employees. Make sure the medical service you select understands job injury issues. This is the service that should be used whenever an injury occurs. Studies show that prompt, aggressive treatment gets workers back on the job faster.

• Stay in close touch with the injured worker. A company person should go with the injured employee for initial treatment. And close contact should be maintained on a daily basis at first. Many injured workers feel they have been dropped like a hot potato. “Don’t they want me back?” is a common question.

• Get the injured worker back on the job as quickly as possible. Reinforce that you want them back as soon as possible, even if it means light duty at first. Sitting at home watching TV doesn’t help the healing process. When workers get back on the job quickly, there is less of a chance for an adversarial attitude to develop. When it does occur, it almost always results in legal action.

These examples should help make it clear that loss prevention is the only way to hold down workers’ comp costs over the long term. If all this isn’t strong enough, then perhaps these words will help: Workers’ compensation acts as a tax on workplace injuries.

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