Workers Comp Insurance: Cheaper Does Not Equal Better

The cheapest workers’ compensation insurance is not always your best choice. That's because a lower workers’ comp premium does not always equate to a lower overall total cost of risk. Your premium depends not only on how much payroll you have, but also on how well your claims are managed.

Why is that the case? Because the process of managing your workers' comp claims will impact your experience modifier. Insurers use this modifier to adjust your premiums based on your previous workers-comp losses. Poorly-managed claims can inflate your experience modifier, and that in turn will drive up your premiums.

In any case, workers’ comp rates are on the rise in many states, so it's imperative to manage your program carefully in order to control your costs. Here are some important points to consider as you plan your workers’ compensation management strategy.

Start with an experienced agent who specializes in workers’ compensation. Seeking the lowest premium may be a good short-term approach to managing costs. But it is critical to consider a longer-term approach. The key to this strategic approach is to choose an agent or broker who can shop the workers’ compensation markets and assist you in ensuring your experience-modification factors are figured correctly.

Your agent should solicit quotes from various managing general agents, and regional and national companies that write workers’ compensation. Not all brokers want to work with all companies. If you are in an association that supports your industry niche, check with association management to determine which brokers they recommend.

Also consider calling a friendly competitor in your industry. Agents who specialize in and understand your industry are usually the best choice to represent you to underwriters.

Hire the right person. Your next workers’ compensation injury may be sitting in your lobby right now, filling out an application. You cannot ask potential employees about their physical condition until you make a conditional offer of employment. You can, post-offer, work with an experienced occupational medical team to ensure your future employees can perform the essential job functions of their positions. 

There are also sophisticated psychological screening tools available that can help you eliminate candidates who might “work the system” or file fraudulent claims.

Invest in safety training. Estimate safety training return on investment by dividing the total projected cost savings resulting from the safety training by the cost of the training. Many experts estimate a $3 return for $1 invested in training, but it is difficult to argue with any solid return on investment. Safety and other training is almost always the right thing to do.

Work with your carrier to institute a solid stay-at-work/return to-work (SAW/RTW) program. Many carriers no longer quote companies that do not offer SAW/RTW. It's impossible to overstate the importance of returning an injured employee to the workforce as quickly as possible following an injury.

Before you accept workers' comp coverage, ensure the carriers you consider have stellar claims-management practices. Without strong claims management, that lower-back injury can morph from a simple strain to a lifetime of disability.

The average cost to cover an employee for workers’ compensation in 2008 was $755, according to the RIMS 2009 Benchmark Survey. Your company may pay much more or less depending on the type of industry and the size of your company. However, no workers’ compensation experts forecast those costs declining in the future. An aging and less fit workforce is driving more disabilities and rising medical costs.

In today’s difficult business environment, we all look to cut costs where we can. Choosing an experienced broker or agent and a strong carrier can help you cut costs and implement best management practices for your workers’ compensation program.