Fuel Delivery and home comfort companies can reduce the cost of worker’s compensation insurance by taking firm control of their claims and losses. Patrick Donahue, Regional Risk Manager for Federated Insurance, explained how companies can control costs during a recent seminar presented at the Southern New England Energy Conference.
The most important factors in determining a company’s workers compensation premiums are the number of losses and the dollar amounts lost, according to Donahue. A company’s so-called “experience rating” is a factor used to adjust a company’s premium up or down based on their previous loss experience. Companies should check with their underwriter to find out what their experience rating is and how they can improve it. The experience rating is based on losses during the three most recent policy years.
Well Run Companies Pay Less
Companies can also make themselves more attractive to insurers by managing operations effectively. For example, a company that maintains its assets well, sets high standards for safety, and maintains a regular safety training program is far more attractive to an insurer than a more sloppily run organization, according to the Federated representative. Insurers apply a discretionary adjustment to a customer’s rate, so their evaluation of operations is directly reflected in the rates they offer.
In one example from Donahue, the base rate for an oil company of a certain size was $50,000 and it was adjusted upwards to $78,125 based on inflated factors for experience and discretionary assessment. If those factors are adjusted downwards due to lower losses and better operations, the premium could be reduced to $40,125.
By focusing its risk management efforts, a company can also reduce some of the hidden costs associated with workers compensation claims, including employee replacements cost; cost of production downtime; decreased productivity and quality of work; and losses of customers and goodwill.
The real costs of a loss can be higher than companies think. For example, if a company with a profit margin of 5 percent on revenues suffers a $2,000 loss, they will require an additional $40,000 in revenue to offset it. If the profit margin is 3 percent, it will take an extra $66,000 in revenue to offset a $2,000 loss.
Good Hiring Practices Help
One of the company’s best opportunities to reduce worker’s compensation costs is by hiring the right people, Donahue explained. He recommended that companies take care to verify the information that prospective employees provide, because an estimated 44 percent of all job applicants lie about their experience.
Donahue also recommended that companies use drug testing, reference checks, background checks and pre-employment physicals to vet prospective employees. “Keep in mind, if three of your competitors are drug testing and you are not, all the drug users are going to come to you for employment,” he said.
A physical that tests a worker on factors closely related to the work they would perform is legal as long as the same testing is performed on all employees hired for similar work, according to the Federated representative. “Consistency is the key in the interview process,” he explained. “Discrimination kicks in only if you don’t require all the applicants for the same position to do the same things. Be consistent with your practices, and make sure when you hire that everything is documented.”
Once a new employee is hired, companies can protect themselves by establishing a 90-day probationary period before they achieve full employment status. The company can also reduce the likelihood of an on-the-job injury by communicating performance standards, providing personal protective equipment, encouraging open dialogue and suggestions, and providing safety training starting from Day 1. Donahue pointed out that 35 percent of workers compensation claims are filed within an employee’s first 12 months with a company.
Some of the best companies have safety incentive programs, where they reward employees and employee groups for working 90 days without an accident.
One important step for reducing injury-related costs is to use a managed care program that reduces medical costs. Companies should also be sure to report employee claims quickly so as not to hinder investigation and even negate the effectiveness of post-accident drug testing.
Companies can also return workers to light duty to reduce their financial losses. If the employee refuses, it is easier for the employee to terminate them, should that become necessary.