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10 STEPS TO REDUCING YOUR WORKERS' COMPENSATION COSTS

Have you taken a look at the workers' compensation situation lately?

If you are a business owner or CEO, it's hard to ignore. in most states, workers' compensation insurance premiums are escalating at double-digit rates. Insurance companies are losing money and/or going out of business with alarming frequency. Injured employees often receive inadequate benefits, while attorneys, doctors and other service providers are often profiting from the situation. In some states, such as California, the situation has become a crisis.

What is causing workers' comp costs to go through the roof?

Years of soft market pricing. Insurance rates tend to rise and fall in cycles. In the 1980s and '90s, insurance companies discounted the premium rates below underwriting profit levels, hoping to make up the underwriting losses through investment returns. Now, with the downturn in investment returns, they are having to significantly raise rates.

Lack of capacity. Dozens of insurance companies have gone out of business nationwide, which has inevitably led to reduced competition and higher premiums. In addition, many states have huge cash reserve deficiencies in their workers' comp programs.

Fallout from Sept. 11. The Sept. 11 tragedy drove up re-insurance costs, and has even forced many re-insurers to put limits on what they will cover. As a result, workers' comp insurance carriers now face writing the risk without having complete re-insurance coverage.

Low interest rates and a poor investing environment. Workers' comp claims can result in pay outs over many years, and in order to generate enough income to pay ongoing claims, insurance carriers have to invest their revenues. But in the current weak investing environment, insurance companies have been forced to charge higher premiums to generate the returns they need.

High medical inflation. In many states, medical costs are rising more than 10 percent a year and are set to continue at this pace.

Other contributors. Fraud, abuse and regulatory inefficiencies can be found throughout the country.

TAKE CONTROL

Fortunately, all is not lost. You can take steps, both immediate and long-term, to combat rising workers' comp costs.

1. Recognize that workers' comp is a variable expense and address the real drivers of high costs. Many CEO's think workers' comp as a fixed cost, when in reality, it's a variable cost. You can have a huge impact on how much or how little you spend on workers' comp, depending on how you manage the variables involved. Two primary factors drive workers' comp costs: the number and frequency of claims and the cost of those claims once they occur. Focusing on these key leverage points will yield the greatest bang for your buck.

2. Set the right culture. Adopt a company-wide "we care" attitude. Foster a culture that treats people with dignity and respect, ensure they receive proper medical care when injured, and assist them in getting healthy and back to work as quickly as possible. At the same time, let people know that you will not tolerate disregard for or abuse the system.

3. Hire right. Every new employee who walks through the door represents a potential liability. To minimize your exposure, use the hiring process to ensure that employees can physically perform the job and filter out potential abusers of the system.

4. Commit to safety. Make safety a core value, not just a slogan on the wall. Create a comprehensive safety program built around employee involvement and hold people accountable for adhering to all company safety standards.

5. Train and educate your workers and supervisors. Teach people how to perform safely in your work environment, and hold your managers and supervisors accountable for enforcing all safety standards.

6. Use qualified workers' comp medical specialists. Establish policies and procedures so injured workers go only to pre-qualified medical specialists, not the emergency room.

7. Handle claims quickly and properly. Report all injuries within 24 hours, and make sure your medical providers and third-party administrators follow up in a timely manner.

8. Implement a quick return-to-work program. The surest way to reduce long-term pay outs is to get people back on the job as quickly as possible. If necessary, use a transitional work program until the injured employee can return to his or her regular job.

9. Review claims on a regular basis. Meet with your broker or third-party administrator (monthly, quarterly or every six months, depending on the number of claims) to review claims, analyze your loss history and devise strategies for minimizing costs.

10. Demand more from your broker and third-party administrator. Cutting workers' comp costs involves a lot more than getting the lowest premium. Look for a broker and third-party administrator who will work with you at every step to set up and manage a complete workers' comp system.

Above all, recognize that managing workers' comp requires a total team effort involving you, your employees and all your service providers, insurance broker, medical practitioners and third-party administrators.

Implementing these 10 steps will reduce your workers' compensation costs, ultimately resulting in a decrease to your ever-growing insurance premiums. Faced with the enormous problem of sky-rocketing rates, all resources must be used to find the solution. For that reason, using a piecemeal approach to fighting the problem is not effective. An insurer, regardless of how much it may need to recoup its mounting costs through boosting premiums, cannot overlook the dramatic impact that will result from this approach. Your insurance premiums will go down and stay down.

- Larry Irwin

AMC Safety Consultant


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