Friday, April 13, 2012

What are the top workers’ comp concerns among employers?

A recent US survey by Zywave (a Milwaukee-based provider of software-as-a-service solutions for the insurance and financial services industries) asked 3,500 employers about their top workers’ compensation concerns.

Cost containment topped the list. Cost containment in workers’ compensation includes actions employers can take to reduce their workers’ compensation costs. In the US, this generally refers to steps that reduce injuries, shift costs to second injury funds (similar to “relief of costs” in WorkSafeBC terms), control medical costs, and return injured workers to employment (shortening duration, and therefore, claim costs).

It is not surprising that 65% of those surveyed identified “having a safety-minded culture” as the most effective measure to control workers’ comp costs. If you have a safety culture, you know it. Developing a safety culture, however, is not that simple. Many firms don’t, and those that want to develop one often don’t know where to begin. Many workers’ compensation insurers have loss prevention and industry consultation services that can help but ultimately, it will be the workers, supervisors, managers and owners of firms that create a safety culture.

Another obvious measure to control costs is having a light-duty or return-to-work program. In this survey, nearly 60% of employers said they had such programs but only 45% of respondents reported having a written return to work policy.

About a third of employers surveyed were concerned about increasing exposures in the workplace and a perceived rise in fraud behaviours. Other top concerns related to the nature of the competitive market for workers’ compensation insurance in the US: renewals (cost and possibility of an insurer declining coverage), market availability of workers’ compensation insurance, and insurance carrier stability.

According to the survey, nearly 90% of employers had no idea what their “loss-free rating” was or were not familiar with the term. Loss-free ratings (sometimes called “minimum mod”) commonly appear on premium statements and relate to the experience modification part of the premium calculation.

The loss-free rating is the value the experience modification (often abbreviated to “experience mod” and expressed as a multiplier of the base premium) would be if there were no losses in the experience period. A firm with an experience mod of 1.10 on a base premium of $100,000 would have a total premium of $110,000. If the loss-free rating were 0.80, the total premium would be $80,000. Knowing the loss-free rating shows the employer, in this example, there was $30,000 of potential premium savings if there had been no losses.

The concept of loss-free rating may be hard to explain in US states but in WorkSafeBC’s case, the loss-free rating would be the maximum discounted premium. Showing the loss-free rating and the potential savings on a statement may well be a great conversation starter for firms with surcharges or demerit experience ratings. While it ignores the human suffering and costs, it does quantify savings available through prevention efforts. Put another way, many firms would find the cost and effort at prevention to achieve those savings far less than the cost and effort to achieve an equivalent profit from gross sales. There are also hidden costs associated with worker injuries that are not reflected in workers’ compensation premiums: lost time and lost experience or knowledge, for example.

With cost containment issues topping the list of US employer workers’ comp concerns, and given the apparent lack of understanding around the loss-free rating, the time is right for worker’ comp insurers to test new ways of communicating the value of investing in loss prevention, return to work and safety culture.

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