Prices are soaring across nearly every vertical in every industry and insurance is no exception. For the past year, or so, we have been in the throes of a “hard market”; meaning rates have increased, insurance companies have accepted fewer risks, and underwriting standards have become more strict. Bottom line, if you’re not a “squeaky clean” business with A+ safety and operating standards, you’re likely to be impacted by increasing rates and premiums. Hope is not all lost, though, as there are steps you can take to make your business a safer place to work and, in turn, make your Workers Compensation premiums fall. Let’s explore what factors into your premium and tips to help keep your policy affordable.
If you’ve ever filed a claim before, you may have heard the spiel about how payments on claims can and likely will impact your premium at renewal. While this is true, there’s more to the story than what you might realize. Insurance companies assess your previous loss history, noting how many claims have been filed, and how much money was paid out for them - better known as accounting for frequency and severity of losses.
The frequency and severity of loss for your business (aka your propensity for loss) makes up your “Experience Modification Rating” or “X-Mod”. The average x-mod for a business of similar size and exposure to yours has a baseline figure of 1.0. If your x-mod is higher than 1.0, you’re seen as more of a risk to insure and your Workers Compensation premium will reflect it. Similarly, if you have several years of claims free history; you will see your X-Mod drop below 1.00 and this will generate a credit to your policy…
Submitting claims frequently isn’t your only problem to avoid; the severity of your submitted claims is also considered. For example, if you have a clean loss history and then your employee suffers an accident on the job that costs tens of thousands of dollars, that one large loss can push your future premium well above your base premium levels. There is some relief, though, as claims typically fall off of your report after 4 years, which will help if you’ve had a particularly injury-prone year.
Classification of Risks / Employees
The world needs roofers, electricians, and excavators… but let’s face it, some jobs are WAY more prone to risk than others. Insurance companies understand this and build that into their class code rating figures. When thinking of insurance, it’s important to remember that higher risk = higher premium. This isn’t a slight against your chosen profession, it’s a measured approach to balance the risk for the insurance companies who insure you, because odds are that losses will happen to riskier business operations, safety procedures implemented or not.
Workers are classified within a business based on job duties, also known as a class code. Each class code is rated based on the risk(s) of loss the duty poses. Class codes for higher-risk exposures, such as commercial roofers, will be rated more expensively and may lead to higher premiums based on how much payroll falls within that class code. On the flipside, lower-risk exposures, like an office worker, will be rated less expensively. The formula is as follows; class code rate x amount of payroll for that class code = baseline premium figure that could increase due to the presence of other factors that we touch on in this blog. The key consideration for businesses with a variety of duties or labor tasks, is to have each employee correctly classified into their corresponding class code…
Further complicating the subject, Workers Compensation is regulated on a state-by-state basis. Laws and requirements can vary as soon as you cross a state line. For example, some state’s are exclusive remedy states, some states are monopolistic and costs are collected by the state directly. One prime example of this: we quoted two businesses that were the same in virtually every way, except one was located in Indiana and the other was in California. The quoted premium was nearly double for the California business because, though we used the same insurance company to quote both businesses, California’s state laws and requirements led to higher rates. We know that a lot of you do work across state lines, totally fine, HOWEVER, you need to be communicating how much work you’re doing outside of your home state. Are you handling one-off jobs here and there or is this a frequent happening? Some insurance companies could be regional and might be able to write your WC policy in your home state, but are not contracted to write in another. Any business you do in an uncontracted state might not be covered in the event of a loss or could result in a non-renewal of your policy.
Tips to Help Lower Workers Compensation Premium:
Implement and constantly refine safety procedures
Written safety guidelines are the first step in making your business a safer place to work. Scrutinize each area of your business operations and create thorough safety standards and practices based on the needs you identify. Since business changes daily and employees come and go, routinely review and revise the procedures put in place and then brief your team on the importance of adhering to them.
Regular safety meetings
It’s not enough to have safety tips, best practices, and procedures written down and tucked away. Safety should be an ever-evolving, ever-present conversation throughout all levels of the organization. Each meeting should touch on hot-topics, potential hazards, and reinforcement of everyday best-practices.
Different training certifications
Do you currently have a dedicated safety officer? Has that safety officer, if applicable, been certified in any first-responder training? The trick to keeping claim resolution quick and invoices minimal is catching a loss before it starts to spiral out of control. If an injury takes place at work, the dedicated safety officer should respond and treat the injured worker, then report the incident immediately so a claim can be filed.
Investing in better PPE
Are you supplying the bare minimum PPE that OSHA requires for your employees? Have you looked into more robust safety equipment that might make life easier for your workers and their bodies? Equipment like back braces, steel-toed boots, and high-vis vests might be worth looking into supplying for your team. These purchases should never be a “one-and-done” type of thing, make sure your safety team does routine inspections of PPE and promptly replace sub-standard equipment.
In the event of a loss, looking at how to prevent that loss again
Our agency operations have been heavily influenced by practices of the armed forces, so we AAR, or After Action Review, our meetings/standard operating procedures/etc. The same practice can be implemented after a loss or injury occurs. It’s important to sit down and understand what factors lead up to, caused, and resulted from the loss or injury and think of solutions that will prevent the same loss or injury from happening again in the future. Once identified, understood, and rectified, make sure the message is passed to all levels of the organization so there is clarity and buy-in to the solution.
Think of reducing or eliminating high-risk exposures
This one rings in last, because we understand it’s not always feasible to do. If you’ve built your book of business around being the best roofer in town, we wouldn’t ask for you to switch gears to a lower-hazard service offering. However, if your high-risk exposures make up a small, incidental, portion of your service offerings, it might be cost effective to cut that service and save yourself from having to pay higher rates for infrequent exposure.
This is not meant to be an exhaustive list of tips, nor is it an intensive insight for Workers Compensation coverage. To better understand your current policy and for a more tailored approach to reducing your WC costs, give us a call to discuss further. Stay vigilant and stay safe!