Workers’ Comp Update
Dispelling the Myths of Workers' Compensation
Mention workers' compensation and many business owners and a few risk managers’ eyes glaze over. This is complicated stuff maddeningly complicated formula, a multitude of rates and deadlines, all wrapped up in an impermeable layer of insurance jargon, regulations, timetables, and ever-rising mods. It is no wonder that many business owners have abandoned hope of ever understanding, much less managing, their workers' compensation programs.
That workers' compensation is the second-largest expense after payroll is a fact of which few managers want to be reminded - until they write their annual premium check.
Like death and taxes, workers' compensation has an immutable and very expensive reality of its own.
Let's debunk four of the biggest myths surrounding workers' comp:
MYTH 1: Claims don't cost anything. Isn't that why I have workers' comp insurance? If your company is too small to be experience-rated, claims don't cost you anything, but the minute your company qualifies for a mod, the rules change. A loss (e.g., a cut finger) that costs the carrier $500 can cost the employer $1,500 to $2,500 in future premiums.
MYTH 2: Timing isn’t important. I always see my brokers in October. Timing is everything in insurance rating. Your company's payroll and claim information goes into the rating bureau six months prior to your policy's anniversary date. All claim reserves must be lowered and reported, and all appropriate claims closed and reported before that magic date, or there is no benefit for the upcoming mod.
MYTH 3: Mods aren't important. In open rating states, premiums initially. In open rating states, premiums initially decrease. To increase premium levels, the industry often pumps up mods by decreasing the expected loss rates (ELRs) in the mod calculation. When ELRs decrease, mods increase. In California alone, employers have seen as much as a 50 percent drop in ELRs over the past three years. Over time, when manual rates are on the rise, the higher mods cause dramatic increases in a company's premium.
MYTH 4: All offices need a redesign to meet the new OSHA regulations. While most companies have a limited concept of OSHA requirements, they have a Draconian concept of OSHA making their lives miserable if they are targeted for inspections and fines.
Few
companies know how to prevent workers'
compensation claims, or how affordable
and
effective
ergonomic training can
be in preventing such claims. Businesses don't know that ergonomic training and redesign can almost entirely be paid for with "found" dollars that otherwise would be wasted in overfeeding their workers' compensation policy.
A $2,000 lower back injury claim can end up costing your company $34,000. A $4,000 claim for carpal tunnel syndrome can reach a final tally of $52,000. Who pays the difference? Your company.
Easy alterations at a minimal cost can save your company from large cumulative trauma disorder claims. It often is as easy as adjusting a monitor or lowering a keyboard. Holding a short class to teach employees how to move and sit correctly in their workspace also can reduce claims significantly.
In the insurance industry, I have found that the majority of brokers really do not understand workers' compensation. Interestingly, very little has been written about it in the study materials to become a broker.
Business owners and risk managers are so busy running their operations that they rely on their broker, who may know everything about liability and very little about workers' compensation. Thus, you may be overfeeding your workers' compensation policy and losing out on avoidable ergonomics claims.
