Workers Compensation Management

a.) What are some ways that a company can reduce their worker compensation costs?

There are a number of ways that companies can reduce their worker compensation costs, all however require a commitment from both workers and management. Worker compensation costs are not solely accounted for by the premium that is paid to the insurance carrier. There can be considerable time spent (labor costs) administrating each claim. Claim forms, reserve accounts, medical reports, disability programs, investigations and return to work plans can all be functions that an administrator must track and manage. Therefore, lower worker compensation costs can be realized by affecting insurance premium expense and the administrative costs.

In a sense, there can be one answer, prevent accidents and injuries from happening. This can be easy to say but for many companies difficult to achieve. Prevention begins with identifying where hazards exist. This requires companies to perform a job hazard analysis (JHA). A job hazard analysis begins with listing the different job classifications that have been designated by your carrier and then matching the different job names and job tasks to these classifications. For example, let’s examine the classification of production worker in a standard manufacturing setting. There are a number of job titles that can be designated such as, machine operator, assembly worker, machine technician, parts handler, and so on. Each of these job titles performs different Job Names in the production process but for insurance purposes their insurance rate is calculated as a production worker. Next, obtain a “Loss Run” from your carrier. A Loss Run will identify, over the period of time specified, the types of accidents and injuries that have been sustained by the company. Match the loss run to the job classifications and job Names. This allows you to focus immediately on the activities within the company that create the greatest cost. Next through both observation and interview list the primary job tasks that are performed routinely by each job name. For example, for the title assembly worker there may be 5 different tasks performed by any given worker routinely; 1.) Cleaning, 2.) Shaping, 3.) Threading, 4.) Connecting and 5.) Polishing. Each task has a number of steps that must be performed, some in order, to be accomplished properly. If the steps were listed to complete the task of Cleaning it may look like this:

1.) Remove burrs from metal surface with grinding wheel.
2.) Dip metal part into solvent bath.
3.) Remove metal part from solvent bath and place on drying tray.
4.) When drying tray is full place on conveyor belt

As you can easily imagine, each one of these job steps have different hazards that are more clearly defined. Another words, simply by saying “cleaning” as a job task does not seem very hazardous, but when the steps involved in understanding what it takes to actually clean a part in the production process are listed hazards are more visible. If we were to examine Step 1, the following hazards could be present:

1.) Injuries to the eyes from burrs being removed from the metal.
2.) Injuries to the hands from holding the part next to the grinder.
3.) The grinding wheel not positioned close enough to the tool rest and fingers getting caught between the part and the grinding wheel.
4.) Sparks from the grinding process igniting debris, clothing or harming skin and eyes.
5.) The grinding wheel is not secured adequately to the motor and comes off during use.
6.) The grinding wheel shatters from overuse or a large burr.

If one of the areas in your Loss Run identifies eye injuries to production workers as one of your most common or frequent accident/injuries, you may have just found the reason and can do something to prevent it. Read further to find other ways to save money and manage worker compensation costs.

b.) What is the Reserve Account and why is it important that a company manages it?

The Reserve Account is a financial practice must be observed by insurance carriers that “holds dollars” in order to ensure that enough money has been set aside to care for an injured worker or loss event. These dollars are said to be placed in reserve and can vary in amounts based on the severity of the injury or event. Generally, the longer a reserve remains “open” the longer your “experience” as an employer who incurs losses is judged. It is reasonable to assume that the higher the total reserves for a company the higher the risk and can also be correlated to the severity of the risk. The insurance premiums that companies pay can be affected by the status of their reserves.

Working together with your carrier or broker can identify instances where a reserve is set too high or too low, can clarify when a worker has returned to active service, or can be modified or adjusted according to changing circumstances.

Keep in mind that reserves are not pulled out of thin air. The cost for the care of a worker in Vermont may be and is probably less than the care for the same injury in a large city. There can also be cost differences between the different regions in the country or the types of incidents. Some companies have established agreements with local health care professionals that receive all their business for a reduction in medical expenses. It’s all about statistics….without them the carrier could not properly administer their insurance protection afforded to your company. It is important to financial health of your company to be diligent that these statistics are a true reflection of your company’s loss.

c.) How are Worker's Compensation premiums determined?

Worker's compensation premiums are based on the amount of payroll. The higher the payroll, the more premiums are paid. Worker Compensation premiums also based on the work activity or job classification of an employee. The National Council on Compensation Insurance (NCCI) establishes Job classifications. The NCCI publishes its classifications of more than 700 types of jobs in a document called the Scopes Manual. Most states use this manual as the basis for their classification rating schedules. For example, the premium for a worker with a hazardous occupation would be higher than a premium for a worker with a non-hazardous occupation. Over the years statistics have been derived for the various types of hazardous and non-hazardous occupations that are used to determine the risk rate. Employers are expected to accurately report payroll by classification of work performed (job classification).
Premiums are also based on a rate classification from a national rating bureau, National Council on Compensation Insurance (NCCI), or by a State-rating bureau. These bureaus calculate risks based on how businesses are classified (Standard Industry Classifications (SIC)). Generally, the riskier the business or SIC, the higher the base rate will be.
While States control the rate, it doesn't specifically set premium. Insurance carriers use many factors to determine risk level and therefore overall premium. For this reason, premiums can vary from one carrier to another. It is becoming more common for states to allow competitive pricing for workers’ compensation. If a state allows competitive pricing, it is worth shopping around if your experience rating allows. Maintaining a safe workplace and proactively managing risk can provide carriers opportunities to possibly discount premiums by applying certain pre-defined credits.

Your experience modification rating (EMR) is the last variable to be considered that affects your premiums. An experience rating compares the claims history of one company to that of other companies in a similar industry. If a company's claim history is lower than the industry average, it could be eligible for a better rating, and, therefore, a lower premium. If a company has a high number of claims or if a company is in an industry that insurance carriers don't like to cover, then they may have to be part of a state insurance pool. State insurance pools have reputations for high premiums and inadequate services.
Lastly, about half of the states allow a deductible to be applied to workers’ compensation premiums. A deductible, usually between $100 and $1,000 per claim, can lower premiums by as much as 20 to 25 percent.

d.) Generally, what is the single most important factor that contributes to premium increases?

Generally, the single most important factor that contributes to premium increases are losses. Unfortunately, simply by being within a particular Standard Industry Classification that has experienced extraordinary losses will increase premiums. However, as stated earlier companies have an opportunity to distance themselves from their industry losses by achieving a low experience modification rating. Experience means just that, losses are infrequent.
Companies that maintain effective safety programs and prevent accidents from happening are rewarded by paying less for workers’ compensation insurance

e.) What are the top three types of injuries considering frequency, severity and cost?

Generally, the top 3 types of injuries across industries are:
— Slips, Trips and falls
— Ergonomic related illnesses from machinery, equipment and tool use
— Operator related injuries from vehicles and equipment.
— BLS Statistics