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Insurance
  • There are many factors that determine how much an employer will pay for workers’ compensation insurance.
  • After selecting a workers’ compensation provider, companies must continue to monitor their choice to ensure the amount of money spent aligns with the value of the services provided.
  • Premium costs are not the only expenses affected by injury claims. Employee morale, productivity, time, and other work-related costs are affected as well.

Workers’ compensation (WC) is a pre-funded insurance system. Insurers try to predict how much funding they will need by following the old adage that the past is the best predictor of the future. Several calculations and comparisons are used to customize each employer’s insurance premium. These ensure employers in low hazard industries pay smaller premiums than employers in high hazard industries. They also ensure employers with few claims and good safety records pay less than employers with many claims and undesirable safety records.

Many factors go into determining the cost of WC insurance. Some factors employers have control over, and others they don’t. Understanding how premiums are determined can help employers plan for the future and lower their premiums.

Evaluate the insurer

Companies will often do a thorough job investigating and choosing their workers’ compensation (WC) insurance provider but then fail to periodically review their choice. WC is a large, bottom-line expense and must be consistently monitored to make sure the company is getting the best service for its money.

The following are some questions to ask when choosing and reviewing an insurer.

Is the experience modification rate (EMR) reviewed and adjusted annually?

If a company had a high EMR but lowered its accident rates for at least two years, the EMR should come down, which will bring the premium down.

Are the premium charges in line with what others are charging?

Regular price quotes from competitors will help determine if an insurer is taking advantage of a long-term relationship. However, just because a company gives a lower bid does not necessarily mean it is the better buy. That is just one factor to consider.

What other services does the insurer provide?

Many insurers offer workplace safety services and publications to help employers lower their accident rates.

How quickly are claims processed?

By law, claims need to be adjusted within a specific time frame. If a company or its insurer is not gathering information within 24 to 48 hours of a claim, a company may be fined or sued. Procedures need to be evaluated and changed to ensure all regulatory requirements are being met.

How many claims are denied?

A high denial rate is not necessarily unreasonable. Some industries have higher rates than others. If the number of denied claims suddenly varies substantially though, it is important to determine the cause. Is there a new claims adjuster? Is the adjuster too lenient or too strict?

How often are claims that were initially denied overturned?

If claim denials are frequently overturned during appeal, the claims adjuster may not be making good decisions in the first place. Another possibility is that the company has poor legal representation.

Additional claim costs

Premiums are not the only cost affected by a high number of workers’ compensation (WC) claims. Employers also need to consider the following:

  • Temporary labor and/or overtime pay to replace an injured employee.
  • Lowered morale of coworkers due to concern for the injured employee and stress due to increased workloads.
  • Time required to find a new employee, investigate the incident, fill out accident forms, and keep in touch with the injured worker.
  • Time needed to train replacement workers if the employee was in a position requiring specialized knowledge.
  • Lowered productivity while new work arrangements are made and new employees learn the job.
  • Litigation expenses, including attorneys and investigators, if an employee decides to pursue legal action.
  • Accommodations to allow a disabled employee to return to work (RTW).
  • Property damaged during an accident.
  • Negative impact on a company’s image when there are severe or multiple injuries.
  • Negative effect on the ability to secure contracts by a high experience modification rate (EMR).