Risk Management Methods to Reduce Your Workers' Compensation Rates
Adams, Dr. Shawn, Occupational Hazards
Add these tools to your traditional safely practices and you could achieve significant savings for your company.
Programs such as medical management and modified duty may not represent "traditional safety" in the sense that they prevent workplace injuries and illnesses, but they can have a very positive effect on workers' compensation costs. Most safety practitioners already are maximizing their efforts and seeking out new and innovative methods to reduce workers' comp costs. What more is to be done? Perhaps one of the greatest opportunities to keep workers' comp costs low lies with the workers' compensation system itself.
Peter Senge points out that all human activities are systems. In The Fifth Discipline, Senge wrote: "Business and other human endeavors are also systems. They, too, are bound by invisible fabrics of interrelated actions, which often take years to fully play out their effects on each other."
Certainly, safety professionals are familiar with "system safety." Insurance also is a system, and understanding how it works and its strengths and weaknesses can help you manipulate it to achieve a desired result. These methods might not be considered traditional "safety," but they certainly can be used to reduce workers' compensation rates.
For example, businesses traditionally buy insurance to cover workers' compensation losses. Who says that organizations have to buy insurance? The government requires accountability, and insurance represents one form of accountability. The organization could seek out an alternative risk-financing method to reduce insurance rates in general and workers' comp rates in particular.
The Insurance Institute of America, the sponsor of the Associate in Risk Management Program (ARM), points out several methods of "alternative risk financing," such as buying insurance through captives and pools. In The Essentials of Risk Management, G.L. Head and S. Horn define a captive as a "subsidiary owned by one or more parent organizations established primarily to insure the exposures of its owner(s)." For smaller organizations unable to deal with the complexities of a captive, a pool is a possibility. An insurance pool is "an association of persons or organizations formed to combine their resources for some common advantage."
Insurers are in business to make a profit. To do this, they also have to meet their expenses, such as marketing and sales, which have everything to do with selling their product, but not in paying for the losses of your organization. The parts of your premium going to insurer profit, marketing and sales are costs your organization could use to set up its own "captive" and reduce workers' compensation rates.
Choose the Right Insurer
If your organization decides it has to buy workers' compensation insurance on the commercial market, choosing the right insurance company can help keep rates low. Some insurers are proactive and aggressive in claims adjusting, while others may adopt a passive approach to claims defense.
When the latter occurs, the result is that claimants and attorneys see their organization as being unable to mount a defense against baseless or questionable claims. This is especially true regarding "third party" claims, or claims in which the insurer deals directly with the claimant and the insured has no real rights in saying how the claim is settled. This is the case with workers' compensation insurance. Keeping in mind that every dollar paid by your insurer affects your Experience Modification Rate (EMR), it is imperative to seek out an insurer with which you share a comparable claims philosophy. This is in contrast to insurance-buying decisions often made based upon personal contacts.
Once an insurer is selected, make sure that a specific adjuster is assigned to handle your account. Beware of insurers that seek to keep costs too low. …