On the surface, workers' compensation premium is an easy concept to grasp: Payroll x Rate (with a few debit and/or credits thrown in) = Premium. But for those of us who work with clients to improve their risk profile for workers' compensation insurance, there are a lot of moving parts. Managing these parts is the key to controlling costs.
If you are like most businesses, you rely on a traditional guaranteed cost, or first dollar insurance policy. These policies transfer 100% of the claim costs to the insurance company in return for a premium payment. Your premium cost is driven by your company's loss history as formulated in an experience rating factor (mod). The purpose of the mod is to reward businesses that control their losses. Businesses with favorable loss experience relative to other comparable businesses are rewarded with a premium credit. By having few or no losses, you can keep your premiums to a minimum. The greater your losses, the higher your experience rating factor which leads to higher premium costs.
Your company can control costs by following a simple, three-part strategy:
1. Prevent every loss possible
Work with internal and/or external risk services consultants to design and implement programs that increase employee awareness of proper safety procedures and reduce workplace injuries or accidents. Some risk management professionals will argue that 100% of losses are preventable, but workplace accidents, for one reason or another, continue to occur, so you must have a plan in place to manage losses.
2. Manage the losses that can't be prevented
When accidents happen, your broker needs to have a solid post-accident claims management strategy in place to help you mitigate the impact of these claims on your experience modification factor. A claims management specialist should be your advocate to ensure that your claims are resolved as quickly as possible and with the best possible outcome for all parties.
3. Verify all the factors used to calculate your premium
We have found that the premium audit is the single most overlooked component in controlling workers' compensation costs. This third piece of the puzzle requires a specialist who can find and correct errors so your company does not pay more than it should for insurance coverage.
Because workers' compensation insurance is mandatory for all businesses, there are a complex set of rules, backed by state law, that govern coverage definitions, premium calculations, reporting requirements and much more. The complexity is staggering. For example, there is one manual dedicated to classifications that describe businesses. Another manual governs the production of the experience modification factor. There is a manual governing the data that goes into the experience modification factor. And, yes, there is yet another manual that provides the framework that everyone is supposed to follow.
While most businesses know the basics of workers' compensation and most brokers understand the complexities of insurance coverage, few have the working knowledge of the manuals to ensure that all of the rules have been adhered to. That's why brokers like HUB International rely on their premium audit team to review and confirm that the rules have been applied correctly by the insurance company.
Our in-house auditors understand the manuals and can identify positions taken by the insurance company that may have resulted in an overcharge to a client. Our experts work on behalf of our clients to convince the insurance company to correct their interpretation of the rules. More often than not, when the rules are not adhered to, an overcharge can result.
Even minute errors in the interpretation of the rules can result in significant premium overcharges to the business. Our premium audit team recently saved a client $235,000 on their workers' compensation and general liability insurance after finding errors in the classification of employees.
While this example is one of the larger cost savings we have achieved, our audit team routinely identifies savings for clients. Whether it is $2,000 or $200,000, any amount paid to the insurance company that is not actually owed is too much. Only a specialist trained to find and correct these errors can help ensure that you are not paying more than you should for your workers' compensation insurance.
Talk to a HUB Broker to learn how our Risk Services, Claims Management and Premium Audit Specialists can help you improve the management of your workers' compensation risks and costs.
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