Workers’ Comp is an important safety net of protection which benefits both the worker who risks injury on the job and the employer who would otherwise face potentially crippling liability for workplace injuries. The Workers’ Comp insurance system is intended to streamline claims, and take these issues out of the courts and into a no-fault context.
This helps workers get the cash flow they need to replace lost incomes right away. At the same time it helps employers avoid a lawsuit which could bankrupt them, arising out of the serious injury or death of an employee due to a workplace accident.
That said, some employers may actually be paying more than necessary for Workers’ Compensation premiums because they don’t understand how premiums are set, and what they can do to help improve their ratings to lower premiums.
The general process for settling Workers’ Compensation premiums is this: Underwriters determine an average claim factor based on experiences for workers in your industry, and multiply it by your average payroll. Practices can vary, but these underwriters then translate these figures into claims per $100,000 of payroll, claims per year, or claims per time unit.
They then look at the average, severity of incidents, as well, given the population of workers in your industry, and factor that into their numbers to set premiums.
The feeling within the insurance industry is that over time, the number and severity of claims on the system will closely reflect the overall safety culture in an industry or company.
Underwriters therefore look at the claim history at your company in particular and compare your particular claim history with the industry baseline.
If your rating is “1,” that means underwriters expect your claims experience to be roughly inline with other employers in your industry. If your rating is higher than “1,” that means that Workers’ Comp insurance underwriters believe that your company represents an elevated risk — and they will adjust your premiums accordingly.
So what can you do to lower your rating and qualify for better insurance premiums in the future?
Here are a few pointers:
- Ask for an OSHA assistance visit to provide a site assessment. If you request the assessment, and the OSHA team finds issues for you to fix, you won’t be fined as long as you do, in fact, fix the safety issues. In almost every case, the fix is cheaper than the fine for noncompliance with OSHA or state safety standards, or waiting for the issue to result in a workplace injury or fatality.
- Invest in a quality training program for your employees.
- Make safety a priority for all levels of management.
- Authorize even the most junior employee to call a temporary halt to production in the event a safety problem arises, or if he or she should become aware of an unsafe act or condition.
- Discipline employees, including termination, for failing to adhere to safety standards and regulations.
- Pay particular attention to scaffolding, lockout/tagout protocols, Material Safety Data Sheets, hand truck and drivers licensing and maintenance of motor vehicles as appropriate to your business.
- Ensure first aid kids are fully stocked and inventoried regularly.
- Appoint one of your best managers to oversee your OSHA compliance and safety management program, and ensure they have the authority to carry out their responsibilities.
In today’s economy, smaller employers need every break they can get. Especially in labor-intensive businesses, a superior Workers’ Comp rating can result in lower premiums, and a significant pricing advantage against competitors who have had less success in managing their safety programs.