Taking control in a soft market: drive down your Workers’ Compensation premiums even further
A common myth is that Workers’ Compensation rates are set by the state and employers can do very little to control their premiums. With rates declining, there is a tendency for employers to become passive. Yet, in reality, Workers’ Compensation is one of the most controllable of all insurance types and it is important to be proactive in a soft market because you can further drive down Workers’ Compensation costs for the present and the long-term.
The Experience Modifier (Mod) is the factor that adjusts for the employer’s actual experience compared to industry average. The details of the formula are quite complex; but the experience rating plan gives employers the opportunity to manage their own expenses through measurable and meaningful cost-savings programs. During a declining rate cycle, it is more difficult to lower Experience Mods because the plan expects that if rates go down, so should injury costs. If injury costs don’t go down, the Experience Mod can go up and wipe out any savings from the rate reduction.
Ultimately, injury costs have a far greater impact on a company’s net costs than rate decreases. Moreover, history shows that Workers’ Compensation is cyclical and over time the soft market is replaced by a hard market. The proactive employer can drive down costs now and in the long-term by being vigilant and aggressive in reducing injury expenses.
The fundamental reason for most lost time is not medical necessity but the non-medical decision-making and lack of a process that occurs when an employee is an injured. Being guided by a plan that focuses on risk management is far more cost-effective than paying the lowest rates.
Consider the following example: A recent review of a prospect’s Experience Mod found two small claims that involved only $516 in lost wages, but actually cost the employer $15,100 in premium resulting from an increased Mod. Had an effective Return-to-Work program been in place, these claims would not have occurred.
Often times, the benefits of value added services are not realized until something happens. Yet the current practice of focusing disability management efforts on those who are out of work is less successful than focusing on early intervention. Research confirms that people who never lose time from work have better outcomes than people who lose some time from work.
Maintaining control is key. The following story illustrates how easy it is for costs to unnecessarily spiral out of control when there is no plan in place.