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The Eight Major Mistakes Employers Make When Workers' Compensation Rates Go Down, Part II |
Throughout much of the country declining Workers' Compensation rates are music to employers' ears. After all, that seems like long-awaited good news, particularly since Workers' Compensation is more often than not viewed as a necessity and a significant cost of doing business.
Yet, looking at Workers' Compensation as a business necessity or a commodity is a major fallacy. Although most employers fail to recognize it, Workers' Compensation is a core business practice and a means for improving the bottom line.
Rather than diverting attention and finances during periods of lower Workers' Compensation rates to other business priorities, employers can benefit by taking steps to guarantee long-term savings. There are eight mistakes employers should avoid so they can achieve long-term Workers' Compensation savings.
In a series of articles, we will examine the eight major mistakes. The third and fourth are as follows:
3. Focusing on direct costs only
Ask a businessperson how much they spend on Workers' Compensation and almost all will respond with the price of the premium. Yet, the direct costs of Workers' Compensation often represent only 20-30% of the overall injury expenses.
Indirect costs, including overtime, temporary labor, increased training, supervisor time, production delays, unhappy customers, increased stress, and property or equipment damage represent several times the direct cost of the injury. A 2002 Safety Index report by Liberty Mutual tallied the direct cost of workplace injuries at $40.1 billion. The total financial impact of both direct and indirect costs was estimated to be as much as $240 billion.
Injury costs - both direct and indirect - will have a much greater impact on an employers' overall costs than rate decreases.
4. Thinking that rates will stay low
Historically, the Workers' Compensation price cycle has repeated in a predictable pattern - rates decline, insurance is purchased for a lower price, employers shift focus away from Workers' Compensation, claim costs do not fall in relationship to reduced rates and employers' Mod increases, legislative reforms erode or become ineffective, insurance company profits diminish and rates increase.
During a declining rate cycle, the plan expects that if rates go down, so should injury costs. If employers do not manage injury effectively and claims do not go down, the employers' Mod will go up. When rates rise again, the increased Mod will wipe out any savings garnered during the declining rate cycle. |
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To avoid these mistakes and improve profitability focus on the financial impact of indirect claim costs and prompt claim reporting. |
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Financial Impact of Prompt Claims Reporting |
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Everyone realizes the importance of timely claims reporting but do they realize the bottom line financial impact? The first step in proactive claims management is reporting claims as quickly as possible. This allows Eastern Michigan Agencies the time to apply our cost-saving claims management techniques. |
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Financial Impact of Indirect Claims Costs |
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Direct claims costs are easily identified but what about those indirect costs that are harder to quantify? Consider the additional expenses to train and compensate a replacement worker, time and effort to investigate the accident and implement corrective action, as well as downtime during equipment or property repair. Higher incident rates also affect the employee population with lower morale and increased absenteeism, ultimately leading to poorer customer relations. |
| If you are not reviewing these items on a monthly basis, please contact Eastern Michigan Agencies immediately to schedule a meeting and begin analyzing your indirect claim costs and claim reporting procedures.
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