It’s The Tail That Wags Workers’ Comp Costs


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It must seem that workers’ compensation coverage is often closer to a chronic disease than protection for injured workers. Every time someone says, “It’s finally fixed,” we can just about count on workers’ comp rates to go up again. Perhaps it is a chronic condition since at any given moment, it’s in trouble in one of several states.

Workers’ comp costs vary from state to state. According to the State Report Cards for Workers’ Comp prepared by the Work Loss Data Institute, workers’ compensation costs for the highest-cost state were more than four times that of the lowest-cost state. While not the only factor, workers’ comp costs often play a role in where a company will relocate or expand.

In developing report cards for each state on workers’ comp costs, the Work Loss Data Institute evaluated six key variables: the incidence rates of workers’ comp claims; claims that required lost work days; the median days out of work; the delayed rate of recovery (out of work for more than 31 days); the incidences of lower back strain; and the incidences of carpal tunnel syndrome. The last two variables have significant impact on workers’ comp claims.

Based on these variables, nine states received the highest marks (“A”s) from the Institute: Arizona, Arkansas, Georgia, Indiana, Iowa, Minnesota, Nevada, Oregon and Utah. Eight states and territories received “F”s: California, Louisiana, New Jersey, New York, Puerto Rico, Rhode Island, Texas and West Virginia.

Worse, injury claims drive up rates for employers for years. In insurance lingo, workers’ comp has a “long tail.” When an injury occurs, the insurance company sets aside “reserves” to cover the estimated cost of the injury until the case is closed. In many situations, a case can go on for years.

In other words, workers’ comp is quite different from other forms of insurance where a loss has a specific cost that’s paid immediately. If there’s an accident with a vehicle, repair estimates are obtained and the job is awarded to a shop for a specific price. Claim closed.

To control auto insurance costs, everything possible is done to help drivers avoid accidents. It should be the same with workers’ comp. Providing injury prevention training is a must.

The nation’s trucking companies invest millions of dollars each year in driver safety programs. When it comes to safety awards, trucking firms are fierce competitors. They’ve learned that when safety is a round-the-clock commitment, claims drop and profits go up. When a truck is sidelined because of an accident, it becomes a serious measurable loss.

Because of the notable success of trucking company safety efforts, safety directors have earned the respect of management and the drivers.

In smaller companies, safety is often a lower priority. Getting the work out every day takes precedence over everything else, including safety. If someone has been appointed “safety officer,” it’s a name-only title. This is the person who supplies the injury forms when there’s been an accident.

Most business owners and managers are surprised to discover what it takes to recover the costs of a $2,000 accident. According to findings of a leading national accounting firm, it would take a soft drink bottler 244,200 cans of soda or 952,000 donuts for a bakery to recover these costs.

If those figures seem exaggerated, consider what goes into the “cost package” of an injury. There are the direct insurance and claim costs, of course. However, the indirect costs run more than four times the direct expenses––the injured employee’s lost time, the cost of a replacement, additional training and supervisory time. On top of that, as the trucking industry knows so well, there are delays, schedule changes and legal fees.

In a day when reducing costs and maximizing productivity are critical components of profitability, taking injury prevention seriously makes good business sense.

If the costs are so enormous, why isn’t more being done to reduce workers’ comp expenses? As might be expected, large companies are generally in the forefront when it comes to loss prevention. To stay competitive, smaller firms need to catch up fast. Here’s what can be done:

1. Enlist your insurance broker to help you build a loss prevention program. Take the initiative; don’t wait for the broker to come to you. Remember, it’s your money that’s paying workers’ comp costs.

2. Require your insurance broker to audit your workers’ comp records. Start with the view that there are mistakes, and they’re costing you money every year. Have the broker do the following:

  • Audit your premiums. Are they correct? Workers’ comp reports are known to have errors.
  • Audit the Experience Modification Factor. Are your employees classified properly? If the experience mods are not correct, you’re paying too much.
  • Audit your claims history. You may be surprised to discover that paid claims are still open, again costing you money.
  • Audit the way employee injuries are managed. Are there procedures in place for medical care and are they being followed?

3. Expect your broker to prepare your company for its annual workers’ comp audit.

4. Develop a company culture that’s committed to loss prevention. Again, look to your insurance broker for assistance. Carpal tunnel syndrome injuries are rampant in offices, as are stress-related illnesses and back problems. The current costs of these injuries are enormous. Here are some items worthy of immediate attention:

Make safety a hiring issue. The best way to avoid unnecessary workers’ comp costs is to hire people who work safely and do not abuse the system.

  • Develop a loss prevention program.
  • Arrange for proper medical care for injured employees.
  • Stay in close touch with the injured worker.
  • Get the injured worker back on the job as quickly as possible.
  • These examples should help make it clear that loss prevention is the only way to hold down workers’ comp costs over the long term. If all this isn’t strong enough, then perhaps these words will help: Workers’ compensation acts as a tax on workplace injuries.

Tom Helbach is president of Mosinee Insurance Agency, Inc. in Mosinee, Wisconsin. Founded in 1934, the agency specializes in business insurance. A Certified WorkComp Advisor, he can be contacted at (715) 693-2100 or at tomh@mosineeins.com.