How High Will Your Work Comp Premiums Go?

Employers in 2013 are finding it difficult to renew their existing workers’ compensation policy or to obtain coverage from a new workers’ compensation insurer. For many employers, 5% to 10% price increases in 2012 are being followed by another 5% to 10% price increase in 2013. Workers’ compensation insurance has become the most difficult insurance line for many risk managers to obtain. Work comp also has become the highest cost component of many employers’ insurance programs.

The Work Comp Insurance Market is “Hardening”

If you ask insurance brokers what is causing the price increases in workers’ compensation or the difficulty in finding work comp coverage, you will often get the reply that the market is “hardening.” A “hard” insurance market is a period of time where insurance brokers have to work extra hard to find any coverage or affordable coverage for their clients. This “hardening” of the insurance market is being caused by several factors, including:

• Stringent capital requirements are dampening insurers’ risk appetite
• A low interest rate environment has lowered the income insurance companies get from their investments
• Insurers have been incurring underwriting losses – paying out more on claims and related cost then they are taking in, in premiums
• The component costs of workers’ compensations, both indemnity (wages) and medical have been steadily increasing, especially the cost of medical care, which continues to accelerate as a percentage of the overall cost of workers’ compensation

The response of the insurance companies to the above factors is to become more selective on whom they will insure. If insurers are willing to provide workers’ compensation insurance, they do not want to incur an underwriting loss to do so; hence the insurers raise their premiums to a level where they anticipate they can make an acceptable level of profit.

Employers Need to Take Action to Control Their Premiums

Employers do not have to sit idly by while their workers’ compensation insurance premiums continue to go higher and higher. There are several steps employers can take to put the brakes on the unrelenting upward spiral of work comp costs. This includes:

• Analyzing the risk financing strategy
  • Self insurance
  • High deductible program
  • Full coverage through a work comp insurer
    • Multi-year program
    • Negotiated fixed future price increases
• Evaluating and reevaluating the risk management strategy
• Improving the safety program
  • Analyzing and updating the safety program
    • Identifying the drivers of frequent accidents
    • Identifying the types of accidents that have high severity
    • Increasing enforcement of established safety procedures
    • Training of employees, supervisors and managers on how to be safe
    • Creating a culture of safety
    • Auditing safety compliance
• Screening new hires to eliminate job candidates prone to injury
• Claims management practices
  • Immediate reporting of accidents
  • Required or recommended medical providers
  • Frequent follow up with the injured employee by both the adjuster and the employer
  • Transitional duty programs
  • Medical management

Employers who take the above actions make themselves more attractive to workers’ compensation insurers. These steps reduce the likelihood of accidents and the resulting workers’ compensation claims. The workers’ compensation market will remain “hard” for employers who make limited efforts to control the cost of their workers’ compensation claims. The cost of workers’ compensation premiums will not go up near as high for the employers who proactively manage their workers’ compensation program.

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

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