Control Workers Comp Losses To Control Premiums

Premiums, being “loss-sensitive” are set according to the volume of losses. When losses are under control and at acceptable levels, the employer’s experience modification factor falls and premiums drop too. Therefore, the key to controlling premiums is controlling losses. Enlightened employers use pre-loss management techniques, such as safety programs, along with post-loss strategies like injury management to control workers’ compensation costs.

Employer Involvement Key To Success

Cost containment essentially comes down to how well a company proactively manages its workers’ compensation programs. The kind of management an employer needs to reduce workers’ compensation costs does not come from turning all control of claims over to the insurance carrier working entirely outside the control of the client/employer. Few managers would pass on to outside managers the responsibility for quality control, human resources or internal auditing. Unfortunately, with workers’ compensation, external management is typical. These employers assume the outside firm, i.e., the insurance company to whom they pay premiums, is managing their claims programs responsibly. In fact, there is very little incentive for an insurance company to decrease a client’s losses when premiums are based on the customer’s loss volume. Remember: the key to controlling premiums is controlling losses.

Substantial Savings Should Be Expected

Substantial savings can be realized and should be expected. Recently, a Fortune 500 corporation experienced 30 million dollars in annual losses. The company maintained very little control and allowed an independent adjusting company to make most of the decisions about how its claims were handled. The company instituted an injury management program and reduced its incurred losses by 84 percent in the first year.

Assess & Measure Performance

An organization should start by gaining a basic understanding of key metrics and performance measures.

1. Reporting Lag Time

For each claim, determine the number of days from the date of the injury until the claim is reported to the workers’ compensation coordinator within your company. Total the number of days for all claims in the last 12 months and divide by the total number of claims reported. {The average should be under 1 day}.

2. Annual Cost Per Full Time Equivalent Employee

To establish the annual cost per employee, use the total claim cost over the prior 12 months divided by the total number of full-time equivalent employees.

3. Average Claim Duration

To determine the average claim duration, take the total number of days – for all reported claims during the last 12 months – from the date of injury to the date a claim is closed, divided by the total number of claims reported.

The utilization of these measurements will provide your company with insight on how the baseline, as well as how your workers’ compensation cost control efforts are working. Over time all 3 measurements will show improvement. Also, by tracking your workers’ compensation program performance over an extended period of time, you will be able to pin-point areas where performance of your cost control efforts can be improved.

Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is the founder & lead trainer of Amaxx Workers’ Comp Training Center, which offers the Certified Master of Workers’ Compensation national designation.

Contact: [email protected].

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