8 Major Mistakes Employers Make When Work Comp Rates Decline

By on June 6, 2013

Workers Compensation premiums change often from year to year. Unfortunately, when premiums go down many employers often do all of the wrong things – diverting attention and finances to other business priorities – and squander the long-term savings they could achieve with workers’ comp risk management. Take steps to guarantee long-term savings.

Here are eight mistakes employers often make when rates go down and strategies to avoid costly long-term mistakes:

1. Lower Premium Rates are NOT a Cost Reduction

Employers are often surprised to learn that a reduction in rates does not always mean a reduction in costs. Unlike other insurance, workers’ comp functions as a credit line to finance the costs of treating injured employees. Rates alone do not determine the overall cost.

2. Complacent Risk Management

Declining rates can often distract many employers by focus away from injury, claims management and cost containment to other more pressing business matters. While increased attention to safety led to a decline in the number of workplace accidents, claim frequency is only one part of the equation.

The major costs, lost wages, medical care and processing continues to rise. At the same time medical care costs continues to rise, so have required wages. Not only do employers need to understand safety, but also what is impacting medical costs and premium rates.

3. Addressing Direct Costs Only

The direct costs of workers’ compensation tends to represent only 20-30 percent of the overall cost of a worker’s’ injury expenses. Indirect costs – including overtime, temporary labor costs, training, supervisor time, production delays, unhappy customers, increased stress, property and/or equipment damage represent several times the cost of an injury alone. When rates decrease, employers tend to focus on the easiest costs, however, indirect cost can be managed effectively.

4. Assuming Rates Will Stay at a Low Level

Historically, the workers’ compensation price cycles. It has a predictable pattern—rates decline, insurance is purchased at a lower price, employers shift focus away from risk management, 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 an injury effectively, claims do not go down and the employers’ workers’ compensation costs will go up. When premium rates rise again, the increased costs will wipe out any savings garnered during the declining rate cycle.

5. Viewing Workers Comp as a Necessary, Uncontrollable Expense

Employers should recognize that workers’ compensation is a controllable aspect of business that if managed properly will have a positive return on investment (ROI).

Employers should view workers’ compensation as an ongoing process and not an expense can accomplished with the click of a button. When injuries do occur, employers can increase their revenues by getting employees back to work quickly and reduce their costs by managing the injury effectively. By recognizing that workers’ compensation begins at the date of hire, employers can avoid costs by hiring the right people.

6. Failing to Manage the Employee Recovery Process

If a work comp injury is not managed properly it can result in the unnecessary loss of a skilled, trained employee. The longer employees are away from the job, the less likely they are to return and the greater the overall cost to the employer.

The fundamental reason for most lost time is not medical necessity but the non-medical decision-making and lack of an in-house procedure that follows up with an employee after they have been injured. The workplace response is key. Employers should have a plan that focuses on effective communication and returning to work to both improve productivity and reduce workers’ compensation costs.

7. Depreciating the Value of your Insurance Agency

In a time of declining rates and new competition, there is a tendency to shop for the lowest price and leave behind your insurance agency. However it is important to select and stay with an agent or carrier with an excellent understanding of workers’ compensation policies and discounts for returning clients.

8. Short Sighted Focus on Price a the Only Controllable Measurement

When workers’ compensation is treated as a commodity, the decision is reduced to the lowest possible common denominator—price.Managing workers compensation is a core business practice of comprehensive risk management. Shift the focus from premium prices to tangible factors which are driving claims costs. With this information, employers can address the underlying circumstances and conditions that are pushing up work-related injury costs and measure the value of their actions.

A decline in workers’ compensation rate provides an opportunity and a challenge for employers. Avoid costly mistakes and short-sighted planning, and take the opportunity to use the money saved for implementing safe work environs and procedures that will improve their business operations and profits. Protect your workforce and sve on yout long-term workers’ compensation expenses.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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