Workers Compensation insurance is a fact of life for most businesses. Most employers with even a handful of part-time employees are required to purchase coverage and face hefty penalties from the state if they fail to do so. Yet, in spite of this coverage being commonplace, it is astounding how many employers do not grasp how their policies are priced, or worse, how their lack of understanding can negatively impact their bottom line. The purpose of this article is to briefly highlight some common misconceptions that can cost employers in the long run.
1. The State of Florida sets the rates for each industry, so I pay at the same rate as my competitor.
While it is true that the state approves the premium rates each year, factors such as each employer’s Experience Modifier, Safety Rewards (commonly referred to as dividends) and credits (such as the 5 percent Drug Free Workplace Credit and the 2 percent Safety Program Credit) can drastically impact the true bottom-line cost from one employer to another. You could easily have two competitors with identical payrolls where, due to disparate claims data, one of them is paying 25 to 50 percent more than the other.
2. I buy the coverage, it is the insurance company’s problem if I have claims.
All but the smallest businesses who purchase workers compensation coverage are assigned an Experience Modifier by the National Council on Compensation Insurance, or NCCI. This system rewards employers with good claims histories and penalizes those with higher losses than their peers. Over time, the Experience Modification factor helps insurance carriers recapture the dollars spent on claims.
3. Due to privacy laws, I can’t be involved in my employee’s medical care if they’re hurt at work, and I can’t ask about a new hire’s medical history.
In Florida, employers can direct where injured employees seek care. It can be extremely rewarding for an employer and his/her injured worker to have a relationship with a quality medical provider who is familiar with that employer’s capacity to allow for light-duty work. Having an employee treated by a provider familiar with his/her exact job description gets the employee back to work as soon as possible. Not only does this make the employer and employee happier, it saves money via the employer’s Experience Modifier.
4. I maintain a clean workplace with safe equipment. What else am I supposed to do?
Studies show that the overwhelming cause of workplace injury is not a hazardous work space or equipment but the employee’s behavior. Unfortunately, organizations like insurance carriers and OSHA spend most of their time focusing on the condition of the workplace rather than the worker. Routinely emphasizing a culture of safety from the top of the organization, all the way down to the entry-level employee, is crucial and that goes well beyond having a tidy work environment or the newest equipment.
5. I haven’t had a claim in two years, so I was expecting a lower Experience Modifier this year, but instead it jumped 10 percent!
NCCI calculates Experience Modifiers using three years of claims and payroll data, so a bad-loss year can hurt for a long time. Further, the reason some modifiers went up this year is that the mathematical formula used by NCCI has changed. Instead of capping losses at $5,000, the cap — called the “split point” — shifted to $10,000 in 2013. As a result, the same loss from 2010 hurt you worse on your 2013 Experience Modifier than it did last year. This formula will continue to index upward until the split point moves to $15,000 in 2015. Those employers who are not actively managing their claims and corporate safety culture will be destined to pay more going forward.
In conclusion, if you’re not sure how you can impact your company’s workers compensation expenses, get educated today. Your efforts will drive more profit to your bottom line and, more importantly, yield a safer, more productive work force.
Brian Scarborough is a Principal at Scarborough Insurance, an independent agency that sells all lines of insurance including: personal home/auto, commercial property/auto/liability, life, health, bond, and annuities. Scarborough Insurance has been serving the community since 1961. For more information, visit scarins.com.