Chapter Corner

The Top 5 Ways To Reduce Your Workers' Comp Premium

Posted in: January/February 2018, Insurance Intellect

For a business owner, workers’ comp insurance is an inevitable necessity. But by learning how the system works, you will be able to comfortably have a handle on what you are paying for, what affects your annual premium, and how to better manage and plan for unforeseen events.
Here are five proven ways to help you reduce your workers’ compensation costs:

Code misclassifications can cause your workers’ comp premiums to skyrocket, so it is critical to be sure that you are using the correct codes. As many as 70% of companies overpay on their workers’ compensation insurance premiums, and the root cause is most often job code misclassifications. A proper classification helps insurers estimate expenses or losses related to the risk they are insuring. That means misclassification results in over-insuring expenses or losses.
With hundreds of classification codes it’s easy to misclassify jobs, and it’s an incredibly common mistake. Business type classification codes are assigned to companies in all industries except construction, agriculture, and staffing services, where numerous employee codes are assigned to various individual employees. As you might assume, those are the industries that tend to have the most classification errors due to the added layer of complexity.
A good example is a large staffing company we work with that has multiple exposures (sometimes as high as 10)depending on the jobs that they are filling (storage warehouse, clerical, restaurant, construction, machine shop, textile manufacturing, etc.). Other times, it isn’t how many codes they have, but are they for the right reasons? Another example is the code 5437 Carpentry, which is commonly misclassified to general  contractors. This code is specifically for an artisan contractor, whose scope of work is doing specific cabinet installation and is a lower rate than most construction class codes in which the work is eminently more risky.
In industries that predominantly use business-type codes, there are also certain exemptions for individual job types (clerical, outside sales, and drivers, in some cases). To say that the classification system is complex would be an understatement, so it is best to have a workers’ comp expert review your codes with you.
Job injuries should be dealt with immediately. If you aren’t sure how to develop a process to ensure that your employees receive the proper care, talk to your insurance agent. Processes are important, and they will vary depending on the type or injury. But it is equally important that your employees know to immediately notify their employer or direct supervisor when an injury has occurred. This is a point at which it is critical to obtain the proper information for documentation while still remembering that this is an injured employee who may be in pain and is in need of compassion. 
With continuing medical inflation, it is especially important to ensure the employee receives the most appropriate care for their particular injury. If emergency treatment is not necessary, a walk-in occupational health or urgent care clinic are a lower-cost alternative to the emergency room. Assessing an injury upfront can help streamline an employee’s recovery, get them back to work faster, and cut down on claim-related expenses.
Speak to your insurance agent to make sure what has been paid on employee injuries is in line with what the insurance company is reporting to the rating bureaus. While this disconnect can simply be a matter of human error, it is often a result of miscommunication. 
Communicating regularly with the insurance agent will ensure the most current facts of the case are being addressed and mitigate any potential errors. If an agent does not know what is happening with a work schedule or what to expect for medical treatment, the reserves may not be correct and as a result, the experience modification factor may be calculated incorrectly. Any unnecessary reserves will increase your workers’ comp costs. The goal is to eliminate any open cases that should be closed and minimize the amount of reserves on the claim in order to keep costs down.
Most insurance buyers assume their experience modification factors are correct, but this is likely not the case. If claims remain open and injury costs escalate, reserves rise and adversely affect the employer’s experience modification factor, thus increasing costs. Therefore, it is critically important to ensure that your modification factor is accurate. 
The experience modification is made up of data provided by many different companies including payroll data from a payroll company, claims data from an insurance company, and job classification data from the employer.  Your ultimate modification is the culmination of three years’ worth of data.
Your modification factor is essentially what drives your workers’ comp premium, so it is one of the most important areas to pay attention to. Work with your insurance agent to review your experience modification prior to the date they are required to submit payroll and loss data to the rating bureau.
Companies with comprehensive “back to work” programs can minimize or eliminate lost-time claims by bringing an injured worker back to work as soon as it is practical. It shows the employee that they are valued and can still be productive in another capacity on the job. Fostering this feeling in your employees can help increase retention thus reducing costs both on insurance and recruitment.
As part of this program, you’ll identify activities that injured workers can do within your organization to bring them back as they heal and help your employees identify additional skills they possess to fulfill needs of the organization. It has been found that injured employees recover faster if they are at work, making these programs a win-win situation. Insurance agents can help employers with appropriate work activities based on any doctor’s restrictions. Your insurance agent is there to help you and should be an active partner in this process. It is important to find a trusted advisor to provide your employees with the best possible resources to get them back to work.
Workers’ comp insurance is the only insurance that you and your agent can control. For this reason, it is crucial that you and your agent pay very close attention to your workers’ comp insurance in order to minimize errors, overcharges, and reduce unnecessary headaches. 
To summarize, here is what a good process looks like:
  • Confirm each employee is classified properly.
  • Develop a process that jumps into action when an employee suffers an injury.
  • Develop a process that manages, not monitors, claims.
  • Validate your experience modification for accuracy.
  • Build a strong back to work program.
A consultation with a trusted insurance advisor will help assess your workers’ comp insurance set-up, as well as assist you in outlining a plan moving forward. These simple steps will save you time, money, and have a real impact on gaining the support of your employees. 
Ross Amato is a Property & Casualty Consultant with Knight-Dik Insurance Agency, Inc. in Worcester, MA. He can be reached at and by phone at (508) 756-6353.