Risk Management – Workers’ Compensation & Experience Modification Rate

As other companies have closely monitored costs, have you ignored your experience modification rate or workers’ compensation policies? Does your company follow a process to manage risks? Do you purchase insurance that could be harmful to the overall success of the business?     

First, let’s illustrate the typical employer’s risk management and insurance-buying process and identify the risks. In difficult times, the majority of contractors view the buying process as a commodity transaction. Contractors should work closely with their insurance providers to determine the best strategy. They may then go out for bids and try to obtain an apples-to-apples comparison. The underwriter may ask a few additional questions, but to no surprise, everyone is competing on who can provide the lowest bid.

Dangerous Outcomes

These issues are magnified when employers look to develop improved management practices to mitigate workers’ compensation costs. If processes and key partnerships are not established when presenting the apples-to-apples comparison, businesses face a number of potential risks, including increased cost due to an inflated experience modification, overcharges at workers’ compensation audit and loss of key employees due to claims mismanagement.

The experience modification is becoming increasingly important, particularly for contractors. An experience modification that exceeds 1.0 prohibits some contractors from bidding on jobs. The experience modification is the only guarantee in the underwriting calculation, so it is critical that contractors know how to maintain or improve their experience modification as the insurance marketplace continues to increase workers’ compensation rates.

Key Relationships & Processes

The most obvious solution is to prevent injuries from occurring using effective safety programs. Safe work practices are essential to reduce injuries, but companies can’t rely solely on safety programs to drive down injuries and related costs.

Additional attention and focus are necessary to address the concerns of managing the experience modification rate at a level appropriate for each contractor. Companies should consider a number of areas, including the following:

  • Supervisor training
  • Alignment with occupational health partner
  • Modified duty and return to work program

Supervisor Training – Educating front-line supervisors in dealing with work-related injuries is critical, but most supervisors have not been trained to communicate with an injured worker. Supervisors need to know they are the most important person to the injured employee; they are in the best position to coordinate help with that injured employee, while potentially serving as an important part of the recovery process.

Alignment with Occupational Health Partners – Another key in mitigating the total cost of workers’ compensation claims is working with the right health partners. Relying on prenegotiated, managed care discounts can create a misaligned incentive; a 50 percent discount on an unnecessary medical service is still 50 percent more than what should have been paid. Doctors with an occupational health focus can better understand the treatment protocols for work-related injuries and the benefits of returning the employee to work. Employers and doctors should communicate regularly on status and the next steps in assisting the injured employee to full recovery.

Modified Duty & Return to Work Program – Injured employees get well sooner when they stay on the job or return to work as soon as medically possible. Supervisors tend to resist bringing an employee back until the employee is fully recovered; however, the longer the injured worker is off work, the greater the cost of the injury, thus driving up the experience modification. There also are many states classified as Experience Rate Adjustment (ERA) states, meaning they reward employers with a 70 percent discount on medical-only claims. Claims dollars are paid every day, by adjusters, that negatively affect workers’ compensation costs for employers. It is critical that all employers address this topic with their claims adjuster and establish a clear process to take advantage of the ERA benefit.

Employers should have an active role in managing workers’ compensation costs by reducing their experience modification and knowing the driving factors. In these tough times, every dollar matters and can ultimately differentiate you from competitors. Unless these key partnerships are created prior to a claim occurring, a contractor’s business could be exposed to increased workers’ compensation costs and can keep that contractor from bidding and winning future jobs—the most critical aspect of a contractor’s future success.

For more information, contact your BKD advisor.

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