Don't be Short Sighted When Purchasing Workers' Compensation Insurance
 Dec. 13, 2010

We’re all familiar with the saying, "a bird in the hand is worth two in the bush". The gist of that saying is that it’s better to take what you can get now rather than try for something better. There is wisdom to avoiding risky options, but evaluating and choosing between short term advantages versus long term rewards is part of managing a successful operation.

With some products and services, the cost equals the price. Workers’ compensation is different. The pricing of a workers’ compensation policy is affected by an employer’s loss experience. Buying a low priced, low service insurance program could have markedly adverse effects on your workers’ compensation costs down the road and for many policy years.

If you understand what affects workers’ compensation pricing you will realize that this is a manageable insurance cost and that making the wrong choice with respect to your workers’compensation insurance company can have long-term consequences. As we’ll learn, workers’ compensation premiums are affected by your past lost experience in several different ways.

Each insurance company files base rates by occupational class. To that rate they apply credits and debits based on an employer’s individual loss experience. The insurance company is, of course, trying to develop a profitable business base. They want to ensure that the premium they collect will cover the anticipated losses of their
policyholders. But, did you know your losses have a dual impact? Insurance companies also apply the experience modification calculated by the Workers’ Compensation Insurance Rating Bureau (WCIRB) to develop your policy premium. The experience modification is based on losses compared to payroll by policy year in a unique formula. This formula compares each employer's losses by classification to the rest of the California employers with similar occupational classes. Your experience will either produce a credit experience modification or a debit experience modification.

This dual impact of losses makes it even more important that you select a workers’ compensation carrier that can provide both loss prevention services and has an outstanding claims management program. If not, your loss experience will develop adversely and over the long-term, your premiums will grow. When selecting an
insurance carrier, look beyond the current year’s rates and premiums and determine if the services they provide for the premium they charge will help you manage the cost of any claims that should arise.

A prudent buyer will examine how the insurance carrier treats injured workers.
Remember, these are your employees and they are likely a very valuable asset to your company. Injured workers’ who are treated with compassion, assisted in the return-to-work process, and given exceptional medical care are more likely to return to work quickly and less likely to litigate. This leads to greater employee productivity and lower claims costs. CMTA believes that workers’ compensation is not a commodity or product and manufacturers shouldn’t treat it as such. When we wereevaluating partners for CMTA’s Group Workers’ Compensation Program we focused on several insurance company characteristics, but none was more
important than claims management. There were five key claims service
questions we asked every potential partner because claims service will affect our members’ short and long term insurance costs:

  • What is your strategy for getting injured workers back to work?
  • Who will handle our members’ claims?
  • How many cases on average do your claims examiners handle?
  • Do your senior staff members make the critical first contact with my injured employees?
  • How satisfied are your policyholders and injured workers with the services you provide?

Our chosen partner, CompWest, placed a higher emphasis on sound claims management practices than any other insurance carrier we evaluated. Their unique claims management program called Workers Compensation with Care focuses on three key cost controlling approaches: 

1. Injured workers who feel cared for want to get back to work quickly.
2. Fast and personal attention reduces the opportunity for lawyers to
intercede.
3. Rapid injury reporting yields better treatment and more premium savings.

As a manufacturer you need to understand what factors affect your workers’ compensation premium and how any insurance company you might consider placing your coverage with will help you lower you control claims cost and produce the lowest net workers’ compensation cost for your company over many years to come. To learn more about this critical process contact the CMTA Group Workers’ Compensation Program at wcgroup@cmta.net or call (916) 498-3340.

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