Although it may seem as if your insurance carrier pulled your premium calculation out of thin air (or someplace else you might choose to describe on your own time - Hey, this is a professional post) there actually is a basis for the bill that your carrier sends you. Your premium is a factor of 3 things: 1) the classification of the jobs performed in your business (the riskier the job, the higher the premium) 2) the amount of your payroll and 3) the experience modifier. Consider the experience modifier as the "mileage you've put on your car." When you buy a car, you want to know what the year is but you also want to know the mileage. You cannot change the classification of your workers without changing your business. You can control your payroll but you may limit your income. Viewed this way, WC is a controllable expense but only if you treat workers compensation as your business issue and not as an insurance issue. If your first response is to say "Oh well, that's why I have insurance" rather than "Okay, let's deal with this and see how we can prevent it next time" then that's your problem. You are allowing events to control you rather than controlling events, present and future.
In her excellent post on this subject, http://blog.reduceyourworkerscomp.com/2012/07/how-to-improve-your-experience-modification-factor-and-reduce-your-workers-comp-costs/#axzz20nIBJotE, Rebecca Shafer explains how the experience modifier is calculated and how it's used to gauge the risk to the carrier of insuring you and your employees. Unlike standard insurance such as automobile coverage or a business owners policy in which the risk is easier to calculate, the WC policy doesn't just cover a "once and done" event since the coverage applies to the date of the accident and covers that employee for the statutory benefits that accompany that date of accident. So when the injury occurs, your carrier covers that risk until the claim is closed. The expense of that claim will follow you and your business for the three year rolling average that is used to calculate your premium. For this reason, it is usually to your advantage to control the cost of the claim through every means necessary including: controlling the medical through the lawful means provided you by statute, returning your employees to work (this controls not just income benefits but has a very real effect on the medical treatment down the road) and settlement, if the outcome of the settlement can be shown to be a cost savings from the overall exposure of the claim.
While the cost of an individual claim is one factor, another and possibly more important factor is the frequency of your claims. Rebecca reports that 5 claims costing $5000 each will ding your premium calculation more than a single claim worth $50,000. As your loss ratio is compared with other businesses in your industry, a higher ratio of claims is similar to what your auto insurance carrier thinks when you have a bunch of small fender benders. Sooner or later, they start looking at you as a bad risk. For this reason, SAFETY FIRST isn't just a bumper sticker. It should be your first order of business. Your employees need to know this. You should encourage communication from your employees as to what they see as problems and what they think is the solution. When an employee notices a problem you should address the problem immediately and be visible in the corrective action as well as your appreciation for this employee taking the initiative to prevent the injury. Neither the front office or the supervisory staff should EVER discourge employees from bringing these issues to your attention and should never doubt that you will take necessary and appropriate action to keep them safe.
"Skedsvold & White
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