|
From Workers' Compensation: An Employer's Guide to Cutting Costs, National Institute of Business Management, 1994.
Reducing Your Premiums
Most employers do not pay workers' compensation claims directly. The law compels them to purchase workers' compensation through a carrier or state agency. (All but two states -- North Dakota and Wyoming -- do allow self-insurance. That, however, is an expensive option many small businesses cannot afford.) Thus when your business sets out to lower its workers' compensation costs, the real objective is to reduce the premium you must pay to your carrier.
Most workers' compensation premiums are based on three criteria:
- Size of payroll. The larger your company, the greater your premium. So be sure to inform your carrier of any major reduction in payroll, such as layoff.
- Industrial classification. Companies in high-risk industries have higher premiums than those in low-risk ones. Often, insurance companies assign a single industry several risk classifications, depending on any number of variables. Check with your agent to be sure your are in the lowest risk classification for which you're eligible.
- Experience modification factor (EMF). The EMF compares a company's expected losses (number and size of claims) with actual losses over a three-years period. Your company will receive an EMF of 1 or higher when actual losses exceed anticipated ones; if actual losses are lower than expected, you will receive an EMF of less than 1. In general, when your EMF exceeds 1, your rates increase; when it is lower than 1, rates go down.
Lowerng the EMF
Most companies find it impractical to cut their workforce to lower their workers' comp premiums, and switching to a less-hazardous industry isn't an option. Thus, the only way most businesses find they can effectively reduce their workers' compensation insurance premiums is to lower their EMFs. To do this, they must diminish the number and severity of compensable injuries. And, that can only be accomplished with a comprehensive and consistently enforced safety plan.
Safety plans come in all shapes and sizes, depending on the specifics of the business in question. However, at a minimum, a successful safety plan should include the following elements
- Safety committees that study workplace hazards and recommend safety measures.
- Regularly scheduled self-inspections of facilities, in addition to inspections mandated by OSHA.
- An ongoing, aggressive program by company management to prevent or control workplace hazards.
- A safety training program.
- An effective post-injury response plan.
Management Support
Throughout this report we stress the need for management support of any initiative to lower workers' compensation costs. Your commitment to safety can't be a passing fancy. It may take years of planning and implementation before a safety program can lower your workers' comp insurance premiums. If your interest in the program wavers, your workers will not view safety as a top priority. Whenever a safety committee makes a recommendation, or an accident occurs at your worksite, you must move swiftly to minimize or, if possible, eliminate any hazards. Not responding implies that you don't care -- the wrong message.
Copyright © 1994, National Institute of Business Management
|
