How to Control and Reduce Workers Compensation Costs
Review experience modification factor (mod) for accuracy
- Calculated and assigned by NCCI
- Include both paid and incurred losses. Reserves (Amount set aside to pay future claims) are included as well
- The higher the losses, the higher the mod, which translates to higher premiums.
- Agents and brokers should review to make sure that the former claims of their clients are closed. It is not uncommon for a closed claim to be left open on the insurance carrier’s records. If a closed claim has mistakenly been left open, then there will typically be additional reserves yet to be paid. If you can get the insurance carrier to show these claims as “closed”, that will remove those additional reserved loss funds from your mod calculation.
Review Rating Classifications
- Agents and brokers should review the policies of their clients to ensure the proper WC code is being applied.
- Reviewing the WC code classifications could possibly lead to re-classifying with a less expensive classification.
- If the review leads to re-classifying with a more expensive class code, this will still save the company money in the long run. In the event of an injury, the class code will automatically be reviewed. If it turns out that the company was misclassified with a less expensive WC code, they will be charged additional premium for all the work that had been under the misclassified WC code, and potentially additional fines, penalties, and interest.
- If a crew has multiple responsibilities, the higher risk is typically the default WC classification code for all work being done. For instance, a crew of workers that installs solar panels may install on the ground and on roofs. Since working on a roof has more risk than working on the ground, the WC code for roofs is more expensive. This will be the default WC class code for all work being done by this crew, both on the roof and ground. After reviewing the rating classification, the company might opt to divide this crew into two crews. By having one crew do only groundwork (With a cheaper WC code), and another crew only doing roof work (More expensive WC code), the company will save money.
Evaluate state fund options
- Many times workers’ compensation insurance from the state fund costs less than insurance from the private carriers. This is because the expense loadings are not as great and the state funds usually pay no premium taxes.
Take bids every three to 4 years from agents and direct writers.
- Compare bids premiums and coverage.
Pay small medical bills
- It will benefit the company to pay any medical bills for minor injuries on their own, without using insurance. When this happens, the company should still fill out a claim report for their carrier, but mark it as “incident only”. This will protect the company in the event that the injury becomes more serious down the road. The cost benefit is that the insurance carrier will enter the claim as a “closed” claim, showing $0 as paid and reserved amount. Thus, it should not adversely affect the experience mod of the insured.
Request a private investigator if fraud is suspected
- If a workers compensation claim is suspected as fraudulent, the client should alert the insurance broker or agent. A private investigator can help verify whether or not the injury matches the behavior of the injured worker.
Get certificates of insurance for subcontractors
- Most states hold contractors liable for uninsured subcontractors. Be sure that any subs working on the site have adequate insurance.
Large contractors should consider self-insurance
- If the company is paying more in insurance premiums than the cost of the claims, it is time to consider self-insurance.
Reducing workers compensation claims is a major factor in reducing workers compensation costs. For more specific instructions regarding how to reduce workers compensation claims, read https://eagleemployerservices.com/reduce-workers-compensation-claims/.
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