An injury or illness in your workplace affects your business in so many ways. There’s the absence of a team member, the potential loss of morale, and a possible dent in your company’s reputation.
It's a scenario no employer wants to face.
It’s in your best interest to ensure that it doesn't happen. But, if a worker gets injured and files a claim, the question becomes - what damage might this do? And, are there ways to mitigate the damage?
Read on to find out the true impact of a workers’ comp claim and the practical steps you can take to minimize that impact.
The more claims you have, and the higher the cost of the claim, the more likely your insurance company will raise your workers’ comp insurance rates.
Workers' comp premiums are determined based on your industry and state, with an additional factor known as the 'rate' being multiplied into the calculation. This factor, also called ExMod, plays a major role in the cost of your workers’ comp insurance premiums.
After a few years of workers' compensation premium payments, an ‘ExMod factor’ is assigned to your business. This factor has a baseline of 1.0. If there are workers' compensation claims, your ExMod factor increases (resulting in a 'debit MOD’). If there are no losses, the number can gradually decrease (resulting in a 'credit MOD’.) You can learn more about ExMod here.
When a claim is filed, your ExMod changes, causing your premium to increase the next time around—regardless of whether you stick with your current insurance carrier or switch to a new one.
Your insurance carrier might choose not to renew your policy in the event of a substantial claim. For example, if you have a $15,000 claim while your premium is just $8,000, resulting in a loss ratio exceeding 100%, the carrier lost a lot of money on your policy. The carrier will need a compelling reason to renew your policy.
Note: There are factors that may work in your favor. For example, if this is your first claim in 15 years, and your overall track record is impressive with zero claims, underwriters may be willing to overlook a single claim. Although it's not guaranteed, there's a chance they might opt to renew your policy.
If your policy features a deductible, you'll be responsible for covering the initial out-of-pocket cost, whether it's a $1,000 deductible, a $2,000 deductible, or any other specified amount.
After the claim is settled and the insurance company disburses the funds, underwriters step into the picture. They’ll inquire about the specifics: what happened, when, and how. Based on what they discover, they may provide recommendations regarding your operational and safety procedures.
These recommendations might mean new protocols that you'll be required to follow. This could result in changes to your company policy, so be prepared for that eventuality.
A carpentry business that officially did only framing took on a project that involved framing for roofs and trusses. This blurred the line between roofing and framing, which eventually led to an unfortunate incident - an employee fell from the roof.
Following the claim, the insurance underwriters conducted a thorough investigation. Their decision: the company was no longer permitted to engage in truss installation or framing for roofs. This marked a pivotal shift in the company's operations.
Your employee has filed a claim against you and you’re facing a likely increase in your premium and possibly non-renewal. Now what?
Unlike what many business owners think, there are many things you can do to help yourself even after a claim has been filed. Here are 4 strategies that have helped businesses minimize their claims’ impact significantly - or even eliminate it entirely (yes, it’s true - there are cases where the insurance company agrees not to raise premiums at all, based on proactive measures taken by the business!)
Closing the claim as soon as possible is essential because insurance companies apply something called “reserves’ to an open claim. This can inflate the total claim cost on your records.
Reserves are amounts set aside by insurance companies to cover the anticipated cost of a claim. This is to ensure that the insurance company has adequate funds to cover the entire claim.
For example, if an employee cuts their hand while using a saw, the initial claim might be for $12,000. However, anticipating more doctor visits, more physical therapy sessions, and additional missed work, the insurance company might set a reserve, pushing the total claim cost to $22,000. This reserve ensures that funds are available as the claim progresses.
However, these reserves can keep the claim cost artificially high on your records until the claim is closed. If your policy renews while the claim is open, the insurance company will factor the reserves into the premium calculation.
Once the claim is closed, the actual medical bills and lost wages are calculated, and the reserves are removed. The final closed claim then reflects the total true cost.
Closing your claim quickly directly reduces the impact your claim has on your premium. It also indirectly reduces your premium by demonstrating to your insurance company that you deal with claims in a proactive and responsible way.
Practical steps you can take: To close the claim as quickly as possible, follow the doctor’s recommendations diligently. Also, stay in close contact with your adjuster and maintain open communication with your employee regarding their progress and needs.
Before renewing your policy, carriers will look at your loss history (all your business’s past claims) and ask, "What measures have been put into place to prevent such claims in the future?"
If you can show that you have taken real steps to change the culture in your company, the carrier may consider raising your premiums minimally or not at all.
While the severity of the claims in your company may be hard to fix (after all, most trucking accidents are similar in severity to accidents within the same industry) the frequency of claims is not.
High frequency of claims indicates an issue in the company’s safety culture. When a company finds itself facing frequent claims, it's a red flag signaling the need for better safety procedures.
Practical steps you can take: Start with a written safety program. Document and implement authentic safety procedures. Hold weekly or bi-monthly meetings. In the construction industry, conduct ‘toolbox meetings’. Encourage employees to discuss areas they may have overlooked, and to share what worked and what didn’t. Share these proactive measures with your underwriter.
The term ‘total incurred’ refers to the overall loss your claim caused to the insurance company. Insurance carriers will refer to this number to decide if they want to renew you and at what price.
Encouraging workers to return to work as soon as possible lowers the claim’s ‘total incurred’ which in turn lowers the impact your claim will have on future premiums. Since you’re lowering the amount of missed wages incurred, you’re lowering the claim size.
This will also have a positive effect on your Experience Modification Rate, or ExMod.
Insurance companies appreciate the fact that you’re “sharing the burden” of the claim by paying light duty wages during the claim period. They also appreciate the moral stance this shows.
This can make them more inclined to renew your policy and keep your premiums at the same cost.
Practical steps you can take: Encourage employees to return to work or to light duty as soon as possible.
By exhibiting to underwriters that you're implementing smarter hiring practices, you build a case for your organization’s proactive approach towards minimizing risks and ensuring a safer work environment.
Having well-documented and smart hiring practices is a beneficial step that underwriters appreciate. It's about going beyond the basic requirements and ensuring that the employees you're bringing on board are fit for the tasks they will be undertaking, thereby reducing the likelihood of workplace incidents.
Practical steps you can take: In industries that involve a lot of physical work, like construction, require physical examinations for all new hires. For positions that involve driving or operating heavy machinery, check the Motor Vehicle Records (MVRs) of potential employees.
Different industries have unique challenges and risks; tailor your hiring practices to address these. For example, in the nursing, staffing, and home health agencies, ensure that employees have the necessary certifications and clear background checks.
Yes, claims can potentially lead to increased premiums and even policy non-renewal.
But, the good news is, there are proactive steps you can take to mitigate these impacts.
Whether it's about understanding how your ExMod affects your premiums, implementing a return-to-work program, or exploring the best safety procedures, we are here to guide you.
Don’t let a workers' comp claim derail your business. Reach out to us today for an instant quote or a comprehensive consultation. Call 866-338-6388 or get your instant quote here and take a practical step towards protecting your business’s future.