Workers’ compensation may not be sexy, but it is a mandatory coverage with a large expense for construction companies. Premium costs are largely determined through an Experience Modification Factor (EMF) and loss history.
An EMF is a value that compares the claim profile of the employer to what would be expected of a company with a similar size or payroll in the same industry. The average is 1. The more injuries and losses the organization has, the higher its number goes. The higher the EMF, the higher the premium. This also heavily impacts bidding for many construction companies.
Why do construction companies need comprehensive coverage and a solid risk management program? Workplace injuries and illnesses have a higher rate of frequency in the industry, and OSHA announced that 20 percent of all fatalities in 2014 were in construction. Costs of an injury or illness can be both direct, like workers’ compensation payments and medical expenses, and also indirect. Estimates show employers pay nearly $1 billion per week for direct workers’ compensation costs alone. That is a lot of money, but according to OSHA, indirect costs associated with incidents can range from one to four times that of direct costs. These include costs to train a replacement worker, investigate the accident, implement corrective action, schedule delays and increased administration time.
It sounds overwhelming, because it can be, and the costs associated have a direct impact on the company’s bottom line. To stay on the optimistic side, it is important to understand and implement preventative measures. As such, here are five ways to minimize risk, curve workers’ compensation costs and create a thriving safety culture:
- Make sure the right people are being hired. Every step can be taken to prevent claims, but in the end, it comes down to hiring an employee that can be trusted to get the job done the right way. The construction industry is seeing a labor shortage caused by the mass exit of experienced workers during the economic downturn. With more inexperienced workers entering the industry, it is vital that companies ensure the right individuals are being hired. The following assessments can help in this endeavor: reference checks, motor vehicle record checks, criminal background checks, child abuse checks and integrity testing. An extra effort upfront can go a long way in the end.
- Combine safety and wellness. The health of employees has a huge role in how alert, productive and safe they are on the jobsite. Safety and wellness are no longer mutually exclusive. A great example of this combination is the topic of back injury prevention. Companies can focus on ergonomic improvements and proper employee body mechanics training to reduce their risk of injury on the job. Another example includes obesity reduction, which leads to reduced back injury risk (along with other medical complications) and claim reduction. By concentrating on both of these factors together, reduction in injury and illness can positively impact insurance premiums.
- Create safety goals. The ability to minimize injuries and illnesses is a key driver of workers’ compensation costs. Create safety goals that are communicated frequently from the top down. Start by reviewing injuries from the past year, identify trends and work with an insurance broker and risk management team on solutions to implement that coincide with these goals. Make sure safety goals are achievable. Instead of aiming for zero injuries (which isn’t realistic), create a goal that can be quantified. For example: “reduction of lost-time injuries by 10 percent from the previous year.”
- Know how to control workers’ compensation costs. Understand how an insurance carrier views a company’s claims history. By being able to tell a story around the history of claims and/or EMF, a carrier is more likely to write the account and impact the pricing structure.
- Improve the submission. By knowing what is needed to write a business’ submission, a company can better present itself and its risks to get an improved outcome. Make sure loss runs are current to ensure a quote is received from the carrier. Also, show the company’s current safety and risk management endeavors to prove the proactive stance taken on illness and injury, which impacts workers’ compensation costs. These materials may include employee handbooks, safety manuals and drug-free programs. Finally, providing business financials can be a benefit when pricing the account. Insurance companies want to insure businesses that are financially sound, and proving that can go a long way.