Workers’ compensation insurance is, at the same time, both a benefit and a detriment to business owners. It’s a safety net that makes jobs more attractive to potential employees and protects you as well. But at the same time, the mandatory nature of workers’ compensation insurance makes it a considerable expense, which can be difficult to fit into your operational budget.
Financial Considerations for coverage
Workers’ compensation can have an immense financial impact on both companies and employees. The National Council on Compensation Insurance (NCCI) estimates that the workers’ compensation industry’s generation comes out to around $41.6 billion per year.
The primary factor to consider when estimating your financial cost is the risk factors. This includes the type of work, history of claims, industry classification, and more. Each of these variables can have a significant impact on your insurance premiums. However, the most important variable is your experience modifier. The experience modifier is a metric showing how your claim history compares to that of similar companies. The lower the value, the better, with your ideal sitting below 1.0.
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When Things Go Wrong
The next question comes down to what will happen if something goes wrong. What is the impact on your company if a worker files a claim? There are a number of different issues to both watch out for and plan around.
Increased Risk Factors
Beyond the immediate concerns of the claim, you have to keep the previously mentioned experience modifier in mind. If an employee files a claim, the actual value involved is often the less worrisome part of the situation. What can be worse is that claims impact your risk factors. Increased risk factors will then raise the price of your coverage.
Productivity
It’s easy to forget that a claim isn’t just about taking money directly; you’re also facing potential loss in overall productivity. If the person held an easily replaceable position, then the impact on productivity will be minimal. However, the further up your chain of command someone is, the more of an issue it’s going to be. Consider, as an example, what might happen if a department head is injured and files a claim.
You’re instantly forced into a situation where the department’s productivity will plummet. Even the most competent replacement will take some time to get used to the new situation. Worse, if you don’t have someone who can immediately fill the position, then your department would be severely hampered until you were able to do so. This is made even more worrisome if the employee decides to quit rather than simply take time off during the procedure.
On top of that, the people working within the department may well have issues with morale afterward. How the claim is resolved will dramatically impact job performance.
Administrative Costs
Working with a claim can use up a surprising amount of your administrative resources. The initial report and documentation begin the process, while there are additional elements continually added on. The filing, working with the insurers, medical treatment, resulting accommodations, and continuous concern over regulatory compliance will all take a toll.
Preventative Measures
Preventative measures are an initial financial investment that can benefit you and your employees. Employers have a duty of care to provide safe working conditions. If an employee is injured due to your negligence, you could be facing a personal injury lawsuit in addition to a worker’s comp claim. Continually assessing injury risks and addressing issues such as broken equipment, tripping hazards and other dangers can prevent employee’s from being hurt, increase productivity and ultimately help your bottom line.
Bringing It All Together
Workers’ comp claims and insurance are always going to be an issue for your company. That’s part of why it’s wise to be as proactive about them as possible. Create contingency plans, discuss safety with employees, and try to lower risk factors as much as possible. If a claim is brought up, then use it as a way of mitigating future risk as you deal with it.
