For most organizations, employee related costs are one of
the biggest drains on the bottom line. And workers
compensation insurance is often the main drain. Unlike the
price of gas, however, understanding these six workers
compensation insurance industry secrets can help owners and
managers aggressively control these costs. So what are
they?
1. Insurance companies don't pay for your employee injuries
- they just finance them for you.
Do you realize that oftentimes you pay $2 to $3 back to
your insurance company for every dollar they pay out for
your employee injuries? Each claim results in an extremely
expensive financing contract. You pay your premiums. Then
you have to pay for almost all of your claims. You pay:
- For employee injuries through lost dividends and return
of premium
- Increased costs because your Experience Modification
skyrockets
- Lost productivity
- Reduced morale for the unhurt employees who fill in for
the injured employee
- Increased stress for management and staff
Workers Comp does not pay for employee injuries. You do!
2. Insurance Company Claims Management Services are
usually horrendous.
Now that you know you write the checks for your employee's
injuries you should realize how critical it is for you to
demand aggressive claims management. Claims adjusters are
snowed under with too many cases. Your injured employee
doesn't get the attention he or she deserves. In spite of
this, insurance companies continue to downsize as they
strive to increase profits. Add Managed Care to the mix and
your employee's claim is often outsourced to a case
management company. The adjuster doesn't even know what is
happening or how your injured employee is being treated.
You just can't notify the insurance company your employee
was injured and expect them to "do their job." You must
have a proven process in place to minimize the cost of the
injury and expedite your injured employee's return to work.
3. You are penalized and overpay when the "Audit Police"
make a mistake on an audit
Because your real insurance cost is determined after your
policy expires, it is essential the audit is correct.
You're at a disadvantage from the start. The insurance
company auditor knows the rules, you don't. The auditor is
not compelled by law to explain the rules, even if applying
a rule would cause you to pay a lower premium. Here's how
the auditor works against you:
- Your entire payroll is put into the highest classification
- Then, the "standard class exceptions" are put into the
correct cost classification. When someone is not properly
moved to the lower cost classification, you pay at the
highest rate. Misclassifications are common and the system
is designed for you to pay for all mistakes. Would you
allow an IRS agent to conduct an audit without an expert on
your side? Of course not. Then, why allow an insurance
company auditor to conduct an audit without an expert at
your side? A workers comp audit may actually cost you more
money than an IRS audit. A workers comp audit is every
year. You may go years without an IRS audit.
4. Experience modification factors are often wrong or
mismanaged
Most insurance buyers accept on "good faith" that their
experience modification factor is correct? Why? It's just
easier that way. I go into great detail about this in my
article Why Assuming Your Workers Comp Experience Mod is
Correct Could be a Dangerous Calculation. However, for our
purposes here, you need to learn how to double check your
mod because oftentimes it may be wrong. Your insurance
company then collects an unfairly high premium.
5. Your dividend may not be what it appears to be
If you were placed into a dividend program with the promise
of future savings, at least be aware that these promises
are often illusory. Did you just buy your workers comp
policy based on that fancy proposal your agent presented or
did you really read the contract that states the terms of
your program? Realize that you pay a bigger premium
upfront to finance the possibility that you will not have
any claims. And if you do have a few claims, your dividend
will magically evaporate.
6. Your money will fly away unless your agent pays closer
attention to your Workers Comp than any other insurance buy.
Here's what your agent must do to insure you have the best
value for your workers comp insurance:
- Claims need to be monitored
- Premium audits must be managed and verified
- Experience modifications must be double checked for
accuracy
- Contract must be analyzed
- Sub-contractor's insurance must be controlled Many
actions are time sensitive.
If you don't know why 6 months after your policy expires is
such a critical date, you may be overpaying your insurance.
If you need a specialist in any one area of your insurance
program, it is in the management of your insurance that
affects your employees the most- workers compensations,
medical and disability benefits.
----------------------------------------------------
Eric D. Patrick is an attorney and Chief Operating Officer
of Consumers Insurance Agency Inc.
http://www.consumers-insurance.com . He also engages in
insurance consulting and legal work through The RiskAssure
Consulting Group. Please contact him for further
information.
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