Updated: 3 days ago
Are you looking for ways to reduce workers' compensation costs? If not, You need to understand the serious risk that these nasty claims pose to your business. When these claims arise, you need to be ready with a plan in place. After all, reduced workers compensation costs means higher profits and better employee-employer relationship.
However, reducing workers’ insurance costs is not that easy. Injuries in the workplace can be very serious and sometimes be fatal. From a simple sprain in the ankle to a serious spinal cord dysfunction, you need to be prepared to tackle the injuries. They can cost your employee's productivity (if not taken care of) and can drastically affect your business.
Not surprisingly, Reducing workers’ compensation costs is a highly discussed topic in the Klear.ai team to ensure that all our technological solutions are employer centric and reap maximum profits by predicting and calculating workers comp claims ethically using AI.
The chief reasons behind it being worried about reducing workers compensations costs:
To put this into perspective, let us take the example of an employee named David, working at your company. Unfortunately, he has suffered an electric shock. According to the Safety Pays tool, the estimated total of direct and indirect costs due to the injury is $252k.
The amount of money the employer spends on the direct costs depends on the nature of the employer's workers' compensation insurance policy. However, the indirect costs such as property repairs and low self esteem of employees are inevitable. This is another disadvantage of on-the-job accidents.
This is why reducing the cost of worker’s compensation insurance is important. This article lists down 19 effective strategies to reduce workers’ compensation insurance costs. Read ahead to know more.
Introduction to Workers compensation claims:
Before we get started, a brief understanding of the Workers Compensation Act is a must. The following sections will discuss the act, and its relevance to the employers and workers.
What is the workers’ compensation act?
According to the guidelines of the Workers’ Compensation Act, 1923, ‘The act deems it compulsory for certain sections of employers to pay their workmen of compensation for injury by accident.’
The act places legal obligations upon employers to ensure a safe workplace. Yet, sometimes accidents happen. In the unfortunate event of such an accident, the workers’ compensation insurance cost helps.
The workers’ compensation insurance cost assures that:
Injured workers get the required medical attention
They receive the income they lost during treatment as compensation (as they are unable to return to work)
Employers are protected from lawsuits by workers affected while working.
The policy extends support to the workers irrespective of who’s fault it was during the accident.
Which injuries are covered under the workers' compensation policy?
The injuries covered by the Worker’s Compensation Policy include:
Those sustained by employees anywhere in the premises of the workplace
Those sustained while the worker is operating in the ‘course and scope’ of employment.
For instance, if the employee involved in the accident is driving to (or) from his workplace, the death compensation claims will not be covered by the policy.
The act also pays for expenses due to illnesses from injuries at work. This includes ER visit, ambulance charges, consultation fees and diagnosis test bills. It also protects the workers from illnesses and diseases contracted from work. For example, people who work in toxic environments can be affected due to the continuous exposure to chemicals
In addition, the act also covers injuries due to other events like:
What is the treatment received by injured workers?
Whenever necessary, the workers are provided with complete medical care and appropriate treatment. As the medical expenses can be high, many states have taken measures to control the costs. Several utilization management rules are now in place. These guidelines lay down the diagnosis and treatment protocols for each injury. Insurance policies define a deductible to ensure that employers don't have to pay 100% of the fee incurred during the treatment of injured workers.
What are the benefits received by injured workers?
Income is compensated based on the disability of the worker. If the employee is disabled totally, permanent compensation is provided. If it is only a partial disability, temporary compensation is provided. The impairment/disability is defined on the criteria given by American Medical Association.
The Majority of the states provide benefits during the entire duration of impairment whereas some mention a specified number of weeks. The benefit amounts are generally a fixed percentage of the worker’s weekly allowance.
Policies in most of the states pay up to 66 percent of the usual weekly salaries, on a tax-free basis. Some states also provide for a ‘Loss of Earning Power’ benefit which provides a partial compensation to workers if they return to work on a limited basis.
In case a worker dies during work, worker’s compensation offers death benefits for the worker’s dependants. It will also offer the funeral expenses in some states.
Do you need to buy worker’s compensation insurance?
Sole proprietors and Partnership:
In most states, you are not required to buy workers compensation. You only need to purchase if you have employees who are not owners. However, you are allowed to buy a compensation policy to cover yourself and your partners. In case you have employees working solely on commission, they need not be covered under the act.
Minimum number of employees required:
In most of the states , if your business employs less than 5 people, you need not buy insurance. However, the threshold number varies from state to state. You are exempted from purchasing mandatory insurance. In California, you’re required to buy insurance even if you’ve a single employee.
Texas is the only state to have no obligations on worker’s compensation regardless of the number of employees.
Immediate family members like parents, children and spouse of the owner working in the business are not counted as employees (for the purpose of workers’ compensation). However, similar exceptions cannot be applied to other family members like siblings and in-laws.
For the purpose of determining workers’ compensation insurance, many states treat independent contractors as employees. This implies that the owner will be liable if they get injured while working.
Irrespective of all these factors, it is wise to always purchase a workers' compensation insurance. A single claim of a serious worker injury can uproot your business. It can hold you legally liable. With premiums, you pay a predictable cost to handle this risk proactively.
What costs do workers compensation cover?
The costs covered by workers compensation include:
Insurance premium amounts
Payments made under deductibles
Administrative costs of dealing with claims
Making reports to the state and insurer
Obligations to the Employer
Most states require the business owner to keep a record of the accidents.
Accidents related to work should be reported to the state and insurer in a specific number of days. The earlier the insurer receives the details of injury, the faster he can provide medical benefits and treatment.
You can also file a ‘first notice of injury’ with the corresponding state agency. This step is generally taken to initiate the claim process and get faster treatment.
What is the average settlement for workers comp?
The average workers compensation cost for an office worker is about 12 cents per each 100$ in revenue. The workers compensation costs vary with the industry type. For a similar annual payroll, companies from varying industries will have to pay different amounts.
Here are some examples from the NCCI (National Council On Compensation Insurance) for your reference:
The administration fee is charged annually by the insurer and the amount is determined by the insurance carrier.
To help you understand, we shall look at the case of a painting contractor with 4 workers and a total annual payroll of $140,000:
Class code - 5474
Rate per $100- $8.99
Rate for $140,000 annual payroll - $12,586
Administration fee- $250
This sums up to a total of $12,836 for the employer.
The table and the example above depict the significant differences between business classifications. It is worth noting that the above values are for businesses with no loss or claim history.
What causes workers comp insurance costs to rise?
In almost every state, workers' compensation rates are regulated by the state. Typically, each worker classification, i.e., the type of job, is assigned a rate per $100 of payroll, and then the rate is a multiple of that. States that are considered an NCCI state implement their own rate structure.
The 4 primary factors that will affect your workers’ compensation costs are:
The state you work in
The industry your business participates in
The annual payroll of your business
The claims history of your business
How to reduce workers compensation costs?
Here are our top 19 tips to help you reduce workers’ compensation costs.
1.Wisely handpick the insurance policy which suits you the most
Most of us shop around for the best health or car insurance. Similarly, you have to choose the best compensation insurance policy by checking out different companies.
If your state is home to a competitive market, then it is best to talk to various companies. This way you can inquire about the monthly rates offered to you and your business. Insurance companies change their prices once every few years. Thus, it is wise for business owners to repeat the process at regular intervals and find out the workers’ compensation best practises.
2.Ensure that you are following workers’ compensation claims management best practises
Adjusting your claims according to the best practises followed is one of the most important things. You need to ensure this by checking with claims management. In fact, this can drastically decrease the amount of payout by about 50 percent.
Such savings are very important for a business. These best practises often include simple tasks to minimize your expenses. Besides, they also help in finishing the process smoothly. Here are 4 best practices to ensure that you save on workers compensation claims:
Having in-person contact with the medical professionals and the employees. This way you can resolve any issues that might arise in the course of action.
Make sure that the paperwork is complete and filed on a time-to-time basis.
Verify the coverage of each claim.
Keep track of all the work completed on every claim.
3.Proactively reduce the number of accidents
Focusing and cultivating a culture of safety is one of the best ways to reduce workers’ compensation costs. It also boosts the morale of your employees. However, it is not easy to achieve a sense of safety. You can refer to our top 4 recommendations to reduce the number of accidents:
Provide your employees with the sound knowledge of essential resources and best practises.
If you do not have them in place, arrange for periodic safety checks.
Regular safety checks ensure that your employees are safe in the business premises.
You can schedule more comprehensive safety checks monthly once.
While focussing on safety reduces the number of accidents, it also shows your workers that you care for them.
4.Have a physical injury methodology set up
It is necessary to be always prepared for injuries and accidents. It is also a crucial part of the safety culture at your business. Everybody should know the role assigned to them in case of an onsite work injury. The plan should allot tasks to all the employees- supervisors, other staff and the claims adjuster.
Once you have a plan ready, employees can respond in a proactive way that will reduce the gravity of workplace accidents/injuries. In addition, the employees can also be assured that they will be taken care of in the unfortunate event of an accident.
5.Put an impetus and motivation program for recently recruited employees
Newly hired employees often tend to benefit from the incentive programs. Such programs reward them for their knowledge of safety protocols. This could also be done to the older employees. You can encourage them to help the new employees in learning about the safety culture via group incentives.
Such incentives can also reduce employee dissatisfaction at the workplace. The incentives speak of your business’s values and concern towards them. Encouraging such safety oriented incentives can make the business premises more secure.
6.Actualize policies for quick return to work
Research shows that businesses which are in contact with injury affected employees (during their time away from work) are more likely to have lower costs on claims. It is always great to have a program that encourages and motivates workers to return to work as soon as their illness fades away.
Upon returning to work, the injured worker will begin earning at his full potential again. The company also needs to pay him less money if he returns earlier. Therefore, it is a win-win scenario for everybody.
7.Ensure you’re availing discounts available in your state
Each state has varied rates for the different classification of different businesses. However, you need to check with your state policy management for any discounts. Most states offer discounts to certain types of businesses.
You can check if your state has a discount provision to provide employer workers’ compensation for companies that promote safety. For example, some states are known to offer discounts to employers that provide a drug free work environment.
8.Audit your worker orders
Although this is quite simple,an audit is often overlooked. Each type of business has a specific overall rate. Similarly, each type of employee will also have different costs with regard to their classification.
Did you know we are generating 2.5 quintillion bytes of data each day? Despite that we’re stuck on a paper-based audit system. An end to end automated AMS (Audit Management System) like the Klear audit tool can help not only in audit runs but assignment of audits to designated auditors and recording evaluations of auditors against every claim.
For instance, consider a sheet metal worker and a bookkeeper at your business. The sheet metal worker will obviously have a different standard rate in comparison to that of the bookkeeper (who is rarely situated on the manufacturing floor).
Therefore, it is your duty to review at regular intervals and see that employees are correctly classified. The classification has to be on par with their current job. This simple tip can in fact help you a good deal of money.
9.Envisage and prevent fraudulent claims which sum up to 80% of the workers comp costs
Get your data to work for you! Using a combination of data mining capabilities, complex statistical modeling, text mining and graphical reporting, did you know you can use your past data to predict and prevent fraudulent claims!
Request a demo of our deadly accurate Fraud Detection Tool developed especially for complex workers compensation claims.
Bonus Tip: Social Network Analytics
Pay attention to ‘Social Network Analytics’ to highlight the nexus between multiple claimants. Don't miss the level of interaction (or transaction) between two actors within the ecosystem. Highlighting these connections,(which see a higher than expected proportion of interactions), can lead to foreseeing of false claims.
10.Motivate employees with well being rewards
Once you begin implementing safety measures and incentive programs, a reduction in the number of accidents can be observed. Run a check with your insurance provider to find out if they have a credit policy for a year of improved safety.
Obviously, such kind of credit rewards are given after the expiration of policy. You also need to have a year’s period with very less number of accidents at the workplace.
However, such reward schemes vary with insurance carriers. Although it is not guaranteed, it is good to see if they are available. Such a credit scheme also boosts and motivates owners to have proper safety measures in place.
11.Analyze the effect of your Experience Modification Factor (EMF)
An EMF is a figure that largely determines the premium costs and lost history. It compares the claim profile of an employer to a similar size company in the same industry.
The higher your EMF is, the more your losses and injuries at the workplace are. A high EMF also results in a high premium amount per month. In addition, it also impacts the bidding for several businesses.
Your insurance provider is most likely to base his pricing structure over the experience modification factor of your business. Not just that, they would also be able to tell the story of your previous claims by looking at the score.
12.Understand how insurance carriers view your claims history with benchmarking reports
Benchmarking is important to assess the complete functioning of your business. It aids in continual improvement. By comparing your current insurance claims costs to the previous year and to the industry standards, you can track your experience ratings and claim history.
A system known as the ‘experience rating’ decides how insurers look at your business. It allows for the modification of class rates depending on the claims history of your business. This division of class is important as it helps in saving more money. Rates are decided on the basis of 5 years of claims history and similar scores are grouped into one class.
This system equitably ensures that employers/owners have significant control over their workers’ insurance costs. Safe businesses are rewarded and can enjoy lower premium amounts each month. On the contrary, unsafe businesses are penalized and are required to pay high monthly premium amounts.
13.Incorporate an employee wellness program
Create a wellness program for your employees that encourages healthier lifestyle options. You can also reward them in the process. You can provide them with:
Healthier food choices: This way, they can improve their physical and mental health alongside developing a stronger immune system.
Exercise Programs: This goes by without saying. Exercise enhances physical and mental strength. Besides, it is also a great way to build focus and endurance. The workers will have the capacity to overcome any physical injuries much easily.
Gym memberships: This is another effective way to show your workers that you care for them.
14. Proactively Predict cost of claims and set aside premium amount
There are 2 aspects of reducing workers compensation costs. The first one is loss control and the second, is prevention of loss.
Loss prevention is done through proper investigation. You need to look into the root cause of the accident and take corrective measures. This way you can prevent such unexpected incidents from reoccuring.
One of the best ways of loss control is to by tracking all the costs. You can use softwares specifically targeted at tracking and trending the claims. Once an injury occurs, you can keep aside similar amounts to tackle the premiums arising regularly. Avoid over reserving and under reserving by using our workers compensation reserve prediction tool.
15. Use AI to proactively assign your most experienced adjuster on claims which may turn up severe
Insurance claim adjusters face several challenges while they execute their responsibilities for verifying the authenticity of claims. Checking authenticity is important to ensure that there is no fraud. In fact, fraudulent claims are one of the biggest money drains.
An AI solution like Klear.ai can be designed to track the claim history and expedite the settlement process. Deep learning ,statistical and Neural network algorithms help in resolving complicated cases. By analyzing the insightful trends from the data of claims history, it provides quicker authentication. This results in the quick payout of genuine claims without long delays. It also help claim adjusters to recognize similar patterns from data to pick out fraudsters and repeat offenders.
16. Grapple with recidivism (or) reopening rate
Recidivism, in the context of workers’ compensation insurance, refers to those claims in which an injured worker failed to return to work. Thereby leading to more than one disability period.
To avoid this, you need to provide reasonable medical coverage and income benefits to all injured employees. You may consider the following tips to keep away disability periods:
Medical expense reimbursement
If your employees are absent for more than one disability period, the work may get affected. The higher the employee is absent, the higher will be your costs of insurance.
In order to avoid such problems, you should provide safe tools, equipment and environment to your employees. Your workers should also be warned of possible dangers and rules of safety should be enforced.
17.Instruct, Train and educate your employees
You need to educate and train each employee. Practising the right safety procedures is important in keeping hazardous accidents away. They should also be trained in the usage of equipment and workplace behavior.
They should be aware of safety measures at all times. You can give them reminders at regular intervals and conduct frequent training sessions. Besides these, having a system of accountability also improves the business. Keep your employees and managers accountable. Whenever there is a problem, resolve it as soon as possible to keep worksite troubles at bay.
18. Gather feedback from workers
Without honest feedback from your employees, you cannot possibly run a satisfactory business. However, collecting such feedback could be a challenge. Here are some ways in which you can do that:
An open door policy creates a welcoming atmosphere in your office. It gives your employees the freedom to share their views.
You can hold regular performance assessment sessions.
Alternatively, casual one-on-one sessions also do the job.
You can make use of team meetings to get feedback from members.
In addition, you can provide anonymous employee feedback options to encourage opinion sharing.
Once the employees have given their feedback, it is important to follow up. This way you motivate them to contribute more and more to your business’s success.
19. Communicate with your injured employees
The longer a worker’s compensation claim account remains open, the costlier it gets. For instance, if they return to work much later, the claim has to cover more replacement income.
Injured workers are mostly worried about their jobs and livelihood. So it is very important for you to assure and empathize with them. They need to be reassured that they would have their job when they have recovered enough. This also helps you avoid the potential risk of litigation charges.
The primary reason behind workers seeking the support of an attorney is the fear of losing their job. Thus, empathizing and constantly communicating with the workers helps in easing their anxiety and more importantly saving on high litigation costs!
ONE BONUS TIP!
20. Analyze past injuries in your industry using statistics and deep learning models
Research has revealed the most common injuries resulting in claims have been. Steps must be taken to prevent common injuries which can turn into nasty claims.
Strains and sprains (30 percent)
Cuts or punctures (19 percent)
Contusions (12 percent)
Inflammation (5 percent)
Fractures (5 percent)
Conclusion on how to reduce workers compensation costs
Even small injuries can substantially impact an employee’s productivity. This leads to a slow down of the business. You can prevent the most common injuries by adopting proper safety measures. Resolve the issues on site and follow these 19 steps to reduce workers compensation insurance costs.