10 Proven Ways to Reduce Your Workers' Compensation Premiums
by Steven Brown
Hoffman Brown Company
It was a Christmas "present" no employer expected or wanted: the often huge increase in year 2000 workers’ compensation premiums, sometimes of 100 percent or more. The increases were "gifted" by many Insurance Carriers the day before Christmas, and effective January 1, giving employers scarcely five business days to shop for lesser premiums.
Few employers or their brokers found logical solutions. Over the holidays, the workers’ comp marketplace had shifted from a buyers’ to a sellers’ market. The reasons for the sudden and stiff rise in premiums are well known by now. In the 1990’s, the deregulation of the workers’ comp insurance industry triggered a wild scramble - some called it a "premium war" - for market share, with many insurers discounting premiums 30% or more.
However, during the past five years of deregulation, insurers’ claim costs have risen while heavy discounting consumed their profits. The overall financial stability of even California’s largest workers’ comp carriers was threatened. California Insurance Commissioner Chuck Quackenbush, as well as stock market investors, duly noted the insurers’ dwindling profits and growing instability.
Last October, Quackenbush suggested a "modest" 18.4 percent hike in the state’s basic workers’ comp premium rates. Meanwhile, disillusioned investors hammered the stock of some of the state’s largest insurers to unprecedented lows, reducing the stock value of some by as much as 80 to 90 percent. What followed, late in 1999, was considerably more than mere sticker shock. While many employers had anticipated a modest premium boost, perhaps 20% in step with Quackenbush’s suggestion, few were prepared for the size and depth of the Christmas increase.
Today, for many California employers, the premium increase may spell the difference between profit and loss. Many businesses, both small and large, are asking how they can blunt, if not mitigate, the new sky-high workers’ comp premiums. While these new premiums are not likely to change, careful attention to workers’ comp details may, in fact, lead to future pricing reductions.
The following are 10 proven ways business owners can reduce claim costs, return employees to work sooner, eliminate potential workplace hazards, and instill employees with a much higher level of "comp consciousness."
1. Carefully select your insurance provider by seeking out a carrier who understands your company’s need to reduce claims, and claim costs, while providing workers the care they need. It pays to shop for an insurer who understands both your company’s fiscal needs and your employees’ physical needs.
2. Return employees to work as quickly as feasible when a claim does occur. In many cases workers want to get back to work if you make it possible for them to do so. Most employers can provide modified work duties, tasks that an injured worker can do, until they are 100% capable of returning to his or her regular job. For example, an employee with a heavy lift problem might gladly return to work when assigned to a job that doesn’t involve lifting.
3. Schedule monthly safety meetings and use the written Safety Plan that OSHA requires you to enforce. Keep in mind that it’s only a "plan" unless it is aggressively implemented. The monthly safety meeting is the perfect place for supervisors and employees to discuss recent claims, learn how accidents can be prevented, and allow employees to witness first-hand demonstrations of safety practices. Any number of innovations - from safety reminders and films to injured employees recounting the unsafe practice or situation that led to their injury - can turn these meetings into vital and dramatic experiences.
4. Organize a Safety Committee whose members are your safe-practice watchdogs. Their assignment is the immediate identification of unsafe situations that might lead to an injury or claim. Make sure the committee’s chairperson has direct and immediate access to top management.
5. Conduct Regular Premises Inspections in an effort to discover hazardous conditions that could lead to a claim. A cursory "walk-through" inspection isn’t good enough. The inspection must be thorough, with attention to possible claims-causing details. When you do find hazardous conditions, immediately schedule the problem area for repair, replacement or alteration.
6. Put a Manager Training Program in place that is designed to educate managers and supervisors, not only in loss prevention, but also monitoring claims to avoid repetitive ones or "sympathetic" claims by other employees.
7. Establish a Safety Incentive Program that rewards employees for no lost time injuries over a specific time period. A reward system for safety consciousness can go a long way. Still, workers’ claim-reducing incentive and safety programs are only as good as top management’s dedication to them. Employees are quick to discern whether management really cares about safety or doesn’t. If yours is a company for which the new, higher workers’ comp premiums actually threaten profitability, tell your workers so. Management needs to help them understand that claims threaten the company’s future.
8. Now, more than ever, the ways in which you anticipate claims and manage the ones that you have will dramatically impact your bottom line. Select an aggressive claim handling Insurance Company that is as concerned with losses as you and your company. This almost always means an insurer with a quality based claims operation that helps employers’ control their workers’ compensation costs while working with injured employees to assure that they get timely medical care and are given provisions for their expense needs. Quality insurers aggressively root out fraudulent claims. Be certain that your carrier does.
9. Embrace the aid of loss control experts from the insurance company’s staff and your insurance agent. It is your greatest challenge to be the expert at running your particular business. Demand that those who are specially trained to help contain costs are attentive to your company’s needs.
10. Perform a detailed review of open claims annually with your insurer to ensure that claim reserves (money set aside to pay claims) are proper and sufficient. Annual claim costs directly affect your workers’ compensation premiums. Remember that a cursory review of open claims is not good enough. You must study every claim. Put in writing how similar claims can be prevented in the future and understand how each claim affects your workers’ compensation premiums.
By thoroughly practicing these 10 tips, you may secure future reduced premiums. Considering the enormous rise in premium costs, no business can afford to do otherwise.
Steven Brown is President of Hoffman Brown Company. Founded in 1961 and located in Sherman Oaks, CA they specialize in all coverages for small to mid-size commercial business as well as personal and medical insurance needs. They offer to their clients a unique and progressive strategy in Workers’ Compensation claims management and client support. Steve can be contacted at sbrown@hoffmanbrown.com
What is a Public Insurance Adjuster, and Why Would I Hire One?
by JOEL BAGELMAN
RUBIN, PALACHE & ASSOCIATES
(800) 923-5878
Rubin, Palache & Associates are public insurance adjusters, or in clearer terms insurance claims consultants. We negotiate on behalf of the insured (the policyholder) with their insurance company to achieve the highest dollar settlement possible in accordance to the terms and coverages set forth in the policy. We do not sell insurance nor do we represent insurance companies. We are always on the side of the insured. We are experts in the insurance policy and coverage issues, but we are not attorneys. In fact many of our referrals come from attorneys, because they realize that we will get the matter resolved without the length of time and cost of litigation. We also have experts in the areas of construction and engineering, but we are not contractors. We handle everything that you would not be expected to know in presenting, structuring, and negotiating an insurance claim. We get involved with commercial, industrial, and residential insurance losses. Our compensation is on a contingency basis, so if there is no recovery there is no fee.
Now you may ask, why would I need a public insurance adjuster (insurance claims consultant)? The real questions are:
- What is my claim?
- How much are my damages?
- How do I document and prove my loss?
Rubin, Palache & Associates will do all this for you. With our expertise our clients' settlements are increased substantially - from tens of thousands to hundreds of thousands of dollars more than what is being offered by the insurance company.
For example after nine months of negotiating, the final offer for structure damage to a condo association was $485,000. The insurance company had hired Peck/Jones Construction to prepare the estimate or what is more commonly called the scope. Peck/Jones is one of the largest construction companies in America. So if you ask did the insurance company use big guns? They used cannons! They used Peck Jones Construction. We were retained by the homeowners association and increased their recovery from $485,000 to $934,000. And that was without going to litigation. The whole process took us less than four months.
Another example is a very large CPA firm, ranked by the Los Angeles Business Journal to be in the top 25 in Los Angeles, lost 60 file boxes of client records when their storage company's warehouse was destroyed. The claim was a valuable paper loss and the firm's coverage was $100,000. It took the storage company nearly a year to tell the accounting firm which file boxes were destroyed. The insurance company required that the accounting firm give the name, address, phone number, contact person for each client. Also when the file was put into storage, when the client retained the accounting firm, and
the date when the firm was no longer doing work for that client. All reasonable requests, except for the fact that most of this information was lost when the warehouse was destroyed.
Two years after the date of the loss the accounting firm received a letter from the insurance company stating that the claim was being denied. The reason for the denial was because it had been two years since the date of loss and the accounting firm had not filed a proper claim. It was at this point that Rubin, Palache & Associates was retained by the accounting firm. We argued that by law accountants had to save clients' documents up to seven years, and that putting a two year limitation was tantamount to having no insurance at all. The insurance company then came back and said that the accounting firm had not reproduced any of the destroyed documents, so just how valuable could these valuable papers be? Plus the insurance company was not going to pay any money until money had been spent to reproduce the lost documents. We showed the insurance company that based on the firm's historical experience that it would be six or seven years before any of these documents may be needed for an IRS audit. So we gave the insurance company two options: keep the claim open for seven years and over time the firm would need to reproduce documents and would spend the policy limit of $100,000 or settle the claim now for $80,000.The loss was settled for $75,000 and to date not a single document has had to be reproduced.
Loss of business income (business interruption) is probably the most difficult of all insurance claims to prove. This is because you are creating a projection of what the firm's income hypothetically would have been from the time of the loss till the company was back up and running. This is pure accounting, and in accounting you can take the historical data and develop six different outcomes and all of them are valid. Financial records of income, expenses, depreciation, etc. are geared for tax purposes and are meant to minimize net income. The point is that the insurance company is trying to reduce the loss of income versus what another analysis would demonstrate. It critical as to what information is provided and not provided to the insurance company. Rubin, Palache & Associates are recognized as experts in structuring and settling these types of claims.
Why do we make such a difference? Basically it comes down to interpretation of what the policy says, interpretation of the damage, interpretation of the financial information, and interpretation of the methods of repair. So if you have an insurance claim you should have your own adjuster working for you. After all your insurance company has one working for them.
Mutual Funds for Today and Tomorrow
by Gregory S. Heller,
CFP
Heller Capital Resources
If you're not yet taking full advantage of mutual funds - or if you're second guessing their value in favor of alternative strategies - kick off the new year by reviewing some of the reasons why 88 million Americans use fund investments to pursue a variety of short-term and long-term goals.
Strong Growth
Thanks in part to a booming stock market and Americans' increased awareness of the need to take charge of their financial futures, US fund assets climbed from less than $1.1 trillion in 1990 to $6.8 trillion at the end of 1999. During the same period, consumer demand helped push the number from under 3,000 to about 8,000.
Greater Access to Sector Investments
Investors eager to diversify by focusing on specific stock market segments have also seen their choices increase. The number of sector funds has more than doubled in recent years, from 131 in 1990 to 344 at the beginning of 2000. And the number of technology funds has increased even more dramatically - from just 21 in 1995 to nearly 100 five years later.
A Wider World of Information
Fund investors have a distinct advantage over many individuals trying to tackle the complex task of constructing a well-rounded portfolio by themselves. Fund shareholders enjoy convenient access to investment research, information, and overall account activity via the Internet. During the 12-month period ending March 31, 2000, almost 50% of Net-surfing fund investors visited mutual find company Web sites for insight into performance, share prices, account updates, and other information.
Mutual funds also have several inherent characteristics that make buy-and-hold investing a potentially valuable strategy, such as professional management, diversification, liquidity, and regular account reporting. So whether your goals are a year away or decades away, a carefully considered mix of mutual fund investments can help you work toward them.