"Dirty Little Secrets" of Workers' Compensation

  "Dirty Little Secrets"
of Workers' Compensation....or,
Why It's So #@% Expensive!

If you do business in New York, that in itself is expensive on many levels -- to the point where sometimes it is hard to make any profit in the business.  Surprisingly, that is also true for insurance companies in that state!

Why?  A simple answer:  Workers' Compensation.  Claim numbers, lawyer involvement in those claims, and medical costs in New York are all the highest in the nation.

Even if you don't do business in the Empire State, however, you no doubt want to find ways to economize on Workers' Compensation costs.  Why is this form of insurance so expensive?  Here are some "secrets" that can give you insight into that question.

Secret #1
    The right insurance agent matters.  Make sure your insurance professional is dedicated to providing you with the best possible service.  This includes finding you the best quote possible!  Your agent should have access to many Workers' Compensation insurance companies in your state as possible.  If he/she does not, it can cost you big-time..

Secret #1
    Be aware that Workers' Compensation insurance does not pay for employee injuries.  You do!  Let's face it.  You carry Workers' Compensation for only two reasons:

    1.    The law requires it.
   
    2.    It spreads the true cost of employee injuries out over time.

           What are some of those "true costs"?
        *    Lost productivity
        *    Reduced morale for the unhurt employees who fill in for the injured employee
        *    Increased stress for management and staff

Even when those costs are spread out over time, you pay dearly to cover them.  Do you realize that you pay $2 to $3 back to the insurance company for every dollar that is paid out of your employee injuries?  Each claim results in the most expensive financing contract you have in your business.  First, you are hit with high premiums; then you pay for almost all your claims.  And, to add insult to injury, your costs increase after a claim because your Experience Modification skyrockets.

In short, while the law require you to have this coverage, it is actually a killer expense as well.  This is why you need the best possible insurance agent and consultant available -- to find you the most economical way to conserve your business assets and make you "legal".

Secret #3
    Claims management services are usually dreadful.  When you pay for any big-ticket item in your life, you would expect -- and you are entitled to -- first-class after-the-sale service.  But in the case of Workers' Comp, think again.

Sheer claim volume is one reason.  Claims adjusters are snowed under with too many cases, so your injured employee may not get the attention he or she deserves.  Even in the face of this reality -- in order for them to survive in this economy -- insurance companies continue to downsize so they can gain a bit of profit!

When you add management care to the mix, things do not get any less complicated.  Your employee's claim is often outsourced to a case management company, with an adjuster who is often ignorant of what is happening or how your injured employee is being treated.

Consequently, you cannot just notify your Workers' Comp insurance company of your employee's injury and turn them loose to "do their job."  You need to follow up with a solid process that minimizes the cost of the injury and expedites your injured employee's return to work

Secret #4
    The "audit police" are not your friends.  Because your real insurance cost is determined after your policy expires, you absolutely want the audit to be spot-on.  The bad news -- is this situation, you are at a disadvantage from the start.  The insurance company auditor knows the rules -- you do not -- and the auditor is not compelled by law to explain the rules, even if applying a rule would cause you to pay a lower premium.  It just does not work that way.

    Here are a few examples of how audits work against you:

    *    Auditors are not usually well-trained.
    *    Auditors have no interest in educating you on how to keep your costs down.
    *    Auditors step in and pick an audit trail (Which one?  You have no control.)
    *    When in doubt, auditors put all payroll in the highest-rated class.
    *    Auditors may or may not ask for "excluded payroll."
    *    Auditors are motivated to get in and out quickly.

Under these conditions, misclassifications -- not to mention countless other types of mistakes are common.  And guess who pays for the mistakes?  (Hint:  It's not the auditor)

Would you allow an IRS agent to conduct an audit without an expert on your side?  Of course not.  A Workers' Comp audit may actually cost you more money than an IRS audit, and Workers' Comp audits come every year ... while you may go years without an IRS audit.  So which stands to save you more money?  If you are smart, you have already realized the answer:  do not allow an insurance company auditor to conduct an audit without an expert on your side.

Secret #5
    Experience modification factors are often wrong or mismanaged.  Most insurance buyers accept on "good faith" that their experience modification factor is correct.  Why?  would you accept on "good faith" any other given set f figures that can cost you money?  Much of the time, in fact, the experience modification factor can be wrong -- and the insurance company benefits from it.  Even when it is correct, there are simple strategies to lower it.  If you do not know why the six-month mark after your policy expires is such a critical date, you may be overpaying your insurance.

Secret #6
    Face it:  sometimes, you just plain hire the wrong person.  A miniscule 7.4% of your workforce is responsible for a huge 75.6% of your Workers' Compensation costs.  What does this tell you about your hiring practices?  Yep.  You may be hiring the wrong people.  Enlist your insurance pro's help in minimizing the damage if or when this happens.

Secret #7
    Subcontractors can be a whole other headache.  The subcontractors you hire (fi any) are a huge area of potential "leaks" for you.  Merely because you have a certificate of insurance from a subcontractor, do not assume you are protected from being charged by Workers' Comp insurance company or from a subcontractor filing a claim against you.  Also keep an eagle eye on your subcontractor through your accounting system, especially if your subcontractor has not insurance.  It can make a huge difference in how you are charged.

Secret #8
    Good News at last:  You can drastically slash your costs -- if you install the right system.  Most companies' biggest frustration with their Workers' Comp is that they feel powerless to do anything to change the status guo.  You do not have to feel helpless if you choose the right system and the right experts to help you implement it.  As a business owner, you face myriad problems every day; do not let Workers' Comp be one you cannot solve.  You can  do something about the high costs of Workers' Comp -- with the right people on your side!

Brian Cameron
Cameron Group, Inc
845-627-2130

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