Cut Workers Compensation Costs

by David L. McDaniel, MBA, CLU, ChFC - 3/21/08

Can You REALLY Save 20-30% on Workers Compensation Costs? Yes, it is not only possible, but is even probable, and just might even be Profitable!

Everyone knows Workers Compensation costs more than it should, but often employers are not made aware of their options. There are ways to lower your premiums, increase your control over claims, and if you want, build assets on a tax favored basis. You can lower your workers compensation costs by 30% or more, but you must be proactive.

The most common way a company handles their workers compensation state mandated coverage responsibility is by paying a premium to a carrier and hoping for some relief from the latest reform measures. In a deregulated environment, like California, this may entail a long wait. The fact is that there is little motivation for an insurance carrier, or even a “State” Fund, to pass on all, or for that matter, any savings. Further, since many of the states deregulated, the rates that are filed with the various Departments of Insurance are informational only. An insurance carrier is free to charge as much, or as little as they want. Like any business, insurance carriers are as concerned about their profits, or lack thereof, as employers are about their own! To make matters worse, there are fewer carrier choices in today's insurance market.

There are actually several options available that meet the state mandated requirement that an employer provide workers compensation coverage. Many companies or groups of companies in the same industry, who are proactive about their costs, can qualify. Here are some of the options:

  1. Self Insurance for a Single Company protected by an excess insurance contract issued through a state approved insurance carrier.

  2. Self Insurance for a Related Group of Companies protected by an excess insurance contract issued through a state approved insurance carrier.

Each option has its own qualifications and requirements. The viability of each option needs to be considered within the goals and needs of the company's fiscal requirements. That is why each of the options should be discussed with your insurance agent. If your agent is not familiar with these options, you should consider hiring a Workers Compensation insurance consultant. One of the advantages of a consultant is that the consultant is paid by you, and not the insurance company. This gives you a degree of control that you do not have with an agent or the insurance company. A consultant can work with your agent to review your payroll and loss history, and then explain the options (positive and negative) so that an intelligent decision can be made to either stay where you are, or to use the most fiscally viable option.

No matter which option is chosen, including keeping your current program in place, you should strongly consider taking full advantage of the provisions of SB 899. This reform measure contains a lot of provisions that when taken together, can result in significant short term and long term savings. For example, installing a Medical Provider Network (MPN) can immediately (Effective 1-1-2005) lower your costs per encounter, and keep employees in the network. This part of SB 899 will make a difference in your claims costs. You should ask for an overview of SB 899 from your insurance agent, or get one from the Department of Insurance Web Site. The best way to take full advantage is to make sure that you are firmly in control of your Workers Compensation program. You are paying for a service that is mandated by the state, you deserve a lot more service than you are currently receiving.

There are choices and options, but only if employers are made aware of them. It is possible to save on your workers compensation costs when you have the knowledge. Ask your agent today and take back control of your program.