After years of stable insurance rates, 2012 California workers’ compensation rates are expected to rise significantly. On November 4, 2011, Insurance Commissioner Dave Jones approved an average increase of 37% to the pure premium rates and a claims cost benchmark of $2.30 per $100. The claims cost benchmark reflects the expected average cost of claims based on total California payroll, i.e. total claims cost/total payroll.

Twice a year the WCIRB advises the insurance commissioner on how costs are developing within the California’s workers’ compensation system and in turn, the commissioner advises insurance companies whether  they should lower, raise or maintain their rates. Explaining the rate increases, Commissioner Jones held a public hearing at the end of September, 2011 stating that the WCIRB is restructuring how the state’s rates are calculated. Additionally, most carriers are experiencing increasing expenses and reduced profits due to rising insurance claims costs and operating expenses. Industry data for 2010 shows the combined loss ratio at 128%. That means, for every dollar an insurance company collected in premiums, it spent $1.28 in claims and expenses.

While the 2012 increases are viewed as bad news for employers, Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, a group that represents the interests of employers, offered the following perspective: “The [new] filing means rates are essentially where they need to be to cover the cost of claims, which has been increasing substantially in recent years. This is a methodology that we think adds  transparency. This is the first rate decision or advisory rate published by the insurance commission under the new methodology established by the bureau and our organization believes the new methodology is good for employers because it adds transparency and it’s clearer and more informative for employers to expect where rates should go heading into the next year.”

Protecting Your Business Against Rising Premiums

The best way to offset increase in premiums is to maintain a safe work environment, which will reduce the occurrence of workplace injuries, and ultimately lead to a reduction in the company’s experience modification rate (Ex Mod). Employers with a favorable Ex Mod (less than 1.0) will gain the benefit of having their Ex Mod applied to base rates resulting in lower premiums, as well as being eligible for additional credits or discounts offered by the insurance carrier.

Below we offer four fundamental practices that will directly impact your workplace safety and ultimately, your insurance costs:

1. Implement an Injury and Illness Prevention Program (IIPP)
Not only is an IIPP a necessity for regulatory compliance,* but a
well designed IIPP will also help to minimize injuries and related
costs. An IIPP should address key items including responsibility
for overseeing the safety program, communication with employees,
employee compliance with the program, hazard (risk) assessment
and correction, accident investigation, safety training and
recordkeeping.
*All California employers are required by Cal/OSHA to have an Injury and Illness Prevention Program in place. Federal OSHA is currently considering a similar requirement.

2. Make Safety Everyone’s Job
While it is necessary to designate specific individuals to administer
the IIPP, it is also important to emphasize the company-wide shared
responsibility for safety. In order for an IIPP to be effective, everyone
from top management to supervisors and employees must buy in to
and support the program. Make sure that managers and supervisors
are adequately trained regarding company safety policies so that
they can help to enforce these policies with their employees. Involve
employees in the safety program, encouraging them to make safety
suggestions, assist with hazard identification surveys and job hazard
analysis. This creates a sense of employee ownership of workplace
safety issues. Also consider incorporating safety into performance
evaluations and bonus programs.

3. Consider a Safety Incentive Program
When done right, an incentive program can be a valuable addition
to the company’s overall safety program. Be wary of programs that
discourage injury reporting; instead, try implementing a program that
uses positive reinforcement, rewarding employees for contributing
to workplace safety by making safety suggestions, following safe
work practices and assisting with hazard identification efforts.

4. Consider Outsourcing Safety Administration
Many organizations attempt to institute an effective, cost efficient
Risk Management Program in an effort to reduce workplace
injuries. These programs may be difficult to implement, often
with unproductive and costly results. Consider contracting with a
Human Resources Outsourcing firm that employs safety specialists
to assist you in the creation and implementation of an effective
safety plan. Contact CPEhr’s Risk Management Department for
more information.