The State Compensation Insurance Fund, or SCIF, announced a mid-year rate hike of almost 15% in its workers’ compensation rates, effective July 1, 2009. While this may sound like bad news for a quarter of California’s employers who are covered by SCIF, the news could have been a lot worse – the 15% increase is significantly lower than the 27.1% increase recommended by the Workers’ Compensation Insurance Rating Bureau (WCIRB) earlier this year.
Almost every carrier in the state has also reported increases -
- Woodland Hills’ Zenith Insurance Co., one of the bigger players in the California comp niche, filed for a 4 percent July increase
- Two Berkshire Hathaway Inc. entities have filed for 10.3 percent increases
- Several Guard Insurance Group companies, meanwhile, filed for jumps in the 2.2 percent to 5 percent range.
The rate increases are blamed on rising indemnity and medical costs related to workplace injuries.
How to keep your costs low.
Despite the state-wide increases, insurance companies view the loss history of an individual company before bumping rates. The Loss Ratio (the ratio of losses paid out versus premiums paid in) is the most important factor in determining rate increases. Even while published base rates state-wide may be increasing, a company with a low loss ratio can still experience a decrease. There are two ways to keep your Loss Ratio low: 1) decrease the FREQUENCY of accidents, and 2) decrease the SEVERITY of an injury when it occurs.
1. Frequency. When reviewing loss ratios, the insurance companies analyze how often injuries occur, and if they are of similar type. Similar injuries that repeat themselves time and again (slips and falls, or back strains, for examples) indicate a weakness on the part of the employer in that area. Improved training and awareness will help reduce the frequency of these injuries. On the other hand, common, unrelated injuries may indicate a general lack of training and give the employer reason to pause and assess their workplace safety as a whole. They should review and update their Injury and Illness Prevention Plan, institute regularly scheduled safety meetings, and implement incentive/bonus program that recognize and reward workplace safety.
2. Severity.Once an injury occurs, the employee, will generally receive medical care. They will be examined by an industrial doctor who will determine the severity of their injury, the necessary medical care, and if they will be required to take time off work. The insurance company will be responsible to pay for all related medical, rehabilitation and indemnity (time off of work) costs. The longer an employee receives medical care and remains off work, the more the insurance company pays. Therefore, it is in the best interest of the employer to return the employee to work as soon as possible. If an employee is unable to resume their previous job function, the employer is encouraged to incorporate a “Modified Return To Work” Program whereby the employee can return to payroll while performing permitted job functions. This can significantly reduce the indemnity costs and minimizes the negative impact to the employer’s insurance policy. An employer should also be vigilant in reviewing open claims with the insurance carriers and to have them closed and removed from the record as soon as possible.
Let a PEO (Professional Employer Organization) manage it for you.
Creating and maintaining an effective safety program is often beyond the capabilities of the average small and mid-sized employer. As rates increase, more and more businesses are turning to PEOs to assist them.
A PEO is a firm that specializes in assisting employers with all the responsibilities relating to employees. A PEO becomes the “Administrative Employer”, making the PEO the legal employer for taxation and insurance purposes. It allows its clients to access a large insurnace pool and through economies of scale, reduce the costs of workes’ compensation insurance premiums. The employer remains in control of all day-to-day activities, and serves as the “Managing Employer”, overseeing the employees on-site.
The PEO employs a team of Safety and Risk Management experts. This Risk Management team has the expertise and experience to provide even the smallest employer a safety program that will help reduce the frequency, and severity, of claims.
In conclusion
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Despite state-wide increases to workers’ compensation rates, employers can control their costs by analyzing their losses and implementing a safety program that addresses their weaknesses. A PEO is a viable, and cost-effective, method of managing an effective loss control plan that will ultimately reduce injuries and help improve your workers’ compensation premiums.