8 Major Workers Comp Mistakes -Part 2
Issue #48
March 17, 2008
Looking at workers' compensation as a business necessity or a commodity is a major fallacy. Although most employers fail to recognize it, workers' comp is a core business practice and a means for improving the bottom line. Here, according to Frank Pennachio, are the first four of eight mistakes employers should avoid so they can achieve long-term savings.
Throughout much of the country, declining Workers Compensation rates are music to employers’ ears. After all, that seems like long-awaited good news, particularly since Workers Compensation is, more often than not, viewed as a necessity and a significant cost of doing business.
Yet, looking at Workers Compensation as a business necessity or a commodity is a major fallacy. Although most employers fail to recognize it, Workers Compensation is a core business practice and a means for improving the bottom line.
5. Viewing Workers Compensation as an expense
Employers should recognize that Workers Compensation is more than a necessary expense; it is a controllable aspect of business that, if managed properly, will have a measurable and positive return on investment (ROI).
In “ROI Selling,” authors Michael Nick and Kurt Koenig note three measures of ROI, writing, "Return on investment occurs when a company realizes an increase in revenue, a reduction in cost or an avoidance of cost."
Viewing Workers Compensation as an ongoing process and not an expense can accomplish all three. When injuries do occur, employers can increase their revenues by getting employees back to work quickly and reduce their costs by managing the injury effectively. By recognizing that Workers Compensation begins at the date of hire, employers can avoid costs by hiring the right people.
6. Separating Workers Compensation from employee retention
Retaining skilled employees is one of the most difficult challenges facing businesses today. Turnover is extremely costly. According to estimates it is anywhere from 50 to 150 percent of an employee's annual salary.
If a work-related injury is not managed properly, it can result in the unnecessary loss of a skilled, trained employee. The longer employees are away from the job, the less likely they are to return. Statistics show that if employees are not back to work within 12 weeks, they only have a 50 percent chance of ever returning.
The fundamental reason for most lost time is not medical necessity but the non-medical decisionmaking and lack of a process that occurs after an employee is injured. The workplace response is key: Studies show employees’ satisfaction with their employer’s response has a much larger impact on employment stability than their satisfaction with healthcare itself. Being guided by a plan that focuses on communication and return to work will be far more effective than declining rates in both reducing Workers Compensation costs and improving productivity.
7. Devaluating your relationship with the insurance company or agency
In a time of declining rates and new competition, there is a tendency to shop for the lowest price. The insurance industry is not immune to the old adage, “You get what you pay for.” Chasing the lowest rate can result in poor service or having to deal with an insurance company’s unstable finances. In every “soft market” cycle, insurance companies have gone bankrupt and been unable to pay claims. It is critical for employers to investigate the insurer’s stability as well as its long-term commitment to the Workers Compensation market to mitigate the possibility of a financial failure.
Furthermore, selecting an agent and carrier with an excellent understanding of Workers Compensation is very important. The added benefits of improved hiring practices, medical relationships and comprehensive injury management services will reduce both the number of claims and the costs of claims, resulting in a lower Mod. Unlike declining rates, a reduced Mod is a guaranteed way to drive down costs over the long term.
8. Measuring the wrong thing
Prominent statistician John Tukey, Ph.D., said, “When the right thing can only be measured poorly, it tends to cause the wrong thing to be measured well. And, it is often much worse to have a good measurement of the wrong thing, especially when it is so often the case that the wrong thing will, in fact, be used as a indicator of the right thing, than to have a poor measure of the right thing.”
When Workers Compensation is treated as a commodity, the decision is reduced to the lowest possible common denominator: price. This shortsighted approach is equivalent to expecting gourmet food on a fast food budget. If employers are not measuring the true financial impact of work-related injuries, they cannot effectively manage them.
Viewing Workers Compensation as a core business practice of comprehensive risk management, the focus shifts from price to tangible metrics that are driving claims costs. With this information, employers can address the underlying circumstances and conditions that are pushing up work-related injury costs and measure the value of their actions.
The declining rate period provides an opportunity and a challenge for employers. The opportunity is to use the “found” money to implement practices that will improve their company and profits: better hiring, injury management and improved education and training. The one constant that separates employers from their competitors is their workforce. The challenge is to protect it.
Reprinted with permission of Frank Pennachio, CWCA, the cofounder and director of curriculum for the Institute of WorkComp Professionals.
Kempkey Insurance Services goes beyond insurance by designing and implementing risk management programs for growth oriented businesses. We help our clients maximize the value of their insurance dollars and minimize their potential for unwanted surprises. Ed Kempkey can be contacted at (888) 536-7539 extension 2188, or at ed@kempkey.com.