Let’s face it, running a construction company is not for the faint of heart. Tight deadlines, unexpected delays, budget overruns, and scheduling conflicts are enough to set anyone on edge, but what can really keep you up at night is the constant dance with workers’ compensation insurance. How do you not only manage, but actually reduce workers’ comp costs?
Because premiums are calculated based on a three-year rolling average and the most recently completed policy year isn’t included, it can take years to see a reduction in cost. Likewise, if you have an incident, it will affect your premium for years to come.
To make matters even more complicated (and disheartening), employers who do everything right and have no claims can still see their premium rise. If the industry has a bad year, then everyone shares the pain.
Understanding the Cost of Workers’ Comp
Though it may feel like having any degree of control over your premium is impossible, strategically managing your company performance can significantly reduce workers’ comp costs. The first step is understanding numbers.
I’m a big numbers guy because they assign a concrete value, making it easier for you to compare apples to apples. And that’s exactly why insurance adjusters use the Experience Modification Factor or “e-mod”.
A company’s e-mod is the numerical representation of its claims history – specifically it’s the ratio of actual workers’ comp claims to expected costs (based on other similar-sized companies in the industry). Because an e-mod of 1.0 is considered average, anything above 1.0 means higher premiums.
A 1.20 e-mod, for example, could lead to a 20% increase in premiums, while a 0.80 e-mod might see a 20% reduction in premiums.
According to an article by Insureon, workers’ comp insurance typically costs about $254 a month (or 1% of payroll), totaling around $3,054 annually. But this figure isn’t set in stone because it fluctuates based on various factors unique to your business. If you’ve got a large team, engage in high-risk activities, or have a history of claims, you’re likely to see higher costs.
So what can you do to better manage and reduce workers’ comp costs?
How to Get Control of Workers’ Comp and Reduce Costs
Even though it can take years to see a change in your workers’ comp premium, there’s no reason not to start managing it today. You don’t need to blindly take shots and hope something works, you can take simple, but intentional action to ensure the future of your company. Here are five easy strategies to reduce workers’ comp costs:
#1: Put Safety First
A proactive approach to safety is crucial to reduce workers’ comp costs. Regular training sessions that focus on the proper use of tools, machinery, and protective gear can create a safer work environment by decreasing the frequency and severity of workplace injuries. By focusing on preventing injuries rather than just reacting to them, companies can significantly reduce the frequency of claims. And fewer claims means lower insurance premiums.
After all, a single claim costing $10,000 can increase your e-mod by 0.01, while a claim exceeding $50,000 can lead to a jump of 0.05. And no one has time for that.
#2: Manage Your Claims
Your claims history plays a crucial role in determining your insurance premiums. Frequent claims can drive up your costs. For example, five claims totaling $20,000 that occur over a three-year period will have more negative impact than one claim totaling $20,000 over the same three-year period.
Effectively managing claims can make a significant difference on your insurance premium. One way to do this is to implement a robust return-to-work program. When an injury occurs, provide modified duties for injured employees to help them return to work sooner. This not only boosts employee morale, but also decreases the amount of indemnity payments because workers who are back on the job earn at least part of their normal paycheck.
Fewer missed days means fewer claims, which is an excellent way to reduce workers’ comp costs.
#3: Create a Safety-Minded Culture
Effective risk management is a key strategy to reduce workers’ comp costs. This involves more than just safety protocols, however; it’s about creating a culture of safety-mindedness.
For example, addressing issues found in regular safety audits and hazard assessments before they lead to injuries can have a substantial impact on your insurance premiums. Fewer injuries means fewer claims. And fewer claims means a lower e-mod. And a lower e-mod means lower insurance premiums and more money in your pocket.
Creating a safety-minded culture is a practical way to reduce workers’ comp costs while enhancing overall operational efficiency.
#4: Invest in Employee Training
Investing in employee training is paramount in reducing workers’ comp costs. Well-trained employees are more likely to follow safety protocols and avoid risky behaviors that could lead to accidents. By offering continuous education and training, you equip your team with the knowledge they need to stay safe and minimize the risk of injuries.
Training isn’t just a regulatory requirement; it’s a smart investment to reduce workers’ comp costs.
#5 Monitor Industry Trends
Staying informed about industry trends and changes can provide valuable insights into managing your workers’ comp costs. The State of the Line Report from the National Council on Compensation Insurance (NCCI) offers a snapshot of industry performance and trends. The most recent State of the Line Report indicated that workers’ comp premiums increased by 11.3% in 2022, reflecting a recovery phase post-pandemic.
Understanding these trends can help you anticipate industry changes and adjust your strategies to stay ahead of potential cost increases.
Reduce Workers’ Comp Costs with Tyfoom
Building a culture of safety, focusing on training and getting employees back to work will reduce workers’ comp costs. Managing all these different facets may seem overwhelming, but Tyfoom makes it easy.
Tyfoom’s unique, mobile-first app gives you the buy in to safety that you’re always looking for but aren’t quite sure how to get. Employees receive 1- to 2-minute engaging training videos every day. Consistent delivery and microlearning techniques improve learner retention and comprehension. Bite-sized chunks of content make it easy for employees to digest new concepts. You can also refresh training on demand with Tyfoom’s library.
Tyfoom provides leaders with a real-time incident reporting and management tool. Create custom digital forms in minutes using Tyfoom’s simple drag-and-drop builder. Managers can simplify compliance with the automated delivery of mandatory reports and inspections, including safety audits and hazard assessments.
Tyfoom helps companies proactively reduce workers’ comp costs and safeguard employees. To learn how you can reduce your own workers’ comp costs by building a culture of safety, schedule a call to speak with a Tyfoom training consultant today.