Reducing Workers' Compensation Premiums and Payouts

Workers' compensation insurance is mandatory in most industries. However, premiums for workers' compensation can take a bite out of business profits. To avoid high premiums, as well as payouts to employees which in turn will increase premiums, business owners can take several important steps.

How to Reduce Premiums

Workers' compensation premium is calculated according a specific formula. Two parts of the formula that business owners may influence are called the rate and the experience modifier. The rate is determined by how dangerous the industry is, according to the National Council on Compensation Insurance. While the rate is set by the state, most states follow guidelines issued by the NCCI. Another factor that business owners can influence is the experience modifier. The experience modifier, or MOD, is a number representing a business's history of claims and loss. Each state calculates MOD differently, but the lower the MOD, the lower the company's premiums will be.

Businesses may lower their rate by reviewing their NCCI classification. For instance, a secretary who works for the company should have a lower NCCI classification than a carpenter working for the company because the secretary's occupation is inherently less dangerous. Professionals who prepare workers' compensation paperwork often discover that businesses have incorrect classifications about one-third of the time.

Businesses should also seek ways to lower their MOD by prioritizing safety. Providing employees with safety training either offsite or in-house may lower a business MOD. Also, investing in a safety evaluation and in the implementation of recommended changes will save businesses a great deal of money over long term.

Another strategy for reducing MOD involves enrolling in state-sponsored programs that promote safety. Businesses may receive a lower MOD not only for enrolling but also for focusing on specific injuries or allowing state officials to inspect the premises. Many states also offer large discounts to recognized groups. To join a group, businesses must have a strong record of safety; new businesses are not often allowed to join groups. In return, businesses will qualify for group rating, which will reduce in a significantly reduced MOD.

How to Reduce Payouts

Some employers are trying pre-employment screening as a way of reducing workers' compensation payouts. One company, Merchant Information Solutions, produces a Pre-employment Integrity Test that tries to predict which workers may engage in high-risk behaviors. According to Cornell University researchers, the test rates people on how well they cognitively justify risky and dangerous behaviors. People who are identified as high-risk prospects are then deleted from the applicant pool.

Companies should also correctly investigate their workers' compensation claims. By identifying and correcting any unsafe processes, businesses will enhance worker safety and prevent future claims. Also, by placing valuable employees on a return-to-work plan and improving access to medical care, employers will have high-quality employees back at work and will also be less likely to be liable for permanent disability compensation. Whenever possible, claims should be settled within 90 days.

In most cases, the actions that reduce premiums, like safety training, will also reduce the incidences of injury and thus will reduce payouts. Business owners can cut worker's compensation costs by as much as 60 percent if they will follow just a few of these suggestions.

Author Brandon Everts is an insurance consultant and writes for GetInsuranceQuotes.ca.  GIQ is one of the top insurance websites online, providing everything from car insurance in Alberta to high risk coverage in Ontario.