If you think your insurance carrier is paying all costs associated with a workers’ compensation claim, think again. The insurance company is responsible for the direct costs of a claim but what about indirect costs?
Workers’ compensation coverage
Most states require employers to secure workers’ compensation insurance. This covers their employees in the event of a work-related illness or injury.
The carrier charges a premium that relates to the risk associated with each job. A clerical position is less risky than a landscaper. Therefore, the premium rate for a clerical position is less than for the landscaper. The premium rate is calculated on the amount of wages for each position.
In exchange for the premium the carrier pays costs associated with a work-related injury that include:
- All medical payments incurred to make the injured employee well – doctor visits, hospital stays, prescriptions, tests and, surgical procedures.
- Indemnity payments – a part of the employee’s normal wages when he/she cannot work due to an injury or illness.
- Expenses – Legal fees if the claim is litigated are the most common but could include other expenses.
The premium you pay helps cover direct claims costs.
Indirect claims costs are not covered by insurance. These costs impact the employer financially. Although they are difficult to measure, they may include:
- Loss of a worker – while the worker is off it may cause a reduction in efficiency, lost production, overtime, a reduction in quality of work and time/effort to rehire, retrain or find a temporary solution until your employee comes back to work.
- Management time – you and others in your organization will lose valuable production time because you will have to investigate the accident, manage the claim through interaction with the insurance company, spend time retraining and explaining to workers what is happening.
- Loss of equipment or products – the accident may have damaged your equipment or a customer’s equipment that you have to replace.
- Future insurance costs – workers’ compensation claims will affect your premium rate most likely causing you to pay more for insurance in the future.
Protecting your rate
As with any insurance, the more claims you incur, the higher the premium is likely to go. Workers’ compensation premium is directly tied to your loss experience. The more claims and dollars paid out, the higher the premium.
The best protection is to prevent workplace injuries. Take the following precautions:
- Develop and implement strong safety policies.
- Train employees how to safely perform their jobs.
- Inspect your workplace to identify and correct safety hazards.
- Model good safety behavior.
- Establish a good return to work program.
Even with good safety policies and training, accidents can occur. Working with the injured employee, medical providers and workers’ compensation claims adjusters to return the employee back to work is the best course of action. Statistics show the faster an employee returns to work, the less likely for the claim to be litigated. And litigation always increases claims costs.
Find a Partner
When you outsource your HR functions to a Professional Employer Organization (PEO) you gain a partner. The PEO can assist you with the management of workers’ comp claims to:
- prevent accidents by assisting with a sound safety program,
- manage claims by working directly with the carrier, injured employee and medical providers
- develop a return to work program