With improved data, predictive modeling, and technological advances driving underwriting decisions, insurance companies have become sophisticated with pricing. However, many business owners still pursue the popular tactic of seeking quotes and allowing the carrier to dictate the pricing because they believe a workers’ compensation premium cost is simply based on payroll, the experience modifier, and the insurance company rate.
Yet, insurance companies have subsidiaries with their own rates and underwriters can choose which of the companies and rates to use, as well as apply surcharges and or credits to increase or decrease the rates. Therefore, in reality, the workers’ compensation premium is based on the insurance company’s perception of your risk.
The good news is that workers’ compensation is the one property and casualty coverage where the business has the most control for improving its risk profile by reducing claims and costs. But it requires commitment and planning and won’t happen overnight.
While a business can’t change its loss history and claim costs over the past five years, it can change the insurance company’s perception of its risk by proactively identifying and addressing unique cost drivers, developing and applying proper risk management techniques, demonstrating an earnest commitment to reducing the frequency and/or severity of risk, and putting its best foot forward.
A business won’t get the best price by just asking, saying it has made improvements, or that management is committed to better risk control. Underwriters must be convinced there are solid reasons to adjust pricing. When there are unusual losses, spikes in loss ratios, or an unexpected rate hike, the approach requires a plan.
Teresa Long, Director of Injury Management Strategies for the Institute of WorkComp Professionals, notes “there must be meat on the bones.” The more substance, the better the chance the insurance company will work with you. For example, if you have training initiatives tell how many, when they are conducted, what is the format, and how are results monitored.
Working with an Advisor, a carefully prepared submission should include:
- Positive history
- Good premium payment record
- Good or improving experience mod history
- Low turnover
- Health of workforce
- Good growth potential
- Commitment to the community
- Employer programs in effect
- Training initiatives
- Proactive human resources
- Timely reporting of injuries
- Medical cost containment: good clinical relationships
- Management involvement and commitment
- Excellent employee communications
- Health and wellness programs
- Improved techniques for risk identification, analysis and control
- Quality analytics and metrics
- Staff or consultants to help apply proper risk management techniques and evaluative services
- Job hazard analysis/job safety analysis
- Lessons learned: problems identified, changes made, monitoring and evaluation
- Be upfront about past problems
- Change in company policies
- Change in management
- Change in benefit structures or other significant programs
- Prior layoffs
Managing troublesome claims
There will be some claims that are particularly troublesome to underwriters. It’s best to find out what they are and address them directly. There is always more to the story than what the stats and reports tell. It’s important to make them real and discuss how they occurred as well as identify what was done to minimize the loss and prevent recurrence. If medical complications, employee motivation, litigation, or other factors impacted the outcome, they should be explained. Finally, discuss the resolution or plan to resolve.
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