One of the biggest expenses affecting most small businesses today is worker’s compensation insurance. Premiums can vary widely depending on your industry, but this mandatory coverage can as little as .5% and as much as 40% of payroll.
This fast-growing expense is often a top concern for employers, who’d like nothing more than to find ways of controlling costs. If you think that you’re over a barrel with this pricey coverage, that may only be partially true. Here are the ten ways that insurers use to price your coverage, some of which you can control with smart business planning.
INDUSTRY CLASSIFICATION
Much of what you pay in worker’s compensation premiums is regulated by your state, which typically gets its actuarial figures from the National Council on Compensation Insurance (NCCI). Your rate is a statutory rate assigned based on your industry, with more than 700 choices and even more designations for employees. If a company or employee is misclassified to a riskier code, your rates are going to be higher. While you shouldn’t game the system, be sure that your classification is accurate and request an adjustment if it isn’t.
BUSINESS OPERATIONS
The specifics of your company’s operations can affect your worker’s compensation premiums. This goes back to the classifications that your business is assigned. For example, an electrical company might be assigned a certain industry code and then have further codes assigned based on the type of work that the electricians perform. Electricians that work inside only will have a lower risk rating than those that work installing solar panels on roofs.
CLAIMS HISTORY
When rates are determined each year, the statutory rate for your industry is combined with what is called your MOD. This is a figure that represents your company’s loss and claims history. Your MOD is the single biggest rating factor that is within your control. If your company has programs in place that reduce losses and claims, your MOD will be less than 1.0 and your worker’s compensation premiums will go down.
LOSS CONTROL PROGRAM
The best way to control and lower your MOD is to implement a comprehensive loss control program in your company. A safe workplace lowers the number work-related injuries, which is going to give your business lower worker’s compensation rates. You can achieve a safer workplace through employee training, hiring a loss control specialist, having a clear return-to-work program, and participating in your state’s Drug-Free Workplace program.
EXPLORE GROUP RATING OPPORTUNITIES
Many states offer insurance discounts to recognized groups, which are called group ratings. If you are an established business, you might be able to find a recognized group in your state that could provide you with some valuable discounts.
YEARS IN BUSINESS
Speaking of established businesses, an insurance company will often look at your years in business when they rate your policy. Because a MOD is calculated based on your claims and loss history, a brand new company will have a MOD of 1.0. If you’re an established company that has invested in loss control, you have the opportunity to reduce that MOD, which will deliver lower insurance premiums to your company.
MANAGEMENT EXPERIENCE
Similar to year’s in business, an insurance company might also look at the experience level of your company’s key managers. For example, if a new construction company hires a reputable loss control specialist, a slight rate discount might be provided.
PAYMENT HISTORY
Payment history is a factor that may or may not affect your worker’s compensation rates. If you have been fast to pay your premiums or have paid for an entire year’s estimated premiums in advance, you might be able to secure a discount.
PAYROLL FIGURES
Your worker’s compensation rates are calculated based on every $100 in gross payroll. These figures can add up quickly, so it would benefit your company to audit the figures that are being used for rate calculations to ensure their accuracy. If worker’s compensation costs are still too high, you may also wish to consider outsourcing some non-key positions to cut down on company payroll.
MARKETPLACE COMPETITION
As with any other industry, insurance can be competitive, and your company might be able to get better rates simply by shopping around. While the statutory rate won’t change, discounts given are discretionary, and competition in a particular market could bring your company a good deal.
The vast majority of businesses in this country are required to have worker’s compensation insurance. Even exempt companies should consider carrying this valuable coverage. A thorough understanding of your rates can help you save money long-term, and keep your employees safer on the job.
