Take a Look at Your Insurance
May 23, 2011
It seems like costs of everything are going up. In fact, in such a down economy, it’s sometimes very hard to keep up with the increases because we are working so hard chasing jobs and trying to make ends meet. Well, I am going to give you an idea that is an exception to the rule. This is one that you might not suspect. That one is insurance. That’s right, the one area in which we have found an ability to negotiate some improved favorable pricing, is in the area of insurance. Specifically I am referring to worker’s compensation insurance. If you look carefully at the overhead items on your financial statement, besides salaries, I suspect that insurance is the largest single item. Therefore if you want to find a way to save some money, then certainly checking out insurance is a way to go.
There is a major asterisk to being able to save money when it comes to buying insurance. That important thing is that hopefully you have implemented a comprehensive safety program in your company. The value of a safety program cannot be overestimated. Working safely has so many benefits for your company that it is a program you must have in place. To begin, the direct costs of accidents are high. Hospital and doctor bills today are unbelievable. In addition, the indirect costs associated with an accident are often four to five times the amount of the direct costs. These indirect costs are due to lost time by the other workers on a job where there is an injury, time filling out reports and in some instances giving testimony, giving statements, etc.
A RATED INSURANCEAs you are probably aware, worker’s compensation is a rated insurance. Typically each state has an insurance department which keeps track of your insurance premiums and compares them to the amount of claims you have against those premiums. They then develop an Experience Modification Ratio (EMR) which is specific to your company. When you begin business; you have an EMR of 1.00. After you have performed work for a year or more, an EMR is developed for you based on your experience and premiums. The insurance companies apply this modification directly to the premium they develop for you. For example, if your policy works out to be $80,000, if you have worked safely and have a modifier less than one, say .85, then your premium would be $68,000. On the other hand, if you have had excessive accidents and your mod is over 1, say 1.15, then your premium would be $92,000. You can see that just due to the EMR your premium could change by $24,000, or 30 percent over the base of $80,000.
Working safely and proving to your insurance company that you do have an active safety program may have more benefits than just the lower EMR. When your insurance company feels that you are aware of the importance of safety, they are likely to inject some additional premium discounts into their pricing as well. It is always beneficial to work safely and to make that a practice within your company. Right now we have found that it even has more benefits as some companies are looking to expand their business in the area of worker’s compensation. In our company, we make it a practice to shop our insurance package about every three or four years. We do not recommend shopping insurance every year. Carriers have told us that when they see a company taking bids every year, but typically staying with the same carrier, they are not interested in giving that company a competitive quote.
To sum up my recommendations: Make sure you have an active safety program and that your people are made aware of it on a regular basis. Check out the pricing on your insurance package every three or four years. If you receive a quote similar to your existing quote, even if it is slightly lower, I wouldn’t recommend changing if you are satisfied with the service from your present carrier. However, if the pricing is significantly lower, then make the change and put the difference in your pocket. The insurance market is very cyclical, so I recommend taking advantage of one of the few areas right now where it is actually possible to reduce your costs.
Publication date: 05/23/2011