The State Of Workers Compensation

Workers compensation has quickly become the most volatile line of property & casualty insurance in the marketplace today. Fewer carriers are writing the coverage, and the carriers that are writing work comp are becoming increasingly conservative.

There are several reasons why the marketplace is so volatile. Medical costs per lost time claim increased by 203 percent since 2000, from an average of $14K per claim to $28.5K per claim. Indemnity (lost time wages when an employee is injured) claim costs increased by 151 percent since 2000, from an average of $14.8K per claim to $22.4K per claim.

The aging Baby Boomer generation has been documented heavily and makes up a large portion of the workforce, with bodies more susceptible to injury that, on average, take longer to recover.

Fraud is increasing, with a significant increase in “red flag” claims since 2009, as employees attempted to find any way to generate additional income for their families.

Not only have health insurance prices continued to climb, but so have employees’ contributions and deductibles. According to Aon Hewitt, the average out-of-pocket costs, such as co-payments, coinsurance and deductibles, increased 12.8 percent ($2,239) in 2013. The workers compensation system has no deductibles to the employee, including paying lost wages while out on an injury.

As hospital systems continue to get squeezed under the Affordable Care Act and by health insurance carrier fee schedule negotiations, they are being reimbursed at lower rates. Health insurance reimbursement can oftentimes be 15-40 percent less than workers compensation reimbursement.

Due to the severity-driven exposure, many carriers don’t like the welding and gases industry, as it only takes one material handling injury while loading/unloading a cylinder and the year is shot. The simple word “gas” scares a lot of underwriters away.

From 2010 to 2012, the combined ratio on workers compensation averaged 113. This means that for every $1 the carriers took in, they lost $0.13. In 2013, the combined ratio dropped to 101, which is a good sign, but the carriers are still trying to make up for what they lost in years past and with interest rates at historic lows, they have been forced to make up the money through underwriting profit.

What You Can Do
Despite the forces working against the welding and gases industry, many companies have not seen their workers compensation rates increase. These companies are doing very specific things to control their losses, which is the biggest driver of the premium they are charged.

  • Create a Culture of Safety – Make it known that safety is the #1 priority, over productivity and everything else.
  • Be Visible – Regularly conduct safety meetings, post articles/reminders and goals.
  • Create a Safety Committee – Establish a cross-functional safety committee with authority to make critical decisions.
  • Pair Safety with Wellness Initiatives – Coordinate with HR and health initiatives, as it doesn’t matter whether an employee gets hurt or sick at home or work, it’s still being paid for by the company and your employees are your most valuable asset.
  • Evaluate Pre-Employment Strength Testing Options – To avoid hiring your next work comp claim, consider conducting a strength test. There are a number of different options available, so if you chose to conduct a test, make sure it is designed to reject applicants. Many occupational clinics are conducting “Functional Capacity Evaluations” and never reject anyone. This test is intended to weed out the worst applicants; be leery if no one is being rejected. The most preferred mode of strength testing is isokinetic testing, where a machine conducts the test, so no bias is involved.
  • Create Safety Goals and Build Safety into Management Bonus Programs – Have well-established goals that are shared with all employees and regularly checked on. Be careful of selecting goals like experience mod and loss dollars, which are lagging indicators and can be dominated by one large claim. Instead, select goals that are more controllable, such as reported near misses, claim frequency (number of claims), etc. Incentivize your managers to encourage safety by building these goals into their performance reviews and bonus programs.
  • Choose Partners Wisely – Select an agent/broker and carrier(s) that understand the industry, have experience working with it and won’t abandon ship at the first sign of trouble. There are many risk exposures that are very unique to this industry and render off-the-shelf safety meetings and topics relatively useless.

Results
The welding and gases industry can be hazardous and employees are likely to get hurt regardless of what you do. Putting a program in place to control what you can will positively impact your cost, productivity and culture, allowing your company to attract and retain the best talent while remaining profitable.

(Note: Workers compensation medical and indemnity average claim numbers are according to the Insurance Information Institute and NCCI.)

Gases and Welding Distributors Association
Meet the Author
Tony Hopkins is vice president of Horton Risk Management at The Horton Group. He is located in Waukesha, Wisconsin, and at www.thehortongroup.com.