Monday, June 25, 2012

Controlling Your Workers' Compensation Cost through Risk Management

By Griff Griffith, CIC, CRM, CPA, Principal, GMGS Risk Management & Insurance Services

After benefiting from several years of post reform reduced premiums, California business owners are now being battered by a storm of rapidly rising workers’ compensation rates.  On top of a 37% rate increase effective January 1, 2012, Insurance Commissioner Dave Jones recently approved an additional 8% mid-year rate increase, effective July 1, 2012.  Certainly this 45% increase in workers’ compensation could not come at a more difficult time for many business owners as we continue fighting to survive one the most difficult economic times this country has ever known.  With such rate increases and painful economic challenges, how can companies survive such turbulent times?  Is there a proven solution to help companies rein in costs and increase productivity to stay competitive? 

Fortunately, such drastic rate increases are not a reality for all business owners.  A small population of companies has discovered that by utilizing a Risk Manager, as opposed to a traditional Insurance Broker, their company is better protected and even prepared for the work comp tsunamis we are currently facing.  Traditionally, the term risk manager has been associated only with large corporations that can afford to employ an in-house risk management professional.  Fortunately, this is no longer the case, as an outside risk manager can act as the “outsourced” risk manager for a wide range of mid-sized companies.  These risk managers work in tandem with business owners and the insurance companies to provide a distinct approach to achieving a company’s risk management goals.

The fact is upgrading to a risk manager brings about significant cost savings because of cost reductions in claims and insurance premiums.  Such a proposition seems like a no brainer, but how does a company identify a risk manager from an insurance broker? 

Brokers vs. Risk Managers
Risk managers perform many of the same duties as traditional insurance brokers, but it is their additional services and technical strategies that differentiate them.  Most insurance brokers will, at a minimum, approach multiple insurance companies and place coverages on behalf of a business.  Some quality brokers use this marketing process to ensure the business is well insured at a fair price.  The proactive broker may also provide additional service, such as limited claims management.  However, if it were possible to secure an even higher level of service above & beyond that of a proactive broker, with no increased cost, would it be of interest?

While Risk Managers provide traditional broker services, including the marketing and placing insurance coverage, their risk management services extend far beyond the services of a traditional broker.  The focus of an interactive risk manager is to provide proper risk protection while also enhancing the productivity and profitability of their clients.  When you hire a risk manager, you are essentially adding a team of professionals to your management team without putting them on your payroll.  The rest of this article discusses some of the distinguishing services of a risk manager.  It is critical to understand that these are not just service capabilities, rather hands-on, broadened services your company can expect from hiring a proven risk manager.

Services of a Risk Manager

Claim Prevention
One of the biggest advantages to hiring a risk manager is the securing of claim prevention strategies and training.  To prevent claims from occurring, we must educate our employees on how to work as safe as possible.  The first step is having the risk manager’s safety and loss control specialist review and renovate your company safety program.  The finished program is an up-to-date, custom safety program for your company and its operations.  A risk manager will also help your company roll out the new safety program and incorporate its content into prepared company safety meeting topics.  Successful claim prevention is a critical element of effective risk management.

Claims Management
When you hire a risk manager you can expect to secure a broader level of claims management and service.  The risk manager’s in-house claim management personnel manage claims on behalf of the employer as well as the employee.  From the side of the employer, the risk manager provides veteran claims specialists who aggressively reduce open claim reserves and close claims as soon as possible utilizing their technical experience and finesse to work with claims adjusters.  From the side of the employee, the risk manager helps the injured employee feel that they are truly the company’s most valuable asset.  The employee knows they will do whatever is necessary to make sure they receive proper medical care and help them get back to work as quickly as possible.  With the help of expert claims management, you will see notable reductions in your company’s claim frequency and severity.

Reduced Litigation    
Did you know that a work comp attorney will double the cost of a claim?  A true risk manager teaches every employee that their company, not an insurance company, ultimately pays the cost of a claim.  Employee perspectives and behaviors change when they understand that the lawyers filing work comp claims are the only ones that get rich.  The other two parties involved, the company and the employee, are both dramatically hurt by the litigation process.  Moreover, most injured employees are not trying to take advantage of the system and once they know they have an advocate looking out for their best interest, assisting with questions, and helping them return to work as soon as possible, they have no reason to approach an attorney. 

Fraud & Abuse Prevention 
Work comp fraud and abuse often creates the greatest frustration for companies in regards to insurance and most insurance brokers say there is no solution.  Although risk managers are not going to rehabilitate hardened criminals, the results show that the majority of employees respond to targeted education and training.  Injured employees are often not aware they are taking part in the abuse scheme.  Doctors and lawyers today are notorious for exaggerating claims and adding additional “injuries” such as psychiatric claims, sleep deprivation, or sexual dysfunction.  Through education, the employee learns what a wolf in sheep’s clothing looks like, which helps prevent a lot of unnecessary claim costs.  Moreover, we have seen numerous cases where our education inspires an employee to come forward and withdraw an existing workers’ compensation claim upon learning the truth about workers’ compensation fraud, the legal penalties of committing such felonies, and the negative financial impact on the company and its employees.

Cal OSHA Expertise
What happens if Cal OSHA pays you a visit or has to investigate a serious claim?  A risk manager has an in-house OSHA compliance expert to ensure your company is in full compliance.  Cal OSHA violations can be very costly to a company’s bottom line as well as their reputation, and regular inspections of your facility or jobsites by the risk manager are critical to staying Cal OSHA compliant.  A risk manger will help minimize such exposure so that the company can focus on its business, not fighting or paying OSHA fines. 

      Employee Education and Team Building
Would it be helpful if an employee thought more like an owner or a supervisor?  When was the last time a company’s CEO, CFO, or member of upper management filed a workers’ compensation claim?  One of the most important services of a true risk manager is providing employee training that creates greater employee understanding, and enhances their morale.  Even amongst risk managers, this is a unique service that only a select few risk managers provide to their clients.  It has been proven that once an employee understands the “why” behind working safe, they catch the vision of working hard and smart every day.  In fact, a company’s culture is transformed when the employees themselves take ownership of their safety program, its enforcement and when your employees truly feel that no amount of profit justifies the loss of a team member.

Improving Productivity
An interactive risk manager breaks away from the traditional model of working from the top down within an organization.  The approach of starting with employees and working up to management has not only secured improved safety results, but increased productivity.  If you treat your employees like they really are your greatest assets, they will become your partners in safety and take better care of your customers.  We often hear that our unique services accomplish more than just risk management; business owners even boast that their employees feel more valued as members of their corporate family as a result of our training.

Service Accountability
Providing all these services may appear like a lofty goal to most brokers, however risk managers create written service contracts with mutually determined priorities and deadlines so that client expectations are met.  When a company outsources its risk management, it also deserves to outsource the day-to-day administration too.  In fact, a proven risk manager should work for one of two potential grades, an “A” or an “F” because they understand their risk management stewardship and take it seriously.  Unlike some big brokers, risk managers create long-term client relationships based on the services they consistently provide as opposed to just promise.

The Bottom Line
Companies working with a risk manager achieve dramatically lower claim frequency and reduced claim severity.  These results clearly lead to bottom-line financial benefits, including dramatic decreases in long term insurance premiums.  However, immediate premium costs are also affected as underwriters negotiate the exchange of coverage for premium and they consider a multitude of factors to arrive at their final rates.  We have seen first-hand that companies using a risk manager secure higher discounts and ultimately lower premiums in exchange for implementing full service risk management programs.  After all, how many insurance brokers have spent enough face to face training time with their client’s employees that the employees all know their broker by name? 

Although most businesses are likely to experience rough water ahead in their workers’ compensation, we hope you can leverage this information to better protect your company.  We are confident that by taking the time assess the services available by upgrading to a risk manager, that you too can cultivate a company culture of greater safety, productivity and even profitability.

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