California Apparel News

Workers’ comp rates are no longer at the sky-high levels of three years ago, but business owners can implement costcutting measures before they begin to climb again.

Remember that hot topic called workers’ compensation premiums?

Just a few years ago, one could tune into any morning talk radio show, watch a local news broadcast, open the daily newspaper (or this one) or overhear two business owners lunching and know that skyrocketing workers’ compensation insurance premiums were threatening to drive companies from California or, even worse, out of business altogether. Clearly, the workers’ comp situation in California was a major crisis.

Gov. Arnold Schwarzenegger was elected, in part, because of his campaign position on the matter along with his proposed solutions offered to avert a statewide business failure. Flash forward to today, and workers’ comp insurance rates for class code 2501 (clothing manufacturers) are at their lowest point in almost a decade.

But lest we forget, workers’ compensation costs have notoriously been cyclical, and rates can be expected to rise again in the future. Pressure is already on the governor and the California Legislature to increase permanent disability payments to injured workers— a benefit that was drastically reduced in the last reform spree of 2003 to 2004. Add this to normal inflation, and the rising cost of health care and the rates California employers pay for workers’ compensation coverage are surely to be on the rise in the not-too-distant future.

Still, there are ways employers can lessen the impact of increasing rates. “Be a better risk in the eyes of the insurance company,” said Ron Field, vice president of Menlo Park, Calif.–based CompWest Insurance Company. “Lowering the frequency of claims through good attention to safety and keeping the severity [or cost] low by aggressive mitigation programs not only lowers your experience modification factor applied to your base rate but also makes your operation more attractive to the underwriter, who often can apply additional credits to your premium for your efforts.”

Teaming up with an insurance company and broker that understands your industry and how to make the most of recent reforms can certainly help in this process. Preventing injuries is always the No. 1 strategy for keeping your rates low. Avoiding violations of the Occupational Safety and Health Administration (OSHA) regulations is also crucial. OSHA violations can amount to huge fines to employers who fail to maintain easily overlooked safe working conditions. “I strongly believe in focusing on both the actual losses and exposures for potential losses that haven’t occurred,” said Ed Perez, vice president of risk management at Santa Monica, Calif.–based Sander A. Kessler & Associates Inc. “It takes experience and a critical eye to pinpoint the possible exposures for loss and to develop realistic controls.” To implement a successful program to keep workers safe and OSHA away, Perez insists on “management commitment and organization along with employee involvement through awareness, training and incentives.”

But after an injury happens, much can be done to keep costs down. “The reforms of recent years brought us many tools to help us control claims costs,” said Field. Medicalprovider networks (PPO for workers’ comp), utilization review (which controls overly excessive medical treatment) and return-towork incentives, in which injured workers receive less compensation when an employer provides a modified job to a disabled worker, are some of the major cost cutters implemented with the reforms.

“At CompWest, our ’Care’ model recognizes these advantages and works with employers to fully utilize these savings tools, while at the same time helping injured workers through a difficult process,” said Field.

When workers are injured, they are not only worried about their pain, they are equally concerned about their recovery. Having an insurance company that steps in to help injured workers get quality medical care and timely disability compensation and helps them understand what can be a very onerous barrage of mandated benefit notices can go a long way to easing some of the “frictional” processes found in workers’ compensation, which many times can delay recovery or cause expensive litigation. “It may be nothing more than helping an injured worker secure transportation to his next doctor’s appointment or helping them understand the diagnosis and treatment plan,” said Field, adding that the extra “care” approach can help a worker move quickly through the recovery process and back to work.

Employers that have a “keep at-work” attitude rather than a “return to work” focus also promote cost savings. Employers that have temporary light-duty assignments ready to go when injuries occur eliminate the disability process altogether. It is a win-win for employers and workers. Employers retain some partial productivity, and workers don’t go through the onerous “disability” process. That disability process not only hurts an employer’s experience modification but also catches the eye of the underwriter in a negative way.

Keep-at-work programs also help to reduce fraud. Most fraud in workers’ compensation occurs when employees exaggerate their complaints to stay off work. When they are in the work environment, it is much harder to be a good actor all of the time.

Brokers who understand their clients’ business and their efforts to control costs can also help keep coverage prices lower when rates rise. These brokers can favorably differentiate their clients in the insurance marketplace and can often produce better pricing and retention results from the insurance company.

An employer, a broker and an insurance carrier that see the benefits of fully utilizing the valuable changes brought on by the workers’ compensation reform will see the savings even in times of rising rates. Injured workers who find an insurance company that cares about their situation and helps them through a difficult time will often recover sooner and be more appreciative of their employer’s selection of an insurance provider. As the labor market tightens, having a trained worker who is happy with his care and back on the job can mean big administrative savings for employers, as well.

When premium rates start to rise, employers will find that insurance companies that see the value in their actions to prevent injuries and control claims costs will factor that into their overall pricing. Employers should pick their broker and insurance company now to establish a partnership that will help them mitigate the increases in premiums from the next pricing cycle.

Robert S. Mahl is vice president and apparel practice leader for Sander A. Kessler & Associates Inc., a commercial insurance brokerage firm based in Santa Monica, Calif. Questions or comments can be sent to rmahl@sanderkessler.com.