Food Forum: The Workers’ Comp perfect storm

What can grocers do to mitigate their risk? By David R. Leng Hang on to your wallets. Employers are already seeing the tip of a very nasty iceberg as the insurance industry feels itself reeling on a number of different fronts, all adding up to the “perfect storm.” Combined ratios for Workers’ Compensation claims are hitting upwards of 112%. This means the insurance industry is not making any profits on Workers’ Comp this year as for every dollar coming in, $1.09 is going out. This is worse than 2011, when it was $1.02 going out for every dollar coming in. The Workers’ Comp combined ratio hit 115% in both 2010 and 2011—the worst since 122% in 2001—and 2012 appears to be trending to finish higher. This means insurance companies not only did not make any profits on Workers’ Comp last year, but the ship is taking on water faster than they can bail it out. For every dollar of premium they receive, it is being spent out at $1.18. For the first time in decades we are seeing more employee injuries, with an upswing in the severity of claims. This has caused a surge in medical costs and an alarming trend toward injured employees staying out of work longer as more employers abandon return-to-work programs due to the financial constraints as a result of a poor economy. Okay, now for the bad news. In 2011, the global insurance community was hammered by three of the top 11 natural catastrophes of all time; the New Zealand earthquakes, the tornadoes that ravished our nation’s mid-section, and the staggering Japanese undersea earthquake and subsequent tsunamis. And the financial aftershocks—insurance payouts totaling a staggering $61.3 billion—are just now starting to hit reinsurance costs. If, as an employer,  you are wondering  how an earthquake half a world away can affect the 2012 Workers Comp premiums for your operation, think "butterfly effect” to the nth degree. Your insurer or excess company may be local, but re-insurers are global. You may even think you can seek shelter from the storm by getting a dozen quotes. However, shopping has never helped an employer reduce injuries, discover and correct errors,  returned an employee to work, reduce their experience modifier, find the right doctor to treat an employee, keep an attorney out of the system, find them an agent who was an expert at workers compensation or improve how the insurance company sees their business. What can you do about it? What drives your rates and increases your premiums is what the underwriters perceive as the risk. Simply put, the greater the risk underwriters perceive, the more you pay in rates. In the world of Workers’ Comp, perception is most definitely reality. All risks are different and not locked into a certain profession or occupation. It is true that a retail grocer will have lower rates than an electrical contractor. But it is false to believe all grocers get hit by the same rate. Risk profile improvement is the answer. What you can do to keep insurance costs as low as possible? You can improve company’s risk profile in a number of ways, including offering educational courses, limiting your physical exposure to potential accidents and monitoring the behavior of your employees. You then need to address them in order of potential severity by installing the proper policies and procedures to each risk. After doing so, you must convey to the underwriters why you are a better risk today than yesterday. Your Experience Modification Factor is also a driver of the risk perception bus, so work to control it. An Experience Modifier out of control—anything in the 1.002 to 1.8 range—gives the impression of an unsafe company with poor quality control and a lack of safety procedures. Also consider hiring a Certified Risk Manager (CRM or ARM designated), and not simply a loss-control/safety person. Make certain it is someone who can both steer and direct your company towards improving your all-important risk profile. It is what you do not see, or pay attention to, that will come back to cause your ship to sink. Having standard policies and procedures in place are useless if someone is sacrificing safety for productivity or “a better result.”