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Workers’ Compensation Insurance Rates Are Going Up: The California Workers’ Compensation Insurance Rating Bureau (WCIRB) has submitted a mid-year 9.1% increase in the advisory rate to the Department of Insurance. This follows a 37% increase Commissioner Jones approved on January 1, 2012, but the increase for some bureaucratic procedures were hidden from the public. In a horrible economy where businesses are already in trouble, this could not have come at a worse time. And this just off the press; the WCIRB is recommending a 10+ percent increase in the underlying pure premium rates for January 2013. There are reasons that can explain this increase and dealers are encouraged to improve their mod-ratio, i.e., improve safety and reduce workplace injuries.
Why Are They Going Up: The return on equity and bond markets has diminished significantly. Two decades ago, returns on equity averaged 10-20%. The insurers took your money and invested in Wall Street. The stock investment profits helped offset any increased losses to the total premium they received. Stock market profits have hit the skids and the insurers have nowhere to go but increase premiums. Similarly, 10-year bonds are returning less than 1.5% and that adds to the woes. Secondly, four of the most expensive disasters in history occurred in 2011. The tsunami in Japan, floods in Australia, earthquakes in New Zealand and Chile, and the tornados in Missouri have hurt the reinsurers. The total losses from these disasters, as reported in the press, were $244.8 billion. The insurers are local; the reinsurers like Munich Re are global. Before you argue, what’s that got to do with the price of tea in China, the fact remains that reinsurers lost money and they’ve got to become whole. They do so by charging more.
Insurance companies are paying more than they are taking in. In 2010, they reportedly paid out $1.18 for every dollar of premium they took in. This cannot be sustained. The bad ones have gone out of business or left the state and looked for safer pastures. The competitive ones are jacking up the rates and are being selective in taking on risk. In summary, they are looking at companies with a good safety program and excellent mod-ratios.
What To Do: Start to shop early and do not wait until a week from your renewal. Get competitive quotes and evaluate them. Get a professional to help you evaluate these policies. No two policies are the same. They may have the same premium and same coverage, but the service may not be the same. Many fall for the proverbial “cheapest policy” trap. The cheapest policy may not deliver the services to evaluate fraud when you suspect it. Also, case handling may be shabby and a minor claim that you believe should have been settled for less now becomes an expensive claim. Such issues may cost you plenty more in coming years than the premium you may be saving now. In summary, do due diligence, get a professional, and get down to shopping early.
Improve Your Safety Program: Many dealers think that having a safety inspection and correction of hazards constitute an effective safety program, or better still, compliance with OSHA regulations is an effective means to gauge safety. Nothing could be farther from the truth. Over my 25 years of experience with dealers in the safety arena, I have found these six to be the most effective means to reduce injuries at the workplace and effectively reduce premiums.
One, Get Management On Board: There is an old adage; the safety train is not leaving the station unless the top management is on board. Management on the safety committee does not adjust the guards
on the grinder. They are effective in delegating, allocating resources, and monitoring the progress of the tasks set out for line managers. Since the liability from a mishap and the increased premium from increased costs will hit the manager’s paycheck more than anyone, keeping an eye out helps reduce liability and keeps cash in the till.
Two, Investigate Accidents and Take Corrective Actions: Einstein once said that doing the same thing over and over again and expecting different results is insanity. Facilities have back injuries and they send employees to treatment, rehab, physical therapy etc. over and over again, but never investigate to find the root cause of the injury. In summary, each accident needs to be thoroughly investigated and corrective actions taken. Taking such steps eliminates future repetition. Get all departments involved. Lessons learned by one can be shared with other departments, which is even better since everyone is in one corporate setting.
Three, Case Management: Once an accident happens, focus on case management. The lines of communication with the claim handler at the insurance company, follow-up by the broker and possible monitoring of the treatment creates an effective environment to keep claims under control. The fact that the employee is receiving good medical treatment and assistance from the insurance company is one of the key reasons in keeping cases out of the hands of lawyers. It is a forgone conclusion that once a case reaches lawyers, wrong or right, your expenses in managing the case will escalate.
Four, Safety Is Everyone’s Business: Everyone should be involved and that means the porter to the president of the corporation. The element of safety should be percolating through the corporate culture at all times, and not merely something you do when you meet an outside consultant and review a memo or sign on a sheet of paper in exchange for a sheet of paper. At the employee safety meetings, discuss near misses, accidents, training topics, and things that can raise the safety antenna in their head. Do not create prejudice against the employee involved in an accident, but discuss the causes and possible ways to eliminate such accidents in the future.
Five, Behavioral Change Takes Time: There was a scientific study published 45 years ago regarding monkeys getting a cold shower and how this changed their behavior. In one experiment, 5 monkeys were put in cage with a banana on top of the ladder. When one monkey went up the ladder, a cold shower went on all the monkeys. Then one new monkey was put in cage (replacing an existing monkey) and when this new monkey decided to go up the ladder, the other monkeys beat him up and prevented him from going for the banana. This sequence was repeated till all five new monkeys, who had never received a cold shower, were in the cage. Then when one new monkey (who had never been part of the experiment), was placed in cage. Of course, this new monkey decided to go up the ladder and the other monkeys beat him up even though none had ever received the cold shower. Such is the experiment and thesis of “herd mentality.” So shepherding your troops to work in a safe manner takes time, direction and the proverbial cold shower at times!
Six, Hiring And Background Investigation: Conducting background checks for new applicants is considered one of the most efficient ways to weed out the possible 3F (fraudulent, fictitious or frivolous) claims. A phone call for an investigation to the previous employer’s HR will usually release the same information as you give out. Not much. Have the manager of the department hiring call his equivalent at the previous employer. Have your mangers attend professional meetings where they meet other dealership managers in an informal setting. Acquaintances and friends are likely to release more information than HR representatives with canned set of answers.