Guarding Your Company’s WC Rates…

and Saving Your Profit Margin

Presenters:

Darrell Harden

and

Kym Varner Risk Manager

The Impact of Accidents/ Illnesses on Your Company

• The cost of accidents/illnesses depends on:– How many employees you have– How many incidents you have– Type of work you do– Value of materials, products or services.

• The impact depends on:– Annual turnover– Your profit margin

Facts You Should Know:

• For “Start Up” companies or struggling companies, all economic losses are serious.

• The loss of skilled workers, even for a few days, has great effect.

• The smaller the company, the smaller the cushion. A serious accident could put a small company out of business.

• 60% of companies experiencing a disruption longer than 9 days go out of business.

Costs Your WC Policy DOES NOT Cover:

• Damage or loss of product/raw materials

• Repairs to buildings/ equipment

• Temporary labor/ OT/Extra wages

• Production delays

• Investigation time• Fines• Loss of contracts• Legal costs• Loss of business

reputation

Impact on Insurance Premiums

A poor claims record will affect the amount you pay in workers

compensation, general liability and auto insurance premiums.

Your insurance premiums may be increased or insurance coverage may

actually be refused.

Examples:

• A construction company had several critical/severe claims causing rates to be escalated

• A company had an excessive # of claims that were first aid but seen by physician

• A company had several claims but were not managed to reduce costs to insurance.

• Claims are reviewed for 4 years.

Sample NCCI Worksheet

Sample NCCI Worksheet

Effects of Losses on Emod

Using the Sample Worksheet:

• 1 $20,000 loss = .82 emod• 10 $2,000 losses = .94 emod• 2 $20,000 losses = .89 emod• 1 $100,000 loss = .95 emod

Assume $100,000 in premium and the emods calculated above:

.74 emod = $74,000 (savings of $26,000)

.82 emod = $82,000

.94 emod = $94,000

.89 emod = $89,000

.95 emod = $95,000

Effects of Emod on WC Premium

Safety is an Expense

• No one pays you for being safe.• Companies do not receive checks for

safety.• Unfortunately, safety is usually not

budgeted.• Safety costs are usually the first reduction.• Safety Managers/Coordinators are “an

overhead expense.”

Safety Budget• It is the key to survival.• We tend to budget everything in

business except safety.• The consequence of not having a

safety budget is obvious.– When a safety issue arises, it is often

‘out of the blue,’ therefore, unprepared companies must dig into meager profit margins to pay for them.

Good News…Safety Budgets Work!

• Safety budgets work effectively because someone actually gives time and thought to:– What are safety issues?– What are safety costs?– What is our company’s liability?– What will be relevant for different

projects?

How to Budget for Safety

1. Review safety costs from similar projects.a. Create a ‘Safety’ category for your accounts.

2. Do a Task Analysis BEFORE the task is started.a. Helps predict hazards and how they are controlled.b. The cost of controlling the hazard should be

researched and budgeted.c. Get professional advice! A safety

advisor/consultant can assist in identifying potential hazards and recommend ways to avoid or control them.

How to Budget for Safety(continued)

3. Understand what safety costs.a. Weigh the costs of owning versus leasing

safety equipment.b. Factor in the time of maintenance of safety

equipment.c. Factor in the time for training on relevant

safety equipment.

4. Calculate the cost of safety equipment to be used on projects.

5. Include these costs in your costs of doing business.

• Steps 1-3 are effective accounting and business discipline techniques. Used consistently and reviewed regularly, these techniques will take the guess work out of the safety budget. It is true to say that guessing and hoping are not very effective business techniques.

• External advice on safety can give your company a much more honest and effective focus for your budgeted safety money.

How to Budget for Safety(continued)

• Steps 4 and 5 are paradigm shifts for many companies, especially smaller contractors. The cost of safety, including safety equipment, needs to be a line item expense when calculating the tender/ manufacturing costs.

How to Budget for Safety(continued)

• Example:A project may require a contractor’s worker

to come on to a construction site for 3 days. – Hard Hats, Safety Glasses– High Visibility Vests, Steel-toed Boots– 2 hours of Project Safety Orientation– Daily Safety Meetings– Hazard Analysis for the day’s activities

How to Budget for Safety(continued)

• What is the cost to the employer?• What is charged to the client?

– Typically: Parts (Materials) and Labor.• The cost of “labor” is where the cost of

doing business is recouped.

How to Budget for Safety(continued)

• Safety costs are often unaccounted for and end up coming directly out of the company’s bottom line.

• Especially PPE! – It seems unreasonable to charge for the cost of a

hard hat or a pair of safety glasses when they will only be used on the site for a few days. Therefore, they don’t get charged out, and “hopefully” the labor rates will make up the difference!

How to Budget for Safety(continued)

• Safety equipment costs money.– This equipment is required by clients, by law and

by common sense. The cost must be accounted for.

• The example above could cost a company about $240 (avg retail) per employee.– In the equipment’s life span (3 years), the cost

comes to $22/month/employee.– That cost has to be accounted for somewhere,

even if you do get a good deal.

How to Budget for Safety(continued)

Process of a Safety Budget(Be fair)

Assess current spending on safety

Current Expenses/ Budget Items

– WC Insurance– GL Insurance (split with other dept’s)– Various Permits (Hazmat, EPA, etc)– Safety Staff– Development of Procedures– Development of Training Programs– Training (Materials)– Training (Attendees time)

– PPE (per employee)– Safety Equipment (first aid kits, fire

extinguishers, etc)– Current accident and injury costs (include

estimated hidden costs)– Unaccounted loss/damage to items not reported– Monetary fines from compliance agencies– Current litigation regarding safety (including the

time it takes to address the issue)

Current Expenses/ Budget Items

• Identify what you want to achieve– Reduction in accidents?– Reduction in employee turnover?– Reduction in insurance costs?– Increase in production?– Decrease in equipment malfunction?

Budget Must Address Goals

Summary• Accidents/Illnesses cost your

company hard-earned dollars!• Your company’s WC premium is

most significantly impacted by your emod.

• Safety is an expense that must be budgeted.

• Safety really does pay!