By Christopher Dik
Owners of landscaping companies often face challenges finding new employees and keeping existing ones. But what happens when an employee gets hurt at work? Keeping workers’ compensation costs in check can be yet another worrisome issue and insurance premiums can increase for a number of reasons. Knowing those reasons and implementing a game plan can help take control of the situation.
First, look at how you are handling loss issues. Losses are a very common reason why premiums increase, but not all losses are created equal. In order to determine if losses are causing your premium to increase, examine the frequency versus the severity of your reported losses. Do you have frequent losses on a minor scale? If so, how can they be mitigated? Do you have one or two major losses? Could they have been avoided? Both types of losses can impact your premium.
Order a loss history report. This report determines frequency versus severity, identifies open claims and losses and inflated loss reserves, and determines if any losses can be subrogated against someone else. If there are large reserves, be sure that someone on your team is following up on the claim at least once a month. A reserve has the same impact as a loss until it is reduced (see Case Study #2 below).
Losses are going to happen. But developing an internal program to better handle future losses leads to better results. For instance, consider an occupational clinic, which provides medical care for work related injuries and illness, for treating employees. Using an occupational clinic can not only be less time consuming for the employee, but can reduce a medical bill by 30% on average compared to emergency room visits. Be sure to inform the clinic that you’d like to receive the bill directly from them.
Implementing a back-to-work program can also have a significant impact on your workers’ compensation expenses while also boosting morale. When an employee is in a back-to-work program, they continue to receive pay and are required to do tasks manageable for their injury.
If payroll has increased recently, this may have precipitated a jump in the workers’ compensation premium. While hiring new employees is a good thing, it automatically raises payroll, which is the primary element premiums are based upon. Whether it’s multiple new employees or a single major hire, an increase in payroll can trigger an increase in premium. To mitigate this, check to make sure payroll numbers are accurate. Verify the correctness of payroll versus actual payroll records. Any mistake can drive your premium sky-high. Also ensure that all employees are properly classified, especially those with any split job functions. Misclassification is one of the most common mistakes that result in premium costs soaring.
It’s also possible that an audit caused a large premium jump since the auditor is actively looking for holes. While not much can be done about past audits, you can analyze your preparation to be ready for the next one. Before the auditor arrives, make sure a primary contact person is designated. This contact person should be very familiar with the work done by all departments and all employees, as well as payroll records. Take time to carefully project what payroll will be at the end of the year for each class code that applies to your business. This may not be the most enjoyable use of time, but it’s time well spent.
In addition, be sure to collect and have the following documents available upon request: accounting ledger; tax forms, particularly forms 941 and 944, and Employers Federal Tax Return (quarterly and annual, respectively); records of cash disbursements; payments for services provided by independent contractors and subcontractors; certificates of insurance for each subcontractor and all independent contractors hired; W-2 and 1099 forms; accurate job descriptions for each worker’s duties; description of business operations; payroll records for the term of the policy; and the company’s experience rating worksheet.
In this “self-audit,” verify that both payroll and employee classifications are correct. You’ll also need to delete overtime and holiday pay as well as capping the owner’s pay. Be sure to inquire about any other credits (i.e. construction credit) or any other carrier program with discounts or dividends. Make sure you’re getting all the credits available to you.
Case Study #1
Take the recent case of this large landscaping operation with 22 employees and annual revenues of $1.9 million. The company was experiencing high insurance premiums due to a proliferation of job-related injuries. The increase in injuries was also driving up the experience mod.
It was determined that the increase in injuries on the job was a direct result of three factors: 1) Employees weren’t properly trained on the Safety Program and procedures that were set in place. 2) Management wasn’t enforcing workplace safety. 3) And injured employees weren’t being offered return-to- work/light duty options.
A job safety education program aimed at both employees and supervisors was then implemented. Education stressed how reducing injuries, and better management of those injuries, would result in significant cost-savings in premiums. Additionally, a return-to-work program and job bank was implemented to bring injured employees back faster; and a better documentation system regarding working with contractors and the company’s seasonal duties was designed.
As a result, injuries went from an average of three to five incidents per year, down to zero. The company was no longer placed in a “high risk” category, its experience mod was lowered, and premium savings of $52,000 were realized.
Case Study #2
A leading landscaping contractor in the Boston-area, with 46 employees and annual revenues of $5.6 million, was facing $2.2 million in open reserves across all its lines – though they were not directly responsible for all of them. Claims included: a subcontractor who struck a woman with his/her vehicle; another took down the entire second story of a home; and two employees were injured in a parked car that was hit. Due to lack of contracts, they had liability exposure on two of the claims. No fact checking or follow-up was being done to close and/or subrogate these claims.
The first step was to have an attorney work with the insurance carrier to update all subcontractor agreements and certifications, as well as put in place umbrella coverage moving forward. The claims that could be subrogated were expedited. As a result, two of the three claims were able to be closed immediately, which reduced the reserves, and lowered the experience mod to 1.30 from its highest point of 1.78. The company was able to reduce all lines of insurance by mid-year due to closing and/or reducing open claims.
As evidenced, with proper planning, you can control workers’ compensation costs before they control you.
Dik is a Property & Casualty Consultant with Knight-Dik Insurance Agency, Inc. in Worcester, MA.