Safe Solutions

Your workers' compensation premium likely constitutes the largest portion of your company's insurance costs. However, there are some ways you can lower your premium.

For example, if you have a good safety program and loss experience, you may want to consider alternatives to traditional guaranteed-cost insurance.

Alternative plans

One alternative to traditional guaranteed-cost insurance is a large-deductible plan, which is much like self-funding a portion of your potential losses. To qualify, you usually have to meet financial requirements prescribed by your state; large deductibles generally are considered to be more than $10,000.

With this type of plan, your insurance company would pay your claims and bill you periodically for reimbursement within the deductible amount. Some insurers may require a deposit to pay for a portion of the expected losses.

A large-deductible plan provides many of the benefits of self-insurance—including having your insurance company handle, litigate and settle claims for you—but does not require you to obtain regulatory approval or pay a fronting fee.

However, disadvantages of this type of plan include a risk of higher losses and less predictable timing of claim reimbursements.

Another option to help manage and reduce your premium costs is a retrospective rating plan. With this plan (applicable to other lines of insurance, as well), your final premium is based on your actual loss experience during the policy period. A retrospective rating plan usually is for accounts generating annual premiums from $150,000 to $500,000.

With this type of plan, you pay an estimated premium upfront that includes a portion referred to as the "basic" premium, which your insurer retains to cover its expenses for costs and factors other than claims. The retrospective premium is calculated after your policy has expired and is subject to minimum and maximum premium levels.

The final premium typically is calculated six months after the policy expires and periodically moves upward or downward at each calculation during a three- to five-year period.

If you successfully control your losses, your premium ultimately will be lower than it would be with a guaranteed-cost plan. On the other hand, if your losses are higher than expected, the final premium will be greater than on a guaranteed-cost basis, and it may take several years for the final premium to be determined.

Other methods

There are other ways you can reduce your premium costs.

One method is to use good hiring practices. Selecting the right people for the right jobs avoids long-term financial and operational problems later. You should require pro­spective employees to complete a detailed application form and undergo credit checks, criminal background checks, and drug and alcohol tests.

Being able to spot fraud also can help reduce your premium costs. Alert your claim adjuster when a claim first is reported to you if you think the claim may be fraudulent.

Reporting claims quickly also can help reduce premium costs because doing so allows your insurance company to investigate claims in a timely manner and select appropriate medical treatment for injured employees. The sooner rehabilitation occurs, the sooner injured employees can return to work.

Last, consider implementing a modified-duty or return-to-work program. A successful return-to-work program is a process coordinated by your insurer's claim representative, the treating physician, your safety director, the employee reporting the claim and the employee's supervisor.

A streamlined process

These are some primary ways to control your premium costs. For more details and other areas to explore to streamline and control your claims process, contact your insurance producer.

Leslie Kazmierowski, CPCU, is NRCA's insurance programs manager.