Top 3 Strategies to Control the Cost of Workers’ Compensation Insurance

By December 16, 2021 No Comments

Although workers’ compensation insurance is regulated, you have control over the actual premiums you should pay. 

You should just know what to do and how.

This article talks about the top three strategies you can use to control your workers’ comp insurance costs.


What Is the Cost of Workers’ Compensation Insurance?

The cost of workers’ comp insurance depends on several factors unique to your state, industry, and business. 

This is why there’s no standard worker’s compensation cost. 

Generally, businesses pay an average of $40-47 a month or $500-560 per annum for workers’ comp. 

But this could be more, depending on how risky your business is and what risk the insurer is willing to take on.


How is Workers’ Comp Insurance Premium Calculated?

Insurance companies use different factors to calculate the cost of workers compensation insurance, including:

  • Payroll. The total annual payroll—i.e., the number of employees in the payroll— determines the average worker’s comp you pay. The bigger your staff, the more workers’ comp you may need to pay.
  • Industry and type of work. Riskier businesses and jobs like construction pay higher workers’ comp premiums.
  • Claims history. Any past claims will see an increase in your workers’ comp premiums.
  • State laws. Each state has laws that govern its workers’ comp. For example, the location of your business can influence your premiums.

To determine the cost of workers’ compensation insurance, insurers combine these factors and charge you workers’ comp per $100 of your company’s payroll. 

Based on the factors that insurers use to cost workers’ comp, the formula for calculating workers’ compensation premium is as follows:

Premium = (Payroll/100) X Workers Class Code Rate X Experience Rate Modification 

With this calculation, we generally estimate that workers comp insurance will cost around $1 for every $100 in your payroll.


What is an Experience Modification Factor? (Mod Rate)

The experience mod factor is an insurance multiplier, or numerical representation, of your claims history compared to other same-sized businesses in the industry.

The mod rating is a ratio measured at an average of 1.0, where:

  • Above 1.0 means your company has a worse claims history than your peers.
  • Below 1.0 means your company has a better claims history than your peers.

Generally, a less than 1.0 mod directly reduces your workers’ comp premium amount. 

The lower you maintain your mod, the greater your premium reduction becomes.

The mod rate is partly determined by the industry classification (the company’s industry of operation) and the number of OSHA records the company accumulates. If a company’s mod rate is 1.0, they pay the industry’s average rate.

So, if you want to take control of your workers’ compensation costs, you need to watch your company’s experience modification factor (mod rating).


3 Strategies to Controlling Workers’ Comp Costs

1. Control Your Mod Factor

The key to controlling your workers’ comp insurance cost is to control your mod factor. 

If your company has a clean claims history, your experience modification figure may be below 1.00. This can help lower your workers’ comp premiums. 

So, if you can control your company’s mod, you can lower insurance rates. 

How do you control your mod?

Insurers calculate your mod based on your business’ data as your past insurers reported to the rating bureau. Incomplete or incorrect data can cause inaccurate mod factors.

To ensure your mod is correct, review your payroll, accident, and loss data to ensure that your calculations are accurate and complete.

Another way of controlling your mod factor is to encourage your workers and senior employees to focus on safety. 

Everyone working towards safety only means fewer accidents to be reported to your insurer and a lower mod factor.

View our safety hub to learn how to better protect an organization’s employees. 


2. Implement Strong Workplace Safety Policies & Procedures

Strong workplace safety policies and programs can help control costs. 

Generally, your workplace policies and programs should encourage safe working habits to avoid accidents and encourage immediate reporting of accidents and injuries. 

Some of the ways you can implement workplace safety policies include:

  • Promote workplace safety by creating a clutter-free workplace in work areas, hallways, and exit routes. 
  • Develop a written safety plan within your premises, and train your workers in their responsibilities for safety.
  • Equip your workers with the right gear and safety equipment to minimize risks.
  • Conduct employee training on workplace safety and work performance safety for new and seasoned workers—for instance, how to handle hazardous materials.
  • Set safety performance goals for supervisors and ensure they adhere to workplace safety rules.
  • Investigate workplace accidents or injuries immediately and thoroughly after their occurrence. A prompt investigation will help you preserve evidence and discourage workers from making future fraudulent claims.
  • Report all claims to your insurer immediately. Report it to your workers’ comp carrier immediately when you receive a claim for any on-the-job injury or accident.
  • Evaluate accident history, or near-misses, at least monthly to find workplace trends. Also, take corrective action to avoid accidents or near misses.

3. Establish an Effective Workers’ Compensation Return-to-Work Program

If you’ve had severe cases that involved lost time and employment, talk to the claims adjuster and explain how you’ll return the injured worker to gainful employment.

In your safety policy, you should have a clever return-to-work program that encourages injured workers’ safety for workers who can return to work.

Modify the return-to-work program to give injured workers light duty upon their release from treatment. 

You should also supervise them to ensure they conform to restrictions.

Giving your workers modified or light-duty jobs may be an inconvenience, but it can also reduce your workers’ compensation insurance costs. You’ll pay the employees only fewer days away from work but keep in contact with them to monitor their recovery. 

Generally, a successful return-to-work program can accommodate nearly any restriction.


Bottom-Line Impact

The experience mod factor helps determine your workers’ comp premium and can be used to lower your workers’ comp premium. 

By understanding your businesses’ experience modification, and all its components, you could control your workers’ compensation cost by implementing practices, policies, and procedures to reduce your claims’ numbers and values.

If you have questions about how to control your experience modification rating and the cost of workers’ comp insurance, contact AIA

The AIA Team

Author The AIA Team

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