Transcript Workers’ Compensation Costs

Return to Work
Programs
Effect On The Bottom Line
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Workers’ Compensation Costs
How are premiums calculated?
 How do losses impact premium?
 How does a Return to Work Program
help control costs?

Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Workers’ Compensation
Premiums

Several factors determine WC premium
– Class Code: Different job classes involve a
different degree of risk. They are weighed
using a rating when calculating premium
(example: administration vs. construction).
– Payroll
– Experience Modification Factor
– Other Considerations
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Case Example: ABC Manufacturing
Desc. Of Class Annual
Job
Code Payroll
Furniture 2883
Mfg.
$600,446
Divide Rate
by 100 per
$100
6,004 4.46
Clerical
$42,170
421.7
8810
Total Manual Premium=
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
.310
Manual
Prem.
$131
$26,777
$26,908
Manual Premium
Your manual premium is the premium
before any other factors are applied.
 The experience modification factor is
applied to the manual premium.

Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
What is the Experience Modifier?

It is the number used by the insurance
industry to compare a company’s injury
experience with similar companies.
 It either will decrease or increase your
premium depending on injury history.
 Frequency and severity of claims impact the
experience modifier.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Experience Modifier

All businesses start
with a 1.0
experience mod.
 A High Mod (e.g.
1.5) can increase
WC costs by 50%.
 What is your
company’s
experience modifier
(mod rate)?
Debit Mod.
1.5
1.0
Credit
Mod.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
.70
Use of the Experience Mod.




Manual Premium x
Exp. Mod.= Premium*
$26,908 x 1.5= $40,362
$26,908 x .7 = $18,835
Difference between
good mod vs. poor
mod= $21,527
*Additional credits or debits may
apply.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
ABC Manufacturing: A look at
the effective use of RTW

What if ABC used
RTW each year?
 How would that
effect their
premium?
 How would it effect
their experience
modifier?
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
RTW Impact : ABC Manufacturer
Claim
Cost
Cost
After
RTW
Claim
$12,000 $8,000
4,000
Mod
1 yr.
3 yr.
Point
Prem.
Prem.
Savings Savings Savings
.731
197
$591
$6,000
$3,000
3,000
3.839
1,033
$3,099
$7,500
$3,500
4,000
3.199
861
$2,583
$25,500 $12,500 13,000 2.377
639
$1917
Savings
Mod Savings: 10.146
Premium Savings: $8,190
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Return to Work and Experience
Modifier
Your experience modifier can change
each year.
 A bad year will impact the modifier for
THREE years.
 By returning an employee back to work,
you not only CONTROL negative
impact to your mod. for the current year,
but it’s impact for the next three years.

Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Translating RTW Savings to
Sales

Assuming a 4%
profit margin- How
many dollars in
sales did RTW
save?
 $8,190 / .04 =
$204,750 in
sales.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
RTW Impact to Experience Mod.


ABC Manufacturing
saved $8,190 in direct
premium costs by
providing transitional
work options on 4
claims.
Consistently applied,
the use of RTW could
cumulatively have
greater impact on
experience mod.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Total Injury Costs: Direct vs.
Indirect Costs


Direct claims costs are
just the tip of the
iceberg. Cost of
injuries are much more
than the cost of a claim.
Indirect Costs:
Administrative time,
retraining, loss of
production, damaged
equipment, etc. can
cost up to 4 times the
direct cost.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Effect of Return to Work…
Decreased cost of the claim and the
impact of the “experience mod.”
 Workers are utilized and productive.
 Claim is more effectively managed.
 Result = better use of employee, lower
costs, effective management of claim.

Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
How to Control Your Experience
Mod?



Establish a good safety
program. Fewer
accidents = fewer costs.
Report claims promptly
and use a quality
medical provider. Good
treatment = controlled
costs.
Implement a proactive
Return to Work
Program.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Returning injured workers as
soon as medically safe…
Reduces cost of lost wages
 Reduces severity.
 Discourages fraud and malingering
 Improves communication and reduces
litigation.

Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Other Premium Factors

Insurance markets favor
those with effective safety
programs.
 Insurance markets favor
those who proactively use
RTW programs to reduce
costs.
 Good insurance risks can
gain pricing leverage by
demonstrating they control
costs.
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224
Conclusion





Worker’s Compensation
costs can be controlled with:
Accident Prevention: The
best way to control WC costs
Return to Work Programs:
Post accident, this is a key
element to controlling costs.
For additional information,
contact us at 570-636-3688
or [email protected]
Thank You!
Vincent & Vincent Companies
(Dept. of Loss Control Engineering)
P.O. Box 304
Freeland, PA 18224