Safety is seen as a matter of compassion or an improvement in the work environment. The care and consideration that management places on safety issues is seen as an indicator of attention to detail and teamwork. Security is all of those things; but it is also a “profit center” that must be monitored by management. Put plainly: Safer companies are more profitable!
The cost of a poor security program:
The costs of security incidents add up quickly. The company must pay: the injured worker for their time during the incident, employees who respond to the injury, those who complete paperwork, and office personnel who work with the insurance company, medical providers, inspectors, and government officials. But it doesn’t stop there! When incidents occur, materials or equipment may be damaged, insurance rates may increase (including worker’s compensation rates and general liability rates), and productivity is greatly affected as workers discuss the incident or perform their tasks too cautiously. Then there is the increasing possibility of OSHA and / or other government inspections and fines. Interestingly, most businesses are responding to a security breach and increasing expense reporting associated with emergency training programs, new security equipment, and increased operations monitoring, adding even more costs.
Just as a poor or no security program can cost, a good security program can save! Savings can be added directly to earnings or used to get more work through reduced offer prices or lower service charges. Eliminating or minimizing security incidents will eliminate or reduce all of the potential costs listed above. Additionally, a clean safety record will also lower insurance premiums.
Real money made safely:
Companies with a history of minimal or no incidents can see their insurance premiums drop to 75% of what their competitors are paying for the same policy; while a poor incident history can lead to the payment of insurance premiums of up to 300% of the prevailing rate. Since workers’ compensation insurance is required in all states by federal law, and general liability insurance is required by governments at multiple levels, as are most clients, insurance premiums are one of the most important elements in the business. most annual budgets. Savings in this area translate directly into savings in the cost of doing business.
Insurance companies report information about Workers’ Compensation losses to their state rating office or the National Council for Compensation Insurance (NCCI), depending on state code. This information is used to generate an Experience Modification Rating (EMR) factor, also known as an Experience Rate Modifier (ERM), for the state or region. Those companies with a history of average security incidents, based on a comparison of losses paid by insurers to cover claims, are assigned a rating of 1.0. Companies with a better track record (lower losses) will have an EMR of less than 1.0, which can drop to 0.75. In contrast, companies with a poor average incident cost history may see their EMR rise up to 3.0.
The company’s EMR is used each year to determine the price of the proposed premium that insurers offer to win the company’s insurance business. Therefore, those companies with an EMR of 0.75 will pay only 75% of the premium that the average competitor in their state pays for insurance, while companies with an EMR of 3.0 will pay three times (or 300 %) the premium of your competitors. In addition, those companies considered lower risk (less than 1.0 EMR) will find that insurers looking to win their account can also discount their price even more, up to an additional 15%, after calculating the price made by EMR. Therefore, the security savings add to the security savings.
Know your EMR and improve it:
The EMR is based on a rolling three-year period, not counting the most current year, as those losses are still developing. It is rarely calculated using calendar years as the term, but rather as policy years. Therefore, if your policy is renewed on June 4 of each year and effective from June 4 to June 3 of the next year, your EMR will reflect the previous three full years of policy.
Your insurance agent can provide your company’s EMR from the rating agency report and should be able to explain ways to improve it. It will change from one policy year to the next as previous years decrease and newer years are added. Also, many state formulas add a weighting system, so newer years weigh more on your EMR than previous years. This works to your advantage if you have had high-cost incidents in the past and have taken steps to improve your safety program. It is important that you review your losses with your agent six (6) months prior to your renewal period to ensure that there are no open claims or claims that may be reduced, before the insurance company files the “Unit Stat” report. statistics) with the rating agency. The formula that generates the EMR can be difficult to understand if you are not an insurance expert, so your agent should be a trusted advisor and a successful partner of your company.