Safety is seen as a matter of compassion or an improvement in the working environment. The care and attention paid by management to safety issues is seen as an indicator of attention to detail and teamwork. Safety is all those things; but it is also a “profit center” that must be controlled by management. To put it plainly: safer companies are more profitable!
The cost of a poor safety program:
The costs of security incidents add up quickly. The company must pay: the injured employee(s) for their time during the incident, employees who respond to the injury, those who complete the paperwork, and office workers who work with the insurance company, medical providers, inspectors, and government officials. But it doesn’t stop there! When incidents occur, materials or equipment can be damaged, insurance rates can rise (including workers’ compensation and general liability rates), and productivity is greatly impacted if employees discuss the incident or perform their duties too cautiously. Then there is the increasing possibility of OSHA and/or other government inspections and fines. Interestingly enough, most companies respond to a safety outage and the associated growing expense report with emergency training programs, new safety equipment and increased operational monitoring, adding even more costs.
Just as a bad or non-existent safety program can cost, a good safety program can save! Savings can be added directly to profits or can be used to bring in more work through lower bid prices or lower service costs. By eliminating or minimizing security incidents, all of the potential costs mentioned above are eliminated or reduced. In addition, a clean safety file will also reduce insurance premiums.
The real money earned in safety:
Companies with a history of no or only minor incidents can see their insurance premiums drop by up to 75% of what their competitors pay for the same policy; while a poor incident history can lead to paying insurance premiums of up to 300% of the going rate. Since workers’ compensation insurance is required by federal law in every state and general liability insurance is required by governments at various levels, as well as by most customers, insurance premiums are one of the larger items on most annual budgets. Savings in this area translate directly into savings in the cost of doing business.
Insurance companies report Workers Compensation loss information to their state rating agency or to the National Council on Compensation Insurance (NCCI), depending on the 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. The companies with an average history of security incidents, based on a comparison of losses paid by the insurers to cover claims, are given a rating of 1.0. Companies with a better history (lower losses) have an EMR of less than 1.0 which can drop to 0.75. Conversely, companies with a poor average incident cost history can see their EMR rise as high as 3.0.
The company’s EMR is used each year to determine the suggested premium price offered by insurers to win the company’s insurance business. Thus, those companies with an EMR of 0.75 pay only 75% of the premium that the average competitor in their state pays for insurance, while companies with an EMR of 3.0 pay three times (or 300%) the premium of their competitors . In addition, the companies that are considered lower risk (less than 1.0 EMR) will find that insurers who want to win your account can also lower their price further, up to an additional 15%, after calculating the EMR effect price. So security savings pile up on security savings.
Know your EHR and improve it:
The EMR is based on a three-year rolling period, excluding the most current year as those losses are still developing. It is rarely calculated using calendar years as a term, but rather as policy effective years. So if your policy renews on 4 June each year and is in effect from 4 June to 3 June of the following year, your EMR will reflect the previous three full policy years.
Your insurance agent can provide your company’s EMR from the rating agency’s report and should be able to explain how you can improve it. It changes from policy year to policy year as older years expire and newer years are added. In addition, many states’ formulas add a weighting system so that newer years weigh more heavily in your EMR than older years. This works to your advantage if you have had costly 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 term to ensure there are no outstanding claims or claims that can be reduced before the insurance company submits the “Unit Stat” report (statistical data ) with the rating agency. The formula that generates the EMR can be difficult to understand if you are not an insurance expert. That’s why your agent should be a trusted advisor and success partner to your company.
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