For anyone owning a construction company, workers’ comp insurance is an inevitable necessity. But by learning how the system works, construction executives will be able to comfortably have a handle on what they are paying for, what affects their annual premium and how to better manage and plan for unforeseen events. 

 Here are five proven ways to help construction executives reduce their workers’ compensation costs:

1. Ensure Job Classifications are Accurate

Code misclassifications can cause workers’ comp premiums to skyrocket, so it is critical to be sure that the correct codes are being used. As many as 70 percent of companies overpay on their workers’ compensation insurance premiums, and the root cause is most often job code misclassifications. A proper classification helps insurers estimate expenses or losses related to the risk being insured. That means misclassification results in over-insuring expenses or losses.

With hundreds of classification codes it’s easy to misclassify jobs and it’s an incredibly common mistake. Business-type classification codes are assigned to companies in all industries except construction, agriculture and staffing services, where numerous employee codes are assigned to various individual employees. And those are the industries that tend to have the most classification errors due to the added layer of complexity. 

A good example is a large staffing company that has multiple exposures (sometimes as high as 10) depending on the jobs that they are filling (storage warehouse, clerical, restaurant, construction, machine shop, textile manufacturing, etc.) Other times it isn’t how many codes they have, but are they for the right reasons? Another example is the code 5437 Carpentry, which is commonly misclassified to general contractors. This code is specifically for an artisan contractor, whose scope of work is doing specific cabinet installation and is a lower rate than most construction class codes in which the work is eminently more risky. 

In industries that predominantly use business-type codes, there are also certain exemptions for individual job types (clerical, outside sales and drivers, in some cases). To say that the classification system is complex would be an understatement, so it is best to have a workers’ comp expert review the company’s codes.

2. Provide Proper Care When an Employee Is Injured

Job injuries should be dealt with immediately. Develop a process to ensure that injured employees receive the proper care. Processes are important and they will vary depending on the type or injury. But it is equally important that all employees know to immediately notify their employer or direct supervisor when an injury has occurred. This is a point at which it is critical to obtain the proper information for documentation while still remembering that this is an injured employee who may be in pain and is in need of compassion.

With continuing medical inflation, it is especially important to ensure the employee receives the most appropriate care for their particular injury. If emergency treatment is not necessary, a walk-in occupational health or urgent care clinic are a lower-cost alternative to the emergency room. Assessing an injury upfront can help streamline an employee’s recovery, get them back to work faster and cut down on claim related expenses.

3. Review Information on Employee Injuries

Speak to an insurance agent to make sure what has been paid on employee injuries is in line with what the insurance company is reporting to the rating bureaus. While this disconnect can simply be a matter of human error, it is often a result of miscommunication.

 Communicating regularly with the insurance agent will ensure the most current facts of the case are being addressed and mitigate any potential errors. If an agent does not know what is happening with a work schedule or what to expect for medical treatment, the reserves may not be correct and as a result, the experience modification factor may be calculated incorrectly. Any unnecessary reserves will increase workers’ comp costs. The goal is to eliminate any open cases that should be closed and minimize the amount of reserves on the claim in order to keep costs down. 

4. Analyze Experience Modification Factors 

Most insurance buyers assume their experience modification factors are correct, but this is likely not the case. If claims remain open and injury costs escalate, reserves rise and adversely affect the employer’s experience modification factor, thus increasing costs. Therefore, it is critically important to ensure that a company’s modification factor is accurate.

The experience modification is made up of data provided by many different companies including payroll data from a payroll company, claims data from an insurance company and job classification data from the employer. The experience modification is the culmination of three years worth of data. 

The modification factor is essentially what drives workers’ comp premiums, so it is one of the most important areas to pay attention to. Companies need to work with an insurance agent to review its experience modification prior to the date they are required to submit payroll and loss data to the rating bureau. 

5. Build a Strong “Back to Work Program”

Companies with comprehensive “back to work” programs can minimize or eliminate lost-time claims by bringing an injured worker back to work as soon as it is practical. It shows the employee that they are valued and can still be productive in another capacity on the job. Fostering this feeling can help increase retention thus reducing costs both on insurance and recruitment.

As part of this program, identify activities that injured workers can do within the organization to bring them back as they heal, and help the employees identify additional skills they possess to fulfill needs of the organization. It has been found that injured employees recover faster if they are at work, making these programs a win-win situation. Insurance agents can help employers with appropriate work activities based on any doctor’s restrictions. An insurance agent is there to help you and should be an active partner in this process. It is important to find a trusted advisor to provide employees with the best possible resources to get them back to work. 

Workers’ comp insurance is the only insurance that a company and its agent can control. For this reason, it is crucial that all parties pay very close attention to its workers’ comp insurance in order to minimize errors, overcharges and reduce unnecessary headaches. 

Here is what a good process looks like:

● confirm each employee is classified properly;
● develop a process that jumps into action when an employee suffers an injury;
● develop a process that manages, not monitors, claims;
● validate the experience modification for accuracy; and
● build a strong back to work program.

A consultation with a trusted insurance advisor will help business owners assess their workers’ comp insurance set-up, as well as assist them in outlining a plan moving forward. These simple steps will save time, money and have a real impact on gaining the support of the company’s employees.