Getting Involved Is Good Insurance Against Rising Workers’ Comp Rates

Are premiums for workers’ compensation insurance about to jump?

Probably not--for most employers, at any rate. But it may be another story for companies with poor loss records.

Workers’ comp insurers are under pressure to increase premiums. If an uptick comes, it will probably hit first--and maybe only--at employers with heavy claims. Others may see little or no increase, and even those whose premiums do jump have it in their power to control the damage.

This means good news for most California business owners: Insurers still want your business, and as they compete for your premium dollars, their premiums remain mushy.

Insurers as a whole have lost money on workers’ comp in recent years. According to A.M. Best Co., in 1998 workers’ comp insurers nationwide paid out $1.03 in claims for every $1 they collected in premiums, with more losses in sight.

The numbers for California are worse, according to Ed Woodward, president of the California Workers’ Compensation Institute, a nonprofit research organization based in Oakland and supported by workers’ comp insurers and self-insuring employers. California insurers now pay out $1.30 in claims for every $1 they collect in premiums, Woodward says.

Meanwhile the cost of the average claim in California stands at $23,500, up about 30% in the last five years, Woodward says.

Insurers try to make up for these losses with profits on their investments, chiefly bonds and other interest-earning instruments. They also limit their risk against big claims through reinsurance--that is, by sharing risk with other insurers, much as banks share loans among themselves.

In February, however, Cologne Re, a reinsurer owned by Berkshire Hathaway Inc., announced that it would take a $275-million charge stemming almost entirely from losses associated with a big workers’ comp reinsurance pool run by a unit of Delphi Financial Group Inc. of Wilmington, Del.

The news set off speculation that other workers’ comp insurers involved in the pool might post charges as well and perhaps increase their premiums too.

Given the competition for premium dollars in the insurance market as a whole, however, it seems likely that workers’ comp insurers will increase premiums only as a last resort and target their riskiest accounts first.

That makes it a good bet that if your own insurer does increase your workers’ comp premiums, the increase won’t put you out of business--good news for employers who remember what it cost to buy workers’ comp coverage in California in the late 1980s and early 1990s.

“The market has already hardened for some accounts with poor loss records,” says Dennis Olsen, a specialist in workers’ comp with the big insurance brokerage Arthur J. Gallagher & Co. in Woodland Hills, “but I don’t see it hardening for good risks.

“That’s not to say it won’t, particularly if the troubles in the reinsurance market start to affect workers’ comp insurers. But if you manage your claims poorly, you can expect to see some increases.”

Most employers in California already manage workplace safety pretty well, by and large. Indeed, the incidence of workplace injury has remained constant in recent years, according to Woodward of the workers’ compensation institute.

But the increase in the average claim suggests that employers don’t manage claims as well--and managing claims is the surest way to limit the risk of big losses.

How? You have several options:

* Don’t rely on your insurer to choose the physician who handles your workers’ comp claims. Instead, choose your own--and make sure the treatment seeks to return the injured worker to health and back on the job.

* Investigate whether to pay for claims involving minor injuries--what insurers call first-aid claims--yourself without involving your insurer. The strategy gives you important control over the costs of treating such injuries and, by limiting the costs passed on to your insurer, may reduce your premiums too.

* Stay in close contact with the injured employee via telephone calls at least weekly, maybe even daily. Injured employees often feel uncertain about the future--fertile ground for the workers’ comp lawyers who advertise on daytime television. If you stay in touch, expressing your concern and involving the employee in your efforts to return him or her to the job, you go a long way toward overcoming the distress that causes injured workers to seek redress in court.

* Stay in close contact with your claims adjuster too, making sure that your insurer has all the information you have. If you suspect fraud, the sooner your insurer knows about it, the better the chance that it can investigate successfully. In addition, keeping track of open claims puts you in position to control your insurer’s plans of action, making sure that it does all it can to process claims quickly and fairly.

* Make sure you keep track of open claims from prior years too. Carriers routinely inform employers about claims pending during the current year, but they don’t always tell you about older claims. When they set your premium for the next year, however, these older claims can have a big impact. Keeping tabs on old claims allows you to speed their resolution before they can have an impact on your premium.

All in all, as Dennis Olsen puts it, if you control the claims process, you control the treatment given to your injured employee and you get him or her back on the job as soon as possible, even if only on limited duty. And a workers’ comp claim handled fairly and quickly is not likely to lead to litigation.

“Employers need to take responsibility for making sure that claims are handled properly,” he says. “They need to know what the status of treatment is and when the employee can get back on the job.

“You can’t rely on the insurance carrier to do this for you--because if you distance yourself from the process, you invite the big claim.”

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Columnist Juan Hovey may be reached at (805) 492-7909 or via e-mail at [email protected].