Targeted risk control: the key to reducing claims costs for manufacturers
In today’s litigious environment, claims against industrial companies are inevitable, and off-the-shelf solutions to manage liability risks are too often inadequate.
In the high-risk manufacturing sector, where large-dollar claims are common, small to middle-market companies struggle to find experienced partners capable of providing targeted risk control and effective techniques to lower loss results and reduce the effect on total cost of risk. This article outlines several tactics industrial companies can implement to reduce the cost of claims.
Understand your claims history
Effective claims management begins with an understanding of what has happened in the past followed by corrective actions to address loss trends and improve financial outcomes. For casualty lines of coverage, this process should involve: analyzing claim trends that negatively affect loss experience and total cost of risk, developing a risk control plan based on this review, and clearly spelling out the financial improvement to be expected by implementing the recommended plan. This process of improving safety in targeted areas can help reduce insurance premiums by up to 15 percent in the first 12 months.
Case study: a manufacturer and installer of equipment for large industrial projects could not improve its workers’ compensation experience due to increased injuries from inexperienced workers. This was preventing the firm from qualifying for new projects. The company had its workers’ compensation claim results analyzed and then isolated the activities and jobs that were creating the most claims. Following that, a targeted safety program that addressed the specific causes of those claims was designed and implemented. This effort reduced the firm’s annual claims by over $1.25 million in the first year and led to premium savings of $386,000. Additionally, the improved results allowed the company to bid on and win two large contracts worth over $10 million.
Close your claims quickly
The best way to keep claims costs low is to get them closed quickly. To help accomplish this, companies should conduct a claim reviews in person with insurance carrier claim adjustors to determine if: a) claim reserves are too high and need to be adjusted downward; or b) open claims should be closed based on the claim’s circumstances. This has proven to be particularly effective at reducing the outstanding open claim amounts which, in turn, improves premium pricing. Quarterly claim reviews, such as the one described, can result in an annualized reduction in claims of 20 percent.
In a recent case, a custom manufacturer of high-end leather furniture achieved significant benefits as a result of the claims review process. The company, which has a sophisticated manufacturing assembly line process and 300 employees, had experienced several consecutive years of frequent and severe worker injuries. Adding insult to injury, several of the claims had remained open for years without the manufacturer knowing why or how decisions were being made. Upon conducting an analysis, it was determined quickly that claim reporting delays were common, no formal reporting or tracking process existed, and there was a lack of accountability amongst management. As a result, the company established a quarterly and ongoing claims review process, which included closing open claims at least six months prior to renewal. This effort reduced total claim reserves by $85,000 and a renewal premium the first year by $51,000.
Putting comp in check
Workers’ compensation experience modification ratings (EMR) are complex formulas but understanding how they are calculated can go a long way in helping to keep workers’ comp premium in check. To help manage workers’ compensation claims more efficiently, manufacturers should perform the same evaluation of the experience modifier as regulators routinely to determine accuracy and to forecast future financial impact on premium. Inaccurate EMR calculations are typically the result of errors in payroll amounts, inaccurate job classifications, improper claim reserves and open claims that should be closed.
Screening new hires
Preventing workers' compensation claims from occurring is highly correlated to the quality and scope of a company's hiring practices. Loss control representatives and claims advocates can provide the framework for a pre-employment screening procedure whereby medical providers evaluate candidates’ physical abilities based on detailed job descriptions. With pre-employment screening, employers are able to avoid candidates more likely to be injured on the job.
A custom woodworking company that makes cabinets and doors developed an extensive pre-employment screening process, reducing employee injuries by 25 percent. Prior to this, the business incurred several employee injuries, thereby driving an increase in its workers’ compensation premium.
The solution included reviewing their existing hiring practices and identifying several areas to improve the screening process and reduce post-hire claims. Eventually, enhanced screening let to a reduction in both the EMR and OSHA Frequency and Severity Rates. Premium savings for the company was $68,500 over the first two years.
This recommendation and others cited are only a few examples of how employing smart risk management strategies can help to mitigate the financial effect of adverse loss trends, lead to better managed claims and increase your overall competitive edge in the industry.
Randy Crawford is a USI National Industrial Practice Leader