Insurance premiums are rising at an alarming rate, but retailers can control this growing expense by understanding all of their options.
By Mark E. Battersby, Contributing Editor.
Just as with death and taxes, it appears certain that workers’ compensation claims—and the costs associated with them—will inevitably rise. Workers’ compensation, a program that forces employers to provide health insurance and cash benefits to employees hurt on the job, has always been a significant—and frequently overlooked—expense for convenience store owners.
For employees, workers’ compensation is the exclusive remedy should they sustain an occupational injury or illness. Injured or ill employees, in other words, cannot sue the employer for personal injury or negligence.
The workers’ compensation laws, in general, establish the liability of an employer for injuries or sicknesses that arise during the course of employment. The liability is created without regard to the fault or negligence of the employer. While it is the law and there is no way around it, managing or reducing the costs associated with workers’ compensation has virtually become a necessity in today’s economy.
Managing Workers’ Comp
Workers’ compensation insurance is a form of state-regulated, no-fault liability insurance, which covers employee medical expenses, lost wages, rehabilitation services and death that results from work-related injury or illness. Employers in every state, except Texas, are required by law to provide workers’ compensation coverage.
Since its inception in the early 1900s, workers’ compensation insurance has always been state regulated. As a result, each state has its own body of workers’ compensation law. The goal of each workers’ compensation system is the same: to reduce disputes and litigation arising from work-related injury and illness.
The benefits paid under workers’ compensation can be financed in three basic ways: by a nonprofit state fund, a private insurance company, or an employer or group of employers, referred to as self-insurance or group self-insurance. Self-insurance has traditionally been reserved for large, highly capitalized companies, though some states are now allowing smaller companies in like industries to collectively fund self-insurance plans, enabling members to meet the necessary financing requirements yet also manage risk.
Not all states permit all three structures. Some states, such as North Dakota, are state fund “exclusive,” meaning that private insurers cannot sell workers’ compensation in the state. Others, such as California, are “competitive,” allowing private insurers to compete against the state fund. Still others, such as Illinois, have no state fund and require employers to buy workers’ compensation insurance from private insurers.
By law, workers’ compensation is always no-fault insurance, meaning that employers must cover occupational injury or illness even if the employee is at fault. In reality, most workers’ compensation laws require insurance companies to provide “full medical benefits” to injured or ill employees. What’s more, most state laws do not set time or monetary limits on workers’ compensation medical coverage. Exceptions are Arkansas, Florida, Hawaii, New Jersey, Ohio, Montana and Tennessee.
When seeking insurance coverage, the first step for every convenience store operator, franchisor or chain executive should be to verify that state law allows the convenience store operation to purchase workers’ compensation insurance from a private insurer. Some states prohibit this. If the states the convenience store business operates in are “competitive,” quotes from multiple providers can be obtained.
Who Really Pays?
Although many employers mistakenly believe that the insurance company pays for injury losses and accident costs, this is not always the case. Admittedly, some insurance companies do offer so-called “guaranteed cost” insurance where all losses are covered. However, far more have “deductible” coverage.
Those c-store operations with guaranteed cost coverage without a deductible still need to be concerned about workers’ compensation because premium costs are generally based on their loss experience. This means that the c-store operation’s past history of losses forms the basis of what an insurance company will charge the business for workers’ compensation insurance premiums.
The operation’s safety record also affects workers’ compensation premiums. If after performing a risk evaluation an insurer finds that the store operation’s record is better than the industry average, the business’s premiums could be reduced. If its record is worse than the average, the reverse is almost inevitable.
In addition to the operation’s history of claims and safety record, insurance premiums are determined by the workers’ compensation classification of the business and the degree of hazard associated with that classification. Each classification is assigned a rate or loss cost, based on the insurer’s experience with that business type, which strongly affects a business’s final premiums. Consequently, it’s essential that the c-store business be classified correctly— no easy chore as there are more than 600 classifications from which to choose.
Workers’ compensation costs are often high because the injury process is not closely managed, often with many claims lasting too long. Fortunately, keeping workers’ compensation costs manageable is feasible.
Be serious about workplace safety. Investing in safety training and requiring employees to wear proper safety gear helps to reduce workers’ compensation costs, especially when working in areas like the fuel island or coolers. A safety consultation with a state workers’ compensation representative or a private consultant is likely to reduce the operation’s long-term costs.
A convenience store business can also reduce costs by managing the injury process from beginning to end. From rapidly reporting the claim to controlling the claim throughout its life span, every stage should be managed and monitored by the business.
In addition, every convenience store business should:
• Communicate regularly with injured employees. Research indicates that this lowers costs per claim and encourages employees to return to work faster.
• Consider self-insurance for workers’ compensation to provide medical benefits via a managed care health provider.
• If state law allows, institute an early return-to-work program. This includes educating your designated physician about the rigors of your business and each employee position.
• Finally, review your workers’ compensation claims and costs on a regular basis with an eye toward addressing safety issues and over-expenditures.
For the majority of businesses, workers’ compensation ranks as the greatest percentage of their insurance dollar; often as high as 30%, according to many recent studies. Unfortunately, while many convenience stores continue to battle escalating costs and continuing layoffs, the financial impact of ever-increasing workers’ compensation insurance costs often goes unrecognized.
Increases in medical expenditures continue to outpace inflation. Ten years ago, medical costs represented 40% of total claims expenses. Today, medical represents 60% of workers’ compensation costs. Advances in medical treatment have contributed to rising claim costs. Ten years ago, an injured worker with a severe spinal cord or brain injury had a very short life expectancy. However, medical advances are allowing these injured workers to live longer and with a higher quality of life.
Because increasing claim costs are having a significant impact on the traditional workers’ compensation market, many insurance companies will be forced to raise rates to stay solvent.
Fortunately, employers, insurers and brokers that cooperate can successfully trim the cost of workers’ compensation. Consider the convenience store’s insurance broker and insurance claims handler, or a third-party administrator, as partners.
Together, a cost reduction plan can be developed before workers’ compensation costs climb even further.