Workers’ compensation should be a win-win proposition for employers and employees, but many contractors describe it as an insurance and risk management pain point.Workers’ compensation premium is a major component of contractors’ total insurance costs, and the indirect costs associated with claims are a significant multiplier.

Additionally, recent formula changes have caused some companies to receive a higher experience modification rate (EMR). The increasing use of prescription medications, improper utilization of medical services and diagnosis of co-morbidity conditions (i.e., disorders related to a primary disease) among workers are contributing to escalating medical costs, which have surpassed lost-time indemnity benefits as the largest component of loss costs. And, the construction industry’s workforce shortage is leading to the hiring of less experienced workers who are more vulnerable to injuries.

In short, employee injuries affect productivity, quality and profitability on projects, thereby affecting a company’s overall financial performance. As such, workers’ compensation can be either a competitive advantage or disadvantage.

Companies that do not gain control over their workers’ compensation processes will face pressures to reduce costs elsewhere or carry higher levels of unallocated overhead. In the end, the net result will be felt by higher insurance costs, increased bid rates and decreased productivity yields, as well as squeezed profit margins.

Start With an Audit
A workers’ compensation audit diagnoses relative strengths and weaknesses of policies, procedures and protocols, as well as provides a roadmap to improve performance. An insurance advisor can help evaluate the company’s capabilities in three important phases, each targeting a different focus and desired outcome.

It’s important to review injury and claim performance metrics. A comprehensive loss analysis of the number, type, frequency and severity of claims is useful, especially when compared to exposure (either payroll, work hours or full-time equivalency).  The median duration of lost workdays per lost workday case can be compared against industry metrics by type of contracting operation. Although these are lagging indicators, they provide clues about where to focus prevention-based activities that then can be monitored as leading indicators. 

Larger contractors with more payroll exposure and more complex operations also may be interested in an alternative insurance program structure, such as intermediate or large deductible, retrospectively rated and captive insurance programs.  Many contractors seek to reinforce management accountability for workers’ compensation improvement by instituting premium allocation and loss cost chargebacks to operating divisions or departments. This information is useful in bonus program calculations.

A workers’ compensation audit should carefully consider the classifications of workers by job type and payroll code. Proper classification is essential to ensuring workers’ compensation premiums are being properly calculated. This helps prevent adjusted premiums or return premiums following a premium audit,as well as helps ensure proper classification of the company’s EMR. It may be advisable to review open major claim reserves well in advance of carriers filing unit stat reporting data for purposes of calculating EMRs. 

Improving Safety Through Attitudes and Behaviors
About seven years ago, American Asphalt Company, West Collingswood, N.J., realized the need for a more formalized and consistent approach to safety and risk management when it was prohibited from bidding on a project due to an unacceptable EMR.

The company, which has two asphalt hot mix plants supporting a milling, asphalt recycling and paving operation, decided to proactively address risk reduction by changing employee and supervisory beliefs, attitudes and behaviors concerning safety shortcuts and other forms of unacceptable risk-taking in the name of getting the job done faster.  Led by Chief Operating Officer Joe Ford, the company instituted a safety management accountability culture to reduce the safety performance gap between what the company said it expected for safety versus the level of safety that ultimately was accepted. 

The shift started by understanding what injuries were occurring and how they were occurring.  American Asphalt Company focused on reducing exposure to high-frequency, minor injuries as well as low-frequency, but severe, claims. It instituted weekly operations meetings and defined priorities for the business that incorporated safety and risk reduction. Safety was instilled as a core value via weekly meetings with drivers, maintenance mechanics, paving crews and plant workers.

Company leadership also listened to suggestions from employees and supervisors about how safety performance could be improved. New equipment and operating procedures were implemented, and a second person was hired to run the company’s original plant to eliminate the risk of an employee working solo. The company also instituted the use of GPS monitoring to assist in managing driver safety and dispatching.

The results have been impressive: American Asphalt Company reduced its EMR from almost 1.3 to its current level below 0.90.  The company benefited from fewer injuries, lower insurance premiums, higher productivity and associated gains in profitability. Most importantly, it boasts a tightly knit family culture where employees, supervisors and managers look out for each other’s safety. 


Cal Beyer is vice president of construction large account sales and development and Joseph Ritchey is a construction account executive for Murray Securus, Lancaster, Pa. For more information, call (717) 358-2763 or email cbeyer@murrayins.com or jritchey@murrayins.com.