Workers' Comp Risk - The Safety & Numbers Blog, presented by IAS

Budgeting for Work Injury Prevention & Safety Risk Management Strategy

As we begin to budget for strategic objectives in 2015, several work safety topics centered around an important theme come to light. Posts ranging from safety training to workers comp/EMR risk, the importance of conducting fall hazard assessments and engineering fall prevention design — each capture elements of what I believe to be the annual theme for our blog, and what may be the most notable national work safety theme of 2014: Preventive Safety Risk Management Strategy.

Comprehending and preparing for the preventive work safety trend will prepare you for 2015 budgeting and set your organization on the path towards a beneficial work safety culture. While this may sound complicated, strategy setting will become easier after considering the benefits of preventive safety strategy.

First, Consider the Benefits of Safety Risk Management

The concept of pursuing Injury Prevention tactics for Safety Risk Management is not a revolutionary approach, nor is it a simple strategy to follow. The motivation behind injury prevention strategies that minimize risk to reap long term safety benefit is based in the complementary advantages provided by a preventative safety culture. Risk prevention strategy involves foresight and planning, and requires a greater upfront investment cost. Over time it will result in fewer injuries, worker lost time reductions, improved workers comp rates, and other indirect savings and benefits. From this perspective, preventative safety risk management ultimately provides inherent value to businesses that are financially stable and well-managed. These businesses are typically set up to plan ahead strategically and invest accordingly. If they are able to effectively implement safety risk management strategy, they will thrive when compared to protection-focused strategies with stringent safety controls.

…then brainstorm Injury Prevention Strategies

The elements of successful injury prevention strategies are not unlike those of a typical work safety program, with respect to procedural elements. Hazard assessments, incident recording, policies and training remain standard work safety objectives. The subtle difference between injury prevention through safety risk management versus protection and control strategies is that prevention policies and controls are engineered to prevent risk, as opposed to simply identifying risk areas and protecting workers. For example, while injury risk hazard assessments are an element of most work safety programs, an overarching preventive strategy will interject that step into the initial processes of any new development or work activity. The goal is circumventing, not simply mitigating, potential risk areas. With this in mind, preventive strategy is most effective when work safety culture is established and new initiatives are supported by an acknowledged organizational safety commitment.

Preventive Safety Incentives & Training Ideas

In support of building a work safety culture that values and supports injury prevention ahead of protective measures, safety incentives should be structured to reward preventative innovation as opposed to strict adherence to performance metrics such as injury rates or lost time. For example, an organization might hold a contest that challenges employees to propose an injury risk prevention strategy that reduces injury risk for the work process that had the highest injury rate the previous year. This approach delivers the strategic preventative message while working to solve a problem, and also helps to increase employee commitment through involvement. Similarly, training documentation should emphasize the importance of avoiding unnecessary risks as much as utilizing the proper protective equipment or following the recommended procedure. In an injury prevention safety environment, the goal should be to efficiently avoid risks, not plow through them with precautionary measures.

Now You’re Ready to Budget Your Injury Prevention Risk Management Investments

We at the Safety & Numbers blog encourage you to invest in injury prevention engineering strategies and equipment as you write the 2015 budget. Establishing preventative work safety as a cultural value will not only offer the ‘usual suspect’ benefits (monetary expenses, less lost worker time, improved morale, etc.). Over time it will provide indirect benefits such as workers comp rate and hiring advantages. Need help with your injury prevention safety planning? Contact IAS

Work Safety Policy EMR Strategies to Lower Workers’ Comp Rates

At the beginning of each fiscal year, your insurance agency will provide you with your Experience Modification Rate, or EMR. This value serves as a multiplier to calculate your annual workers’ compensation insurance premium. EMR may lower or raise your premiums based on the history of safety and injury claims that your company exhibited over a three year period. It is also the most direct method of calculating a return on investment on work safety investments.

By improving work safety policies and following preventive practices that lower injury loss rate, business can save thousands of dollars annually on premium reductions.

Work Safety Policy EMR Strategy

The most direct way to lower your EMR is to institute a Work Safety Policy that is supported and promoted throughout the organization. Work safety policies build cultural safety values and institute programs, incentives and controls that improve processes and cross-departmental knowledge of safety.

Here are some ideas from a work safety policies at successful companies.

Develop a Safety Committee to assess and improve communication about safety policy and strategic EMR initiatives
Create a Return to Work Policy to encourage workers to return when able and reduce the length of claims
Initiate Job Classification reviews to communicate job responsibilities to employees and improve expertise
Implement strategies to generate a Safety Culture including Management Involvement, Incentive Plans, and Injury Claim packets with helpful information

Equipment Work Safety Policies for EMR

In support of work safety policy, effective management of equipment can further help reduce injuries and lower EMR. Ensure that equipment is operating properly and develop an Out of Service policy to inform team members how to handle malfunctioning equipment. Conduct work hazard analyses to identify equipment to reduce injury risk. Input from the employees that actually operate the equipment is highly valuable when developing policy. And remember that each work site or piece of equipment is unique and thus may require custom access solutions.

The above article was originally published in the January 2014 IAS Trucker Newsletter. Sign up today to subscribe and receive our monthly Work Safety newsletter.

Workers Comp EMR Risk Management Sample Case

EMR, or Experience Modification Rate, is the most direct method of determining the effect that claim history has on the annual premium a business pays for workers’ compensation insurance. In technical terms, it is defined as follows.

The adjustment of annual premium based on previous loss experience. Usually three years of loss experience are used to determine the experience modifier for a workers’ compensation policy. The three years typically include not the immediate past year, but the three prior. Source: http://en.wikipedia.org/wiki/Experience_modifier

An average Workers Comp EMR rate is 1.0. In essence, an average EMR means that the actual losses during a 3 year period is equal to the expected losses for that period. Since EMR functions as a multiplier, a company with an average EMR rate will pay precisely the calculated premium based on industry, number of employees, and other risk factors. From a work safety perspective, it would appear that these companies are effectively but not optimally preventing work injury hazards that drive EMR risk.

A Sample Workers Comp EMR Calculation

Workers’ comp EMR rates are lower or higher if a business incurs total losses that are lesser or greater than expected losses in the applicable 3 year time period. For example, a company with more losses than expected may have an EMR of 1.1, and thus their premium is 1.1 times the base premium for their business. At the same time, if that business experiences fewer losses over the next 3 year period, their EMR may be 0.9 and they will pay less than the base premium.

Minimum Workers’ Comp EMR and Controllable EMR

EMR values can and often do vary more than 0.1 above or below average. Each business has a minimum EMR that they can strive to reach in order to pay their lowest possible workers comp insurance premium. If Company XYZ has a Minimum EMR of 0.85 and a current EMR of 1.1, they have a Controllable EMR of 0.25 [1.1-0.85]. Here is where the bottom line effect should get the attention of business owners, as seen below.

Effective Safety Reduces EMR Risk and Saves Money

Effective work safety and EMR risk management has many positive effects. Improved morale, hiring and employee retention advantages, lost time reductions, and project timeline improvements to name just a few. While these factors are difficult to monetize, the bottom line effect of improved workers comp EMR and resulting workers’ comp premium savings illustrates how effective safety can be at providing long term profit advantages and improved cash flow. It’s clear that from a financial perspective, managing work safety is a win-win for businesses of all sizes or strategies.

Learn how to Lower Your Workers Comp EMR

Making the Case for Work Injury Prevention [INFOGRAPHIC]

The costs of workers’ compensation and other work injury expenses are significant and difficult to predict. To manage this risk, businesses should build safety culture by implementing work injury prevention programs and providing incentives to employees that promote safety across the organization. For an overview on how to make the case for work safety policy, review our Work Injury Prevention Infographic.

The Cost of Work Injuries: Direct, Indirect, and Hidden

A worker injury comes packaged with costs far beyond worker’s compensation claims and potential litigation expenses. Direct costs are significant; In 2009, worker’s compensation benefits paid totaled $58 billion, a 150% increase from only 6 years prior. Yet, considering direct costs alone when factoring a return on safety investment or justifying safety and health initiatives is painfully incomplete. Companies that have dealt with even minor worker injuries have experienced the hidden costs and indirect bottom line factors that can lead to catastrophic side effects or unanticipated benefits. Studies have shown that work injury prevention programs are effective both on a bureaucratic and a business level. Considering the complete picture of a work injury can be the most effective motivator for investing in safety risk management programs.

Hidden Costs of Work Injuries

The worst case scenario for a work injury, a death or debilitating injury, carries the most hidden costs for a business organization. Large workers’ comp claims hike up premiums and can even lead to inability to change or acquire insurance. From here, consider the effect on the co-worker when an employee suffers an injury on the job. In the worst case, counseling may be required for co-workers, as the work facility becomes a haunting reminder of the incident. Lack of sensitivity to this scenario can lead to worker absenteeism and forge foundational cracks in the management-employee bond. Injuries don’t have to be major to carry hidden costs, however. Companies with a reputation for aloofness to safety, experience a large number of worker injuries, or fail to support national and economic safety initiatives can have a hard time retaining and hiring employee at competitive salary levels.

Indirect Costs of Work Injuries

The indirect costs of a work injury are more easily foreseeable but still difficult to factor in monetary terms. It is important to realize their reach to fully anticipate the event of a work injury, even if the variability of the costs makes them difficult to forecast. Indirect costs can include training and compensating replacement workers, damaged property, production delays, administrative expense, and morale and reputation factors. These side effects and reactionary costs can add up to total up to 20 times the direct costs and are usually considered as a multiple factor in projections.

Indirect Safety Benefit & Opportunity Cost

Remember the hidden costs of a work injury? Hidden benefits are just as closely tied to safety initiatives. Safety programs are beneficial for the business, the worker, and the economy as a whole. A 2001 Liberty Mutual report on Safety Investment ROI shows that 61% of executives see a 3-1 return for safety investments, likely due to improved morale, productivity, industry reputation, community support, and HR advantages. Safety can be a core business value and produce competitive advantage as a positive safety reputation becomes recognized by customers, vendors, and staff. It doesn’t have to be though. An attentive and effective safety program can economically support strategies ranging from quality to customer service, while still producing indirect benefit. Ignoring this agenda for lower return investments is often an opportunity cost for businesses.

When a complete picture of work injuries and safety benefit is considered, it’s easier to see the wisdom in investing in injury prevention and championing proactive safety programs.

Celebrate Independence with Freedom from Work Injuries

The Fourth of July celebrates an important day for Americans and proponents of liberty across the globe. With the signing of the Declaration of Independence our founding fathers paved the road for new ideas ranging from civil rights to individual freedom and equal opportunity. The beauty of the American system is in its providence of choice. Each and every American citizen has the opportunity to capitalize on the liberties promised by the Constitution and Bill of Rights. As Americans we know that we must work for the security of our family. Opportunity is provided, success is earned. Each individual is blessed with the same system of laws, liberties, and protections. Those who work hard will excel.

The basic principles of American liberty branch off and extend throughout society. At times it can be perplexing to consider how little we take advantage of the system that is set up to enable us to succeed. One such area is workplace safety. Federal protections for employee safety have been a part of American society since the late 19th century, and OSHA legislation was first enacted over 40 years ago. The laws help to protect not only the individual worker, but also to shield businesses from the risk associated with workers’ compensation claims, lost employee time, and production delays. Yet, OSHA citations are commonplace throughout industry.

Declare Your Independence in 2013

In 2013, we challenge you to Declare Independence from Work Injuries. As a society blessed with personal freedoms, it is inherent that we encourage each other to achieve greatness. The opportunity to achieve an injury free workplace is provided as a safety incentive to all businesses, and the benefit, as is so often the case, cannot be expressed merely in dollars and cents. A safe employee is a happy employee, and happy employees work hard, recruit their friends, and provide great service to your customers. Take the time to consider the graciousness of a government that provides support for workplace safety, and factor how you can improve safety at your business to earn maximum benefit. Protect yourself from risk and remember the long term benefit of a safe workplace. After all, it’s the American way.