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How to Strengthen Your Safety Program and Cut Workers Compensation Costs

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Controlling business costs is top-of-mind for organizations of all sizes and can take many forms, from moving the business to a less expensive building in a more economical part of town to cutting advertising costs. Many companies overlook one key way to control costs that can be easily implemented and managed while also improving work culture overall: implementing a safety program to better manage workers compensation costs. When the average workers compensation claim is around $40,000, taking steps to mitigate workers compensation risks and better manage claims can be a great opportunity for any business to both ensure the safety of its workers and protect the bottom line.

Risk professionals can help reduce costs by taking steps to implement any of the following:

  • Improved safety programs
  • More active involvement in claims management
  • Build out a return to work program

Encourage your internal teams to establish a well-planned and detailed new hire onboarding program that reinforces a strong safety culture. Here are some steps that you can integrate into your existing onboarding program that will also help control unnecessary or redundant workers’ compensation claim costs.

Practice Makes Perfect

Onboarding new employees means taking the time to acclimate them to how your business operates in terms of safety procedures, jobsite dos/don’ts, and any potential hazards. Repetition is key for any new employee learning the ropes, but especially for those workers who are jumping into a new role. Ensure all new hires have the appropriate time and space to practice any safety protocols and consider implementing a safety quiz at the end of a designated orientation period to test retention.

Use the Buddy System

Provide each new employee with a veteran employee buddy. This partnership aims to help the new employee get acclimated more quickly to the new environment. During their time together, the veteran employee can discuss safety concerns and identify potential hazards. As worksites can become overwhelming with the amount of hustle and bustle, it will be critical for the new employee to have a partner who is able to help keep an eye out for them and monitor their safety until they are ready to venture out on their own.

Cultivate a Culture of Safety

Encourage managers and team leaders to commit to safety goals and practice what they preach. Setting an example for employees early means that management must be “all in” on safety. This ensures that employees on all levels understand that safety is a company-wide priority. Building a foundation of safety-focused programs with the goal of keeping claim costs low will be key to solidifying each employee’s connection to the organization.

There are myriad ways to reduce workers’ compensation costs. What will be most important to your organization is taking into consideration the time and resources it will take to efficiently improve this area of your business. Whether your team decides to do this independently or with the help of a vendor like a PEO, it is essential for companies to prioritize this part of their business to reduce risk. 

Should You Revisit Insured Property Value Estimates?

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One of the first steps in obtaining commercial property insurance is to determine the value of the property being insured. The reported property value will drive premium amounts and, importantly, represents the property loss exposure.

Some commonly used property valuation methods include: obtaining an appraisal from a third-party firm; utilizing fixed-asset records adjusted for cost inflation; or using a simple benchmarking factor, such as dollars per square foot. In some cases, utilizing a simplified valuation approach can provide a reasonable value estimate with minimal effort. On the other hand, performing an appraisal (which insurers typically consider the “gold standard”) can provide much-needed accuracy and thoroughness, but will require a greater commitment of time and resources. 

At times, elevating the accuracy of a property value estimate can provide significant advantages during the insurance placement process. The key for risk managers, brokers and insurers is to recognize situations in which an accurate and comprehensive property valuation is critical. Consider these eight factors in the context of the insured property to see if a deep dive into the value estimate is necessary:  

  1. Size of exposure and riskiness of operation
    When property exposures are immense or operations are inherently risky, a thorough estimation process should be conducted every three to five years. Refineries and chemical processing plants with billion-dollar exposures and high-risk operations are a prime example—the stakes are too high to rely on cursory valuation methods over the long term.
  2. Changes in costs  
    Over time, some property costs will change more than others. These fluctuations are primarily driven by changes in technology, capability, and material and labor costs. As of this writing, there have been significant increases in commodity prices such as steel and lumber, which are driving up the costs of new property and equipment. When property is subject to a rapidly changing cost environment, this complexity needs to be carefully considered within the estimation method.  
  3. Complexity and scope of property 
    Global operations and complex properties often require a thorough analysis to be performed periodically. There is simply too much detail and nuance to use an abbreviated estimating approach for an extended period without introducing the possibility of significant error. Many global firms establish a multi-year process in which a comprehensive analysis is performed on a portion of properties each year.  
  4. Type of capital expenditures 
    A company’s capital expenditures typically represent either new asset additions or improvements to existing assets. Accounting for new assets is a straightforward process of addition. However, capital expenditures that represent improvements in condition may not translate directly into increasing replacement value for insurance purposes. This is a frequent occurrence within heavy industrial and processing operations and can result in an overestimation of value if not properly analyzed.  
  5. Major changes to business or operations 
    Major changes within a business, such as reconfiguring a manufacturing facility, adding production capacity, acquiring new businesses, consolidating operations, or relocating an operation, are likely to result in changes to the property and assets. Making a diligent effort to assess these circumstances in detail will help establish an accurate property value that can be used going forward.  
  6. Insurance market conditions 
    As of this writing, the property insurance market has experienced substantial price increases for three consecutive years. When insurance prices are high, developing an accurate estimate of property value will provide assurance that the coverage is neither more nor less than necessary. Developing reliable and accurate value estimates can also be a key differentiator for insureds when engaging with insurers in a difficult market.  
  7. Recent losses reveal inaccurate value estimates 
    Insurers will seriously question the validity of reported property values if a recent property loss reveals large inaccuracies in reported value estimates. In this case, performing a comprehensive valuation of the insured property is the best course of action.  
  8. Adjusting value estimates over time 
    Many companies adjust value estimates from the prior year to account for cost inflation. The accuracy of this approach will diminish over time. For typical commercial properties, conducting a comprehensive valuation every five to eight years can help recalibrate value estimates.  

Correctly valuing insurable property is one of the most critical inputs for managing property risk. While a shorthand valuation estimate may suffice in some circumstances, it is not a perfect solution to every situation. Sometimes there is no substitute for a thorough and diligent value estimate. Striking the right balance between valuation accuracy and effort requires knowing when an estimate is good enough and when it is not.  

5 Best Practices for Effective Claims Reviews

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With the cost of insurance for businesses rising across many types of coverage, staying on top of trends in the claims portfolio is more important than ever. Spotting problem areas and opportunities sooner makes it easier to develop and implement steps to reduce risk pre-loss and better control costs post-loss. For this reason, many insurers and TPAs promise to conduct claims reviews with their business customers on a regular basis, but the rigor can vary greatly. Practices that have been common historically often lack the nuance and precision that can unlock the maximum benefit for each customer’s unique situation.

Here are five best practices for a wide variety of customers across a range of industries:

1. Assemble the right team

Typically, only the person overseeing claims at the business attends the claims review with key claims staff from the carrier. However, this small team limits the potential for brainstorming solutions and getting full buy-in to implement them. In addition to claims experts, it may also be helpful for the carrier’s loss control team to attend, as well as agent/broker staff.

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From the business customer side, it is helpful to include all key personnel who can facilitate immediate decisions that will impact the ultimate resolution of the claim in an efficient and timely manner or provide other insightful information. This often includes the risk manager, and may also encompass employees from legal, human resources, safety, operations and even the CFO, in some cases.

2. Develop a clear understanding of the customer to set the claims review objective

Broadly speaking, the goal is always to minimize loss costs to help manage the price and coverage of the overall insurance program. However, each business and claims portfolio is unique. One company may be most concerned with how claims reserves are affecting budgets. Another company may have an unusually high experience modification rate that they want to bring down by reducing the frequency of worker injuries. Yet another company may be changing part of their operation and want to monitor claims activity associated with it more closely than business-as-usual activities. The policyholder’s unique objectives should drive decisions about how often to conduct the claims reviews, what types of claims to include and where to dive into the greatest detail.

3. Fully understand and account for the impact of claims on the insurance program

In the initial design of the insurance program, certain coverages may have been limited due to a problematic claims record. For instance, frequent third-party claims for premises liability may have led to restrictions on Med Pay coverage or a higher deductible to give the customer a bigger stake in safety measures.

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Or perhaps the customer hoped for a loss-sensitive program but could only secure a guaranteed cost program due to lack of an internal pre- and post-loss management platform. The claims review should be designed to account for how frequency and severity may affect underwriting decisions so that the policyholder can move toward its coverage objective

4. Choose claims for review according to objectives, not simply dollar value

The default choice for what claims to review is often based on dollar value—e.g., all open claims with incurred losses of $25,000 or more. This approach may miss underlying trends that could lead to severe loss, however. For instance, perhaps a restaurant chain experiences a high frequency of slip-and-fall claims from workers in its kitchens. While these may all have been minor, but it may only be a matter of time until a severe injury occurs.

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With the objective to reduce frequency and the risk of serious injury, the claims review should examine all slip-and-fall claims using data and analytics to uncover causal factors such as food and liquid dropped on floors or seasonal workers with little safety training.

5. Track reserving on a micro level relative to all factors that can affect open claims

Typically, reserving is only tracked from a macro perspective, but this can overlook a variety of factors that could help better manage reserves and ultimate outcomes. For example, are the latest technologies being consistently used to manage costs? Advances in artificial intelligence and data and analytics now allow us to identify treatment providers associated with the best outcomes for injured workers, but how well are companies taking advantage of the recommendations? Early resolution techniques for auto and general liability claims may lower the ultimate cost of claims but cause a short-term bump in claims payments that needs to be accounted for in the customer’s budgeting process.

Potential Benefits

Claims reviews based on these best practices can yield significant benefits, especially when used as part of a holistic approach to managing risk and reducing losses. For example, an early claims review for a new manufacturing customer identified sprain and strain injuries as a problem area. The loss control team then surveyed the manufacturer’s operations and uncovered increased risk due to various manual lifting tasks, such as loading 8-foot-tall plastic silos with heavy equipment in a confined space. Based on that finding, the insurer’s team conducted onsite job hazard analysis supervisory training that included a safe lifting program, online courses and ergonomic risk assessments on a variety of tasks. As a result, within about two years, the program cut the manufacturer’s workers compensation loss ratio roughly in half.

Combating Fraudulent COVID Unemployment Claims

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As federal and state officials scramble to send unemployment and stimulus funds to help people hit hard by COVID-19 business shutdowns, it has become a perfect storm for cyber fraud.

The payments are an easy target for cybercriminals as hackers and cyber gangs around the world have started to file unemployment claims use stolen identities. Some criminals claim benefits in the names of dead or incarcerated people, while others set up shell companies, “hiring and firing” fictitious employees to collect payments.

For example, cyber gangs in Nigeria have stolen millions in benefits from multiple states using hacked names, Social Security numbers and other information sold for as little as two dollars each on the dark web. In New York, a man was charged with filing more than $1.4 million in false COVID-19 unemployment claims, using the stolen identities of over 250 unknowing victims. According to U.S. attorneys, he was caught in part because he used the same IP address and security question and answer—the name of his family dog, Benji—to submit the applications.

The U.S. Department of Labor estimates fraudsters may already have stolen at least $63 billion through phony jobless claims, while other reports say the losses could be as high as $200 billion. In addition, unsuspecting victims are at risk of receiving surprise tax bills because cybercriminals stole their identities and filed fraudulent claims for COVID-19 unemployment payments.

Watch Closely for Signs of Fraud

The Federal Trade Commission warns that unemployment fraud puts workers at additional risk of identity theft crimes including tax fraud. What can you do to help protect your employees?

Unemployment fraud is often uncovered when employers are notified by state officials that employees have applied for benefits. If they are still working, they may be the victim of identity theft.

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Be alert to the signs of cybercrimes and unemployment fraud. Contact your human resources department or tax administrator and ask them to look carefully at any notices or requests they receive from state unemployment officials. If you get a report about unemployment benefits that an employee did not request or receive, contact the employment division of your state labor department. Unemployment fraud is so widespread that most states have set up special procedures to deal with these situations.

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Warn Your Employees

Let employees know that unemployment scams are a serious problem. Identity theft can also lead to tax fraud, credit card theft and loans taken out in their names.

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Notify a working employee immediately if the state informs you they have filed for unemployment benefits. They may be the victim of identity theft and should file a police report. Officials say workers scammed by cybercriminals do not have to pay unemployment taxes, but they must report the crime to the state labor department. And they should file their federal and state taxes on time for the correct amount of their income. The U.S. Labor Department has created a special website for victims of unemployment fraud.

Review Your Cybersecurity

Much of the personally identifiable information used by cyber thieves comes from data breaches, phishing schemes and other cyberattacks. Remind employees, particularly in human resources and tax departments, to be alert for suspicious emails, telephone calls and text messages about payroll information or W-2 forms.

The threat will continue beyond the pandemic. Business email compromise, in which employees are tricked into paying company funds into fraudulent accounts, is at an all-time high, so make sure employees have regular cybersecurity training. If you haven’t conducted a data inventory, do so now. Once you know what data you keep, you can determine what controls you require to protect that data. Store employee records securely and dispose of personally identifiable information carefully. It is also advisable to use a secure email gateway, which protects from spam, viruses, malware and denial-of-service attacks, and make sure employees working remotely are using secure company devices. Install patches and software updates, setting up automatic software updates whenever possible.

Unemployment or tax fraud targeting multiple employees may indicate a data breach. If you have a theft or cyberattack, contact your insurance carrier and, if necessary, seek expert help to identify the source, the extent of the problem and how best to respond.