20 WESTERN PALLET
Workers Comp Insurance:
Look Beyond the Cheapest Quote
When it comes to buying workers compensation insurance for your pallet business, don’t make the mistake of just going for the lowest quote, according to John Tillery, managing partner of WPA-member Whiteboard Risk & Insurance Solutions.
“A lot of companies think the best way to get the lowest quote on their workers compensation is by going to multiple brokers for quotes, and then whoever brings in the lowest one gets the deal,” Tillery cautioned. He believes that not enough attention is given to understanding the impact of claims on insurance premiums, and how that low-cost initial premium can escalate out of control in subsequent years in the absence of proactive claims management.
The problem with workers comp is that every participating party, from doctor to lawyer to insurance company to insurance broker, has a direct financial incentive to drive up the cost of your claims, Tillery emphasizes. Doctors may feel at liberty to order additional tests or therapy, for example, while workers comp lawyers are often hired on a contingency basis. You only pay the lawyer if they win the case, so lawyers are incentivized to go for the largest permanent disability settlement possible. The insurance company makes more money as premiums mount in succeeding years, and for the insurance broker, the larger your premium becomes, the more money they make on their 10 to 15% percent commission.
While two identical pallet companies may start off with an identical insurance premium, they can vary significantly as a result of claims over time. To sketch an example, Tillery describes two operations that start at the same rate of $100,000. Then, however, claims take place - more for one company than the other.
An EMR of 1.0 is the average claims experience for a company in a particular industry. The company with low claims costs might drop to an EMR of 0.80 or $80,000 - or lower than the industry average, while the plant with higher claims (higher than average) might jump to an EMR of 2.0 or $200,000.
“If nobody's proactively managing claims for your company, a $5,000 claim can turn into a $20,000 claim,” Tillery said. “And because of the way the experience model works, for every dollar the insurance company pays out, up to what's called a primary threshold, the insurance
primary threshold, the insurance company is going to charge the pallet company over a three year period $4 for every $1 they have had to pay.”
So while it is in the interest of the pallet companies to actively manage claims to avoid insurance increases, the cost of that will come out of their own pocket. Claim investigations aren’t covered by insurance. As a result, while it might seem cheaper for pallet operators to settle a claim rather than to investigate, this approach is a false economy. Operators will ultimately pay a lot more in aggregate over succeeding years.
Tillery emphasizes the importance of choosing an insurance provider based on the value that they bring, not the quotes. To start, he advises looking for a provider that offers proactive claims management, 24-hour nurse triage, and EMT response.
For more information, visit www.whiteboardrisk.com.