Can implementing a rigorous safety culture actually reduce costs?
One of the of the easiest ways to reduce cost is to cut the cost of your insurance premiums.
Many companies don’t recognize that insurance costs are controllable costs – they’re not a fixed expense, and insurance makes up a significant percentage of the overall cost of doing business. Just add up your Workers Comp, liability, automobile, property, inland marine, umbrella, professional liability, and employee benefits costs and you’ll see what I mean. Cutting these costs will have a disproportionate impact on your bottom line.
Hey there, it’s Pete from FIRST, VERIFY.
So how do we start cutting those costs?
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The first step is to recognize that your premium expense is directly influenced by your prior loss experience.
The first and most obvious area where cost savings can be achieved is with Workers Compensation insurance. Many business owners don’t realize how much control they have over their experience modification rate commonly known as the EMR or Mod Rate. This rate is used to adjust Workers Comp premiums either up or down. A company’s EMR is based on how its claims experience compares to other companies in its industry.
In fact, for all insurance premiums the insurer spreads the cost of a company’s predicted future losses over time then adds an expense factor and a profit factor. Meaning that premiums are in essence just a way of financing a company’s cost of accidents and injuries. So, obviously if a company can reduce its claims over time, it will reduce its cost of business and this can translate to a significant impact on the bottom line. The example shown here illustrates the difference in premiums for companies in the same classification with different EMRs. An EMR of 1.0 means that your loss claims are average for your industry classification.
The first company with a better than average safety record earns a 20% discount on their premium or a .80 EMR and the second company with a worse than average safety record receives a 20% addition to their premium or a 1.20 EMR:
The result is over $20,000 in an additional premium, or 50% additional cost, to the company with the unsafe record.
Experience Modifiers are also applied to a company’s general liability and auto insurance, but the EMR is a key indicator of a company’s performance. It’s often used by others as a test of how well you run your business (to find out what else you should be measuring, see Key EHS Performance Indicators Every Organization Needs to Track). The thought being “If you can’t work safely, you can’t produce a quality product at a competitive price.”
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Before offering a quote, many insurance carriers will meet with a prospective client, and perform a loss control survey to gather information on their operations. This survey will assist the underwriters, and has a direct bearing on the cost.
When insurance companies complete a survey they are looking for managers who “get it.” These are companies that don’t just focus on the cost of insurance premiums. They understand that accidents and injuries affect their other business costs as well … and they understand why.
If you would like to learn how FIRST, VERIFY can help you better manage risk, please feel free to contact me.
Thanks for listening.
Written by Pete Wiggins | Principal
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