Key Takeaways
In 2023, employers reported 2.6 million nonfatal injuries and work-related illness on the job in the US. While this is an 8.4% decrease from 2022, it’s safe to say no employer would like to be included in this statistic. Workplace injuries and illnesses can have several mental, physical, and financial ramifications for employers and workers — workers’ compensation can help soften the blow of such incidents.
Let’s review some trends for this insurance coverage and insurance costs, including price fluctuations and how better risk management can keep higher premiums at bay, allowing employers to save money.
Are Workers’ Compensation Prices On The Rise?
The National Council on Compensation Insurance (NCCI) recently revealed that workers’ compensation premiums rose by 1% from 2022 to 2023. This significant increase can be attributed to inflation, rising employment post-pandemic, stricter workplace safety standards, and higher medical costs.
However, rising costs don’t have to be the norm when choosing a private insurer. By understanding how workers’ compensation works and the best ways to approach this coverage, employers, independent contractors, and business owners can get suitable insurance for their employees without bearing skyrocketing costs.
How Much Does Workers’ Compensation Insurance Cost?
Several factors influence workers’ compensation insurance premiums. Breaking down what they mean and how they work paints a better picture. Helping leaders answer the dreaded question, “How much does workers’ compensation insurance cost for employers?” allows them to better manage costs, save money, and get the most out of their coverage.
Experience Modification Rating (EMR)
The EMR calculates a company’s safety, which helps define insurance premium prices. This rating differentiates activities per industry and more closely per company, precisely defining the amount of risk employees might face in their daily activities.
By the numbers, the EMR is calculated by taking the frequency and average cost of workers’ past accidents and multiplying it by the expected losses (defined by employee classification codes established by the NCCI).
Reducing an EMR boils down to implementing rigorous safety programs at work, which is an employer’s best bet for reducing risks. For example, Jasmine Omar, the global director of worldwide ergonomics and safety experience at Amazon, managed to decrease Lost Time Incident rates by 60% and Recordable Incident Rates by 30% since 2019.
Payroll Exposure
Employers typically base their payroll on worker activities, categorizing them into certain job classifications that help define a position’s salary. Each amount factors in risk level and correlated workers’ compensation premium, which is often audited to assess the accuracy of such calculations.
These audits are crucial in determining if an employer’s own payroll data, reporting and job classification is accurate, leading to either over or underpaying employees and thus affecting workers’ compensation insurance costs.
State-Specific Regulations
Workers’ compensation regulations vary in each US state, meaning some will have more stringent requirements for business insurance, while others forego them altogether. For example, Texas is the only state that doesn’t require employers to implement workers’ compensation coverage.
Eligibility for workers’ comp also varies — in California, domestic and some agricultural workers are excluded from mandatory workers comp coverage, while North Dakota has a vague definition of what an employee is, excluding workers’ comp coverage in many fields.
Eligibility also ties into penalties, which employers in many states can incur if they don’t compensate their employees correctly. Some states, like New York, only charge fines, while others, like Pennsylvania, deem it a felony punishable by incarceration.
Furthermore, coverage can affect the compensation insurance cost as some states require employers to cover more injuries and illnesses than others. California tends to offer death benefits and more protections for employees, with coverage including stress-related disorders. New York, on the other hand, includes repetitive stress work-related injuries, while Wyoming is at the end of the spectrum with a limited definition of covered injuries and illnesses.
Understanding Workers’ Comp Trends
As work dynamics shift in each industry, so do workers’ compensation conditions. A notable example of rising trends is remote work, which was popularized after the COVID-19 pandemic in 2020. Regulations have had to adjust to workplace changes to now include employees’ homes as well.
To illustrate, in many cases, any worker accident incurred while they’re performing an activity that benefits their employer is covered by workers’ compensation. In states like California, activities that happen “in the course of employment” also fall into this category of workers’ compensation policy, including trips to the kitchen for water, bathroom breaks, and lunch breaks.
New jobs in emerging industries are also changing how workers’ compensation is handled in unique industries like clean energy, especially as it becomes a critical field while being highly risky.
A recent report revealed that solar and wind workers have a high injury rate — in Texas alone, 43% of survey respondents said they have personally experienced a heat-related illness and 70% don’t count with workers’ compensation.
Work trends are also reflected in novel diseases and injuries that can change compensation coverage and costs. For example, the Centers for Disease Control and Prevention (CDC) identified welder’s anthrax as a new rare but serious disease for metal workers in 2022. Such cases undoubtedly change the work-related injury coverage landscape in certain industries.
As these trends evolve, so do regulations and state laws. The NCCI is constantly monitoring work dynamic shifts, such as marihuana legalization and the rise of mental health awareness, to propose state- and federal-level reforms.
Effective Risk Management Strategies
Reducing the average annual cost of workers’ compensation premiums is all about improving safety measures at work, which can be built on the foundation of effective risk management. Let’s go over a few risk management strategies that can up a company’s safety game.
Injury Prevention Programs
Whether in manufacturing or accounting, workplaces need to enforce optimal injury prevention programs. Safety training and education programs are the most straightforward way to avoid risks by making workers aware of hazards and helping them prevent incidents.
These programs should also go hand in hand with safety inspections and audits, which ascertain if a building’s integrity is fit to host employees. As a result, employers will improve their safety protocols and procedures.
Early Intervention and Return-to-Work Programs
Building a resilient workforce starts with early intervention and providing suitable working conditions when injured workers return to work. Steps to take include medical attention at the ready for quick and effective incident response and treatment, workplace modifications and offering light-duty work options, and integrating vocational rehabilitation and retraining programs.
Claims Management
Handling workers’ compensation claims promptly and appropriately is vital to prevent delays or claim mismanagement.
Communication is key at this stage, ensuring injured workers can tell their stories and be up to date with the claims process. Connecting with your insurance company and brokers is also crucial to effectively manage claims.
Optimizing Workers’ Compensation Insurance
So, how can employers make sure their workers’ compensation insurance policy is optimal for both them and their employees? Here are some tips.
Alongside paying close attention to insurance trends for possible cost fluctuations or regulatory changes, leaders must make sure they associate with the right insurance carrier. This involves evaluating a carrier’s financial strength, claims handling capabilities, claims history, and track record of cost-effective claims management.
Understanding the components of premium costs also enables employers to appropriately negotiate their workers’ comp with their carriers. This, of course, involves implementing some bargaining power to set favorable workers’ comp rates.
Moreover, exploring group rating plans, which mainly happen through a trade association or chamber of commerce, can be a good way to improve safety measures while lowering business insurance costs. Group ratings take place when similar companies unite to apply for insurance, pooling their risks and reducing rates.
It’s also important to note that insurance carriers often offer loss control services, which allow companies to receive consulting and safety training.
Similarly, creating a close relationship with brokers helps company leaders easily establish conversations around better coverage, spotting unnecessary policies, and assessing potential risks together.
Insurance is increasingly becoming an integral support rather than a box to check for companies, especially as safety standards become stricter and workers’ safety awareness is heightened. Adequate workers’ compensation brings immeasurable benefits to every company member, from top to bottom, so securing the best in workers’ comp insurance coverage is a major advantage for modern employers.