Companies with a singular vision for improving risk management experience the best results while also improving in other areas like quality and productivity.However, many contractors often struggle to make meaningful, long-lasting progress in risk management and subsequently fail to reach their full potential. This is partially because they lack a clear vision and strategy that will truly transform how they manage risk as well as the right partners to help develop and implement that vision and strategy.

This article will outline tactics to help protect your workers from injuries while also creating a Best in Class company culture that will, among other benefits, greatly reduce workers’ comp spend.

Workers’ Comp

For most contractors, workers’ comp is the single most costly line of insurance coverage. Most commonly, a guaranteed cost program sets the annual premium at the beginning of each policy year and is paid regardless of the number of claims or their cost. “Dividends & Deductibles & Retros, Oh My!” in the September/October 2019 issue of CFMA Building Profits¹ presents alternatives to guaranteed cost workers’ comp programs and demystifies their perceived complexity.

A good or bad year will influence your premiums in the future, but for that policy year, the cost will not change, except for the fluctuations in payroll. While guaranteed cost programs offer the security of not having unanticipated expenses, they’re also costly and cause companies to leave money on the table.

Some construction companies already perform well when it comes to safety, claims management, and claims dollars, or they are willing to improve in these areas to help substantially save on premiums by moving away from guaranteed cost programs and toward deductible, loss-sensitive, and retrospective rating plans and captives. For workers’ comp premiums over a few hundred-thousand dollars annually, there is a potential for significant savings.

The Planning Stage

Your company has a unique culture and operation, so you need to design risk and safety programs and plan their implementation in a way that is highly customized to your needs. The impact of these changes can vary greatly, so if you’re going to commit to improving safety results and gain the financial benefits of loss-sensitive programs, don’t do it alone. Involving experts from outside of your organization with experience implementing these types of tactics can help improve the likelihood of success.

For example, let’s say Bob finds out that a worker strained his back two weeks ago but decided to work through the pain. During that time, the condition worsened, and by the time the injury was reported, the worker was in such bad shape that he will likely experience weeks – if not months – of pain and will require significant medical treatment and light duty work (and/or lost time).

If the company culture was such that the employee understood that reporting an injury as soon as it happened was as important as completing their daily work, it’s likely that a lot of pain and suffering could have been avoided – as well as what could be a five figure workers’ comp claim. One of the foundational characteristics of all Best in Class companies is that their workers in the field and office report all safety-related incidents immediately after they happen.

When contractors with supportive leadership teams experience late reporting or none at all, their approach is usually to update and disseminate the reporting policy in their safety handbook, put up some posters, and talk about it on regular all-company safety calls. From the perspective of those in the office, everyone should know the policy and understand its importance. But, as a CFM, you know that this kind of rollout is not going to be successful.

The “Rule of Seven” marketing maxim, which states that someone must hear a message at least seven times before it is “heard” and causes someone to take action, should guide the rollout of any new policy or program within your company. (Having managed the implementation of risk management programs that, in some cases, were meant to influence the behavior of over 300,000 employees in one company, I used this rule in every rollout I planned.)

Since reporting is such a foundational part of any effective risk management program, the rule of seven rollout can be used to convince your leadership that an updated reporting program should last 6-12 months in order to be embedded in workers’ minds. Plenty of time should be spent addressing concerns with the approach and working to plan a comprehensive internal marketing strategy (that includes utilizing multiple internal communication channels and getting the message in front of each employee quickly and concisely once or twice per week) that lasts at least six months and continues longer if needed.

The First Step: “Measure Twice, Cut Once”

The opportunity to significantly reduce your company’s workers’ comp spend is there for any company that’s willing to:

Make an honest assessment of capabilities and performance of its internal team and external partners (broker, carriers, etc.);

• Make an honest assessment of its risk management, safety, and claims performance;
• Map out the steps needed to confidently transition away from guaranteed cost programs; and
• Realize the savings.

The first question to ask is, “Do we have the right group to get this done?” This includes your internal team and external partners, such as your brokers and carriers. If you’re working with purely transactional outside partners that either can’t provide the tools and services described in this article or won’t without additional fees, find partners that can.

To see if you have the right team assembled for success, include questions like:

• Are we working with them because it’s always been that way and they’re our friends, or because they’re skilled and eager to help us achieve our goals?
• Are we getting at least 80 hours of risk control/safety consulting from our broker at no additional charge?
• Do we have access to a risk management information system (RMIS)?

Bringing together both internal and external advisors who have extensive experience in evaluating your company’s unique needs, crafting an approach that matches those needs, and building a genuinely effective implementation strategy requires time and patience.

The tactics needed to save your company a significant amount of money on workers’ comp can be grouped into four areas: workforce, incident/claim prevention, claim cost reduction, and continuous improvement.