Use 10 Strategies to Control Your Comp Costs During Recession

Cost cutting is the name of the game in today's slumping economy. A recent study concluded that employers have many opportunities to control their workers' comp expenses and bolster their bottom lines by implementing savvy risk management practices.

PMA Companies recently published a white paper detailing 10 strategies employers can use to reduce their workers' comp costs in recessionary times. According to the report, a comprehensive, well-executed workers' comp program tailored to an organization's specific needs can provide benefits beyond insurance and services, such as improving health and safety programs and reducing the incidence of claims and claims severity.

Bill Hitselberger, executive vice president and chief financial officer at PMA Companies, said these benefits can enable organizations to achieve significant cost savings, improve financial security, and reduce the potential need for budget cuts.

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"While now is the time to reduce costs wherever possible, it is definitely not the time to cut corners at the expense of employees' safety or protection," said Hitselberger, coauthor of the white paper with Kyle Morhardt, PMA's vice president of risk management services.

Select the right carrier or TPA. The authors offered the following 10 strategies to help employers control comp costs during the recession without cutting corners:

1. Consider the total cost of insurance ownership. "There is more to consider than the price of a premium or an annual third-party administrator fee when examining the total cost of an insurance program," the authors said.

According to the report, it is important to closely examine each carrier's and TPA's proof points. For example, do they have a proven track record of success insuring or servicing similar risks in your industry? Is the program customizable to fit your specific needs with the potential for systemic savings based on your organization's performance over time? Does the proposed program come with the risk control, claims and medical cost containment expertise to deliver on what is promised?

2. Select the right solution for your needs. As a consumer, your needs come first -- remember that, the authors said. Partner with your broker and/or consultant and carrier or TPA to clearly express and explain your risk management needs and financial goals.

3. Remember that safer work environments save money. While recessionary times require a review of all processes and projects, the authors noted that now is not the time to start cutting back on your safety program and other risk control measures.

"These initiatives -- tenured or newly implemented -- have a ?greater good' effect on your total workers' compensation program that makes them indispensable," the white paper said.

4. Look to build a true partnership. According to the paper, selecting a workers' compensation carrier/TPA is an ongoing conversation rather than a one-time transaction. The authors said it is important that your carrier or TPA is as committed to your organization's mission and values as you are.

5. Know that today, more than ever, financial strength matters. In today's economy, the authors said it is critical to know the people and companies with whom you do business.

"Things to look for include the carrier's/TPA's tenure in the industry, its investment portfolio, its underwriting philosophy, and its business growth," the paper said. "Other more qualitative items include its client satisfaction rating and retention ratios."

6. Follow a proven service model to help contain medical costs. According to the report, medical inflation is rising at a rate two-and-a-half times the rate of regular inflation. In fact, medical costs now represent 50 percent to 60 percent of a workers' comp buyer's costs.

7. Know your bench of experts. When evaluating your workers' comp program, it is important to leverage your organization's key players. According to the paper, these include risk managers, human resources managers, departmental managers, product or function supervisors, and chief financial officers.

8. Make a formalized return-to-work program part of your culture. According to the report, knowledgeable and experienced employees are difficult to replace and invaluable to organizational productivity.

"Therefore, returning injured employees to a job as soon as possible is the best outcome for them and the organization," the authors said.

9. Hire the right people for the job. Employers, the study said, are best served not only by hiring the brightest, most capable, person for a given position, but also the person who is most aligned with the organization's culture, philosophy and personality.

"If safety, teamwork and accountability, for instance, are low on too many employees' lists of priorities, the cumulative effect on the organization can be devastating," the paper said.

10. Examine the validity of claims and injuries. Levels of workers' comp fraud tend to rise in poor economic conditions. Make sure you look for red flags that may question the legitimacy of an injury.

June 29, 2009

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