Two of the most frequently asked questions in the construction industry today are "How can I get more business?" and "How can I control the cost of workers' compensation premiums?" Gaining control over insurance costs may be the more difficult problem, but it may also be the key to lowering costs and gaining a competitive advantage in competing for jobs.
Workers' compensation insurance costs have spiraled, especially in the construction industry. At the low end, the rate for finish carpenters which was $4.77 per $100 in 1987 carries a rate of $16.63 per $100 in 1993, a 350% increase. At the high end, the rate for steel erection which was $32.06 per $100 in 1987 carries a rate of $99.35 per $100 in 1993, a 310% increase. Workers' compensation costs for every rate classification have risen faster than any other element of the construction worker's payroll.
Faced with cost escalations of such dramatic proportions with no end in sight, the incentive to contain cost is great. While cost containment alternatives are limited, they do exist. The following is an outline of some of those alternatives.
Safety The most immediate and direct action a contractor may take is to implement a comprehensive safety program making job safety a primary company goal. Because premium rates are related to the insurer's loss experience, a reduction in job related accidents can lead to reduced workers' compensation premiums. To be successful however, training in safety consciousness must be pervasive and ongoing. Project managers and foremen must be convinced first. They must take the lead in instructing workers on safety procedures governing construction methods and the use of tools and equipment, and convincing them of the importance of those procedures. Safety must become a state of mind for every worker through constant reminders and directions. The creation and implementation of a strong safety program can directly reduce accidents and indirectly reduce insurance costs.
QLMP In 1990, the Qualified Loss Management Program (QLMP) was instituted in Massachusetts to give each employer in the assigned risk pool the opportunity to receive a credit on its workers' compensation insurance premiums for up to three years by instituting an approved loss program. In order to qualify, the employer must retain an approved loss management consultant to implement a training and support program. When this program is in place, the employer is entitled to a credit against its annual premium up to a maximum of 15% depending on the rating of the consultant hired. If the consultant is authorized to give the maximum 15% credit (which most are), the employer is entitled to a first year credit of 15%, a second year credit of 15% and a third year credit of 7´%. There is no credit after the third year.
SIG Another alternative to controlling cost is participating in a Self Insured Group (SIG) of companies. A SIG is a group of employers operating outside of the traditional workers' compensation system who join together, in effect to set up their own company to manage a self contained workers' compensation plan. The SIG collects premiums from the participating employers, administers claims and provides for medical services for injured employees. Setting up a SIG is a complicated process requiring compliance with numerous statutory requirements and an annual license from the state. There may be a savings by participating in a SIG, but the difficulty and expense of setting one up may discourage many.
Group Plans Under this alternative, employers may band together to use group buying and negotiating power to obtain insurance coverage at a discounted rate. The long term goal of this arrangement is to bring together a group of employers, employees and insurers who will work closely to reduce claims, monitor actual claims and manage benefits, hopefully to achieve a reduction in premiums for the group. Group plans seem especially adapted to the construction industry where contractors and subcontractors involved in similar work or with common interests have various trade associations available to them. The alternatives discussed here have the potential for reducing the rate at which workers' compensation costs are increasing and are worth pursuing. Nevertheless, it is only through reform of the entire workers' compensation system, coupled with containment of health care costs, that long term across the board reduction of insurance premiums will occur.
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