One of the more common questions I get from staffing owners is when to change from a guaranteed-cost workers’ compensation program to a loss-sensitive program. Purely based on the market itself, this is the perfect time to consider that change. However, the decision also needs to be based on your company’s situation.
If you can answer yes to the questions below, then you need to give a loss-sensitive program some serious consideration:
1. Do you have a strong risk management program? You should never entertain a loss sensitive workers’ compensation option unless you have a strong risk-management program. This means you should employ at least one person whose background and primary responsibility are to administer the handling of your claims and/or influence the safety at your customer’s worksites. The contracts with your clients should also outline which party is responsible for potential situations and should not include wording that says that the staffing company is responsible “regardless of fault.”
2. Are you comfortable making a conservative estimate for your losses in the next policy term? The better the risk-management program, the more predictable your workers’ compensation losses are going to be. Yes, there can be unusual claims or situations that shouldn’t recur. However, a good risk management program will keep these situations to an absolute minimum. If you’re having several unusual claims every policy term, then you’re not effectively managing your workers’ compensation program. A predictable loss estimate will make your decision to move from guaranteed cost to a loss-sensitive program much easier.
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3. Are you in a financial position to make the change? For most light industrial staffing companies, workers’ compensation costs are the second highest overall cost. You must assess your ability and desire to take more risk in your insurance program. Loss sensitive programs elevate the risk you’re assuming, so the good years will be very rewarding, but the bad years could really sting. Over a five year period, we typically find that in three of the years, you perform about as expected; in one year, your results will be worse than expected; and another year will be better than expected. For some, the ultimate savings are worth the volatility.
4. Do you have better-than-average financial statements that are reviewed or audited by your CPA? Insurers will often require reviewed or audited financial statements in order to quote a loss sensitive plan. If the expense of changing from internal or consolidated statements to reviewed or audited statements is a major factor in considering a loss-sensitive plan, then most likely this plan is not for you.
Loss-sensitive workers’ compensation programs include retrospectively rated programs, deductible programs and captives. Minimum premiums for captives are typically $150,000-$200,000 (significantly more for retros and deductibles), so you don’t have to be a large agency in order to consider one of these programs. If you’re comfortable taking some risk and want to start to take control of your costs, you need to consider loss-sensitive options.
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I really liked how you suggested considering if you are financially read for such a change. This choice isn’t something that you should just choose without much consideration. After all, the choice can be a slightly expensive. The last thing that you want is to spend a lot of money. That being said, it is very wise to make sure you have a good workers’ comp plan. http://www.nccompspecialist.com/Worker-s-Compensation/