September 2003
By JAMES S. ANCHIN, CPA
In the midst of today's hard insurance market, more and more contractors are facing substantial increases in insurance premiums and difficulty obtaining insurance or bonding. The hard market is now almost three years old and is not expected to soften appreciably in the near future. In previous columns, I have touched upon topics to help contractors navigate through the tough times. However, by continuing to scrutinize the area of workers' compensation, contractors can learn to control costs.
Start by examining the volume and amount of your prior claims. It's not unusual for writers of workers' compensation insurance policies to provide this type of information at nominal costs. Analyze what insurers call your "experience modification," which is based on how many and what kinds of claims have been made over time. Can these claims be reduced or eliminated entirely? Is there a history of small but recurring claims? If so, they can increase your premiums more than one large claim. When compounded over a number of years, those amounts can add up to prohibitive premiums. For minor injuries, consider the support of local health care providers to treat your employees. This is an excellent way to reduce the volume of claims while still fulfilling your statutory requirements. Always maintain proper documentation.
Be aware of how your premiums are calculated. Review the basis on which your premiums have been determined in the past. In many cases, the formulas used to determine premiums may have been inaccurate. There may be an opportunity to recoup some of the dollars paid out in miscalculated premiums by filing claims for partial refunds.
Another way to lower premiums may be as simple as reviewing your classification of employees. Worker's compensation rates vary widely depending upon the job function of the employees. Whether an employee is classified as a sandhog or a laborer can have a dramatic impact on the premiums you pay.
Don't leave the classification process solely to your insurance carrier. Misclassifications can bump up your employees to higher risk and therefore, more expensive categories.
Contractors can also fight the costs of workers' compensation insurance by joining a construction industry safety group that is authorized by your state's insurance fund. In general, states allow the formation of such safety groups to fulfill the following objectives: establish sound safety programs and reduce the number of accidents; improve medical care for employees and reduce worker's compensation insurance costs to the members of the groups. Safety groups can be formed for trade groups for contractors associated on a single job and trade associations. Based on the group's experience, the members may be entitled to advance discounts and dividends.
These groups have the advantage of spreading the risk so that any large claim is shared among a large number of contractors, rather than one contractor absorbing the entire cost. Many of these safety groups offer such valuable services as loss analysis and general insurance consulting. Some will also provide insurance experts to accompany contractors to claims hearings.
Regardless of which type of assistance you choose, safety groups, financial advisors or insurance consultants, contractors should stay on top of their worker's compensation insurance situation. Substantial savings are possible for those who make a concerted effort to analyze their coverage and monitor their costs. In today's tough insurance climate, these savings can be critical to a contractor's on-going success.
About the author: Mr. Anchin is a managing partner of Anchin, Block & Anchin, LLP, a regional certified public accounting firm with offices in New York City and Westchester, that specializes in meeting the needs of contractors in the tri-state area.