Businesses with more machines than desks typically pay much higher workers’
compensation premiums, but there are ways to lower costs, industry insiders
say.
Insurance companies use different risk factors to determine insurance premiums, and businesses with good safety programs and a record of few injuries can qualify for credits and discounts, according to Jeff Johnson, vice president of community relations for Beacon Mutual Insurance, a Warwick-based workers’ compensation insurance company for businesses in Rhode Island.
“If an employer doesn’t take care of its employees and has a history of incidents, it can have a negative impact on their premiums for three years. If they have a good history, it can have a positive three-year impact,” Johnson said. “The premiums send a message to employers about running a safe business.”
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The starting point for calculating a workers’ comp premium is the state’s “manual rate” set for each of the 600-plus occupational classifications.
Workers’ comp insurance premiums are determined by what portion of the payroll is allocated to each classification, with different classifications carrying different risks of injury, according to Workers Compensation Advisory Council Chair George Nee.
Rates are based on each $100 of payroll, so an administrative employee might have a rate of 20 cents per $100 of payroll for administrative employees, multiplied by the number of employees in that category, whereas employees operating heavy machinery would cost more.
“The manual rates don’t tell you a lot any more. Two companies can have the same manual rate, but have different premiums, and some manufacturers have higher premiums than another does. There is no across-the-board rate,” Nee said.
A new business’s first-year premium is based on industry averages, but the second year can be higher or lower, depending on safety performance or the number of employees added to certain risk categories.
“The emphasis now is on safety programs. It is proven that an emphasis and an understanding of safety issues lowers the incidence of injuries,” Nee said. “Over the past seven or eight years, premiums have gone down because of the emphasis on safety.”
Companies that are proactive about keeping employees safe have lower premiums than companies that take only a reactive approach.
“Having a safety committee, or management teams that cooperate with the insurance company and try to make the company safe can get lower rates,” Johnson said. “We have a number of safety seminars designed for different companies. We actually set up a (karate) workshop for nurses to help develop skills to recognize and deal with aggressive patients. We’ve even set up English-literacy training programs for some companies, because imagine being someone who works in a factory and can’t read the safety signs on the walls.”
By pushing safety initiatives, the insurance company benefits by keeping the people it covers out of the hospital and employers keep productive workers on the job, according to Johnson.
“Everyone wins from safety programs.
“When employees are out of work because of an injury, productivity is lost, or they have to hire a temp who puts out less quality products,” he said.
The type of building also affects insurance costs. If a medical facility or a manufacturing plant is located in a building that was built for a different purpose, it could pose safety hazards and cause a workers’ compensation insurance premium to be higher, Johnson said.
The use of safety devices can also be cause for higher or lower premiums, Johnson said.
“If people aren’t wearing hard hats when they should be or safety goggles that could cause premiums to be higher,” Johnson said.
The highest percent of indemnity injuries were in the service sector in Rhode Island in 2002, with 30 percent. Manufacturing had 17.5 percent of the indemnity injuries in 2002, down from 27 percent back in 1992 when the sector employed more people, according to the Rhode Island Department of Labor Statistics.
Members of the service industry – like nurses’ aides, orderlies and hospital attendants – are high on the list of indemnity injuries because they oftentimes work with violent patients or lift heavy patients, Johnson said.
Roofers, construction workers and shipyard workers are also high on the list of work-related indemnity injuries, as are seafood industry workers who use knives frequently, and employees in the transportation industry because of automobile accidents, he said.
In Rhode Island, the total number of injuries and illnesses per 100 full-time employees dropped from 7.9 in 1998 to 6.5 in 2002, according to the Rhode Island Department of Labor, Division of Workers Compensation.
The Workers Compensation System in Rhode Island began improving when the state took on an employee safety and education campaign over a decade ago, and the entire system has improved, according to Nee.
“Compared to the rest of the country, there have been tremendous improvements in our system,” Nee said.
“There is always room for improvements though, because new businesses are always starting and changes in the industry. There are always new challenges to meet.”
