Seeking a Competitive Edge in Workers Compensation Insurance

A competitive edge in workers compensation insurance means different things to different players. For a workers compensation insurance company it may mean delivering a consistent profit to their bottom line while increasing their market share. For an employer it may mean securing affordable coverage or earning a lower EMR. In this blog we’ll explore how insurance companies attain a competitive edge and we’ll look at what an employer can do to enhance their workers comp program and provide some tips on how to come out ahead in the workers compensation game!  

For an insurance company finding a competitive edge may be linked back to data mining of their existing book of business to identify those risk characteristics that have historically made their company money. Simple terms, look through your client base and find those types of clients who have done well for you over the years and go out and find more clients like them! Ok, it’s not quite that simple but in some ways it really is.

Workers compensation insurance companies have a wealth of accumulated knowledge gained over the years of being in business. They have historical and current claim data that helps them identify those types of risk that are the most profitable. They have client data files that helps them identify client specific trends that can lead them to more profitable business. They can identify hazard classes of business and break that information down into verifiable categories where they can choose acceptable class codes for the type of business model they want to pursue. All of this data, research and resulting conclusions can help an insurance company fine tune the kinds of employers they want to attract to their company. It gives the insurance company an upper hand when competing for good quality clients against other workers compensation insurance companies. Makes sense right? Before you can develop a competitive product, and when it comes to workers compensation insurance sadly that usually means a better price, you must have a firm understanding of the type of client you need to go after. And that’s where that great bank of information, data, that an insurance company has at its finger tips comes into play. And that’s why data mining is of the utmost importance to an insurance company wanting to gain a competitive edge.

The data has always been there. When an insurance company sells a workers compensation policy it classifies the business, adds class codes to the policy, assigns rating payroll to those class codes and performs its rating algorithm to determine the deposit premium the client pays. When they pay claims all that data is collected, divided and subdivided down into categories by hazard group and class code. Nothing new about that! That’s how workers comp works! The great amount of data collected and stored, in itself, posed a problem of access. How could they use that information? Then along comes actuaries, advanced algorithms, smart systems and predictive modeling to find an almost perfect home in workers compensation. All of a sudden (not really, it’s actually taken many years to get to this point) a workers compensation insurance company can be very accurate in predicting and pricing the type of workers comp client they want to pursue. And guess what, it’s the one who will help add predictable profit to their bottom line!

So for an insurance company finding that competitive edge begins with identifying what they do best, who they’ve had the most success with and pointing their collective efforts to finding more of those kind of clients. But what about the employer?

What’s it take for an employer to gain a competitive edge? For the typical employer a competitive edge will probably mean paying a lower workers compensation premium than his competitors. A lower workers comp premium will usually mean that the employer can do the same work that his competitors do for less money hopefully leading to securing more work and, at least in the world of business, squashing their competitors! Bet you never thought a little old work comp policy could have such power right?

An employer who wants to lower their work comp cost must, like the insurance company, look at their historical and current performance. They must gain a workable understanding of the rating factors used in developing the premium they pay. They must gain an understanding on how injured workers, claims and experience rating, or the EMR, fit into the equation. They must develop a plan of attack to lower their overall costs and you can’t develop a plan without knowing how you got to where you are.

I’ve written about this in this blog many times but here’s a few pointers for employers. An employer should:

  • Review their claim history – If claims are present have an independent claim review conducted.
  • Make sure their employees are correctly classified – Class codes play an essential part in the proper pricing of a work comp policy. Have a class code review conducted if there is any concern as to the proper classification of employees on the work comp policy.
  • Review all audits – Audits are a core source of additional premium generation for an insurance company. Insurance companies know the rules of audit. You don’t. Be sure to have all audits reviewed by an outside source.
  • Beef up their safety program – Take your safety program off the shelf and blow the dust off! Update it and use it to improve your workplace safety. Remember, the best workers compensation claim is the one that never happens!!
  • Learn everything you can about Experience Rating and your EMR – An out of control EMR can ruin a business. Experience rated employers have a unique opportunity to help control their work comp costs. Those employers who consistently perform at a high safety level almost always enjoy the pleasure of reduced EMR ultimately leading to reduced premiums! Find and work with a workers compensation consultant who can assist you with your EMR.

An employer must make their workers compensation program attractive to an insurance company. Those with low claims, who have working safety programs, who are knowledgable of what their EMR is and how it works will always come out on top when it comes to seeking a workers compensation competitive advantage.

Hope this helps you out and thanks for reading!