Workers' Comp Recession Advice – Just In Case

Any Workers' Comp recession advice may give the impression that one is just over the horizon. The drone attacks on Saudi Arabian oil supplies generated a large amount of press over the last few days. Oil price spikes usually do not cause, but instead may hasten a recession.

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A pre-recessionary review of certain Workers' Comp variables lessens the premium overpayment risk. A few variables are:

Payroll (remuneration)

If your company's payroll reduces, then make sure your workers' comp policies and premium audits reflect the reduction. If your policy overstates the amount of premium owed at policy inception, then your company may be giving a 0% interest loan to the carrier. A refund after the premium audit may seem like a great development.

The refund may be due to the original policy numbers estimated at a level greater than your current payroll. If the carrier adjusts the payrolls after your last year's policy audit, you may end up overpaying your Endorsed Premium.

Pay-Go insurance arrangements such as PEO's help eliminate any premium overpayments. The company pays their Workers Comp premium when they pay their employees. Pay-Go programs become more popular every week due to the elimination of premium overpayments.

Return to Work Program (RTWP)

Critical Workers' Comp Recession Advice

A recession requires your company's RTWP to not leave any injured employees out of work due to the elimination of their position due to cutbacks in employee numbers. The list of Six Keys to cutting your worker's compensation costs includes the RTWP.

If an employee can never return to their former position, you have three choices

1. Using vocational rehabilitation to find them another job. Finding an injured employee alternate work during a recession makes the task almost impossible. If no job can be located, then refer to #2 and #3 below. (Ouch!)
2. Paying them PTD (Permanent Total Disability) – very bad Worker's Comp recession advice. PTD covers lifetime benefits.
3. Settling for an enormous amount of money because of #2 – more bad Worker's Comp recession advice

All three of these remain very painful actions on your company's part if the injured employee cannot be returned to their former position.

Safety Program

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No part of a recession plan becomes more painful in the future than a reduction or elimination of a company's present safety program. Keeping employees out of the Worker's Comp system just before and after a recession starts avoids having to worry about the above RTWP.

Safety programs find little to prove they prevented any accidents except possibly comparing old and new accident data. The “accident that never happened” cannot be quantified on Senior Management reports.

One has to remember that Work Comp is a lagging system. Much of what your company now pays on premiums originate from up to four years of older data.

Companies cut back or eliminate Safety and Risk Management positions and departments and then pat themselves on the back as their loss data shows a great improvement. Those companies rue the day they lay-off safety and risk management personnel.

The data takes time to show the absence of safety personnel – at least 18 months before the lack of active safety and risk management accident reduction.

Self-Insureds

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Self- insureds sometimes think any Workers' Comp recession advice points to the voluntary (regular) market policies only. The risk for self- insureds increases even more than voluntary market insureds most of the time during a recession.

Self-insurance has no buffers for paying a large amount of benefits even after the companies shrink to smaller sizes. Budgeting for payouts become very crucial on a smaller budget.

Self- insureds see the effects of a recession on their insurance programs almost immediately as fresh data is used to forecast their liabilities.

Self -insureds that remove or downsize their safety and risk management staff and programs feel the effects almost immediately as the self- insurance system experiences no lag time between decisions and their result.

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This post covers three critical areas of Workers' Comp recession advice. I hope they never have to be put in place.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.

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