When I talk to potential new clients for our consulting services, they are primarily interested in complying with the various OSHA regulations. While complying with the OSHA standards is an important objective in safety, this should not be the main focus of a safety program. The chance of a small company being inspected by OSHA is not great. If this does happen, the penalties are usually mitigated by the size of the company.
The real importance of a safety program should be focused instead on protecting the company’s employees, equipment and property to reduce the financial consequences that could be caused by an unexpected accident. With the implementation of group rating in 1990, this has made it even more critical to small companies. Group rating allows small- to medium-size companies to join together in like industry classes to take advantage of a significant savings in worker’s compensation premiums.
Prior to 1990, small companies could only receive a limited savings on the premiums, even if they never had a claim. This was based on a formula used by the Bureau of Worker’s Compensation that is designed to protect small companies from large impact claims. This is called credibility. Based on the size of your company, the amount of a single loss from a particular claim is limited and the total cost impact is limited. Claim costs exceeding the formula are absorbed by the Bureau of Worker’s Compensation. Unfortunately, this is also used in reverse and it restricts the amount of possible savings to companies having good experience.
Group rating now allows companies to save significantly more on their workers’ compensation premiums. However, the amount of saving possible is based on the groups’ collective strength and the individual experience of each member in the group. The better the experience, the higher the savings potential. That is why only companies with good claim history are accepted into a group and those with poor claim experience are either asked to leave the group or are put into a program with reduced savings.
Unfortunately, not all companies accepted into a group do all the things necessary from a safety standpoint to stay in the group. These companies put at risk their ability to remain a part of the group and the cost difference can be dramatic.
These are the direct costs that can be easily measured. Direct costs are those paid in workers’ compensation premiums, which the Bureau of Workers’ Compensation then uses to pay medical costs, weekly disability payments and other costs either to an injured employee or on behalf of the injured employee. The direct costs, however, are not the only costs incurred. There are hidden costs. These are known as indirect costs. These are incurred if claims are taking place. Insurance companies have determined these indirect costs can be from four to 10 times the direct costs.
The direct cost and indirect cost have to be added together to determine the total cost impact to the company.
When you look at your internal safety efforts, ask yourself. “Have I done all the things necessary to ensure our company can stay in the group?” It not, you should evaluate your current efforts and, where necessary, start working on those areas that should be improved. Remember the old saying: An ounce of prevention can be worth thousands of dollars in wasted profits. Also, it takes most companies four years to become eligible for entrance into a group if they have poor claims experience. Simply put, the choice is yours. Safety pays and certainly impacts a company’s profitability, success and potential growth.
The author, Gary Hanson, is president of the American Safety and Health Management Consultants, Inc.