Warren Buffet said, “Price is what you pay. Value is what you get.” So, what’s the value of a workers compensation policy?
Work comp insurance is required for most employers. Is there a difference between policies in terms of value? Or are all work comp policies created equal?
Work comp providers must conform to statutes on coverage terms, limits of liability, and benefits. To this extent, you’ll get the same insurance policy from any carrier. Beyond that, however, many variables determine your policy’s value.
Let’s dive into the factors that make up the total value of a policy and look at some examples.
5 components of the value of your workers compensation policy
1. Premium
Your premium is the price you pay for your work comp insurance. It’s likely the first thing you look at when evaluating carriers with your agent.
It’s important to understand how your premium is calculated. Your payroll, classification rate, and experience modification factor (e-mod) all factor into the price of your policy. Your carrier charges a specific rate based on the type of work your employees do (class codes).
Then, we add your e-mod to the equation. This number, calculated by the NCCI in many states, uses your past losses to predict future losses. If your e-mod is higher than 1.0, your losses are worse than expected for businesses like yours. If it’s lower than 1.0, your losses are better.
Premium = payroll x classification rate x e-mod
From there, your carrier might make additional adjustments to your premium. But premium alone doesn’t show the full picture when it comes to the value of a partnership. For examples, let’s look at a large manufacturing company and a small dental office.
Example: Large manufacturing company
| Total premium | $350,000 |
Example: Small dental office
| Total premium | $2,600 |
2. Safety consultation services
Once you understand how premium is calculated, you’ll see why we’re such Safety Fanatics. There’s a direct relationship between your safety record, the price you pay, and the resources your carrier must devote to your account.
By being proactive about safety, you can improve your loss experience, lowering your e-mod and therefore your premium. On this, a valuable insurance partner is in complete alignment with you: they’d rather help you prevent injuries than manage claims. Not only does a claim mean someone had a potentially life-changing injury – but it also costs both you and the carrier.
For this reason, savvy business owners partner with carriers that offer safety support where they need it most. Our safety and risk experts are dedicated to spending time with our policyholders, identifying their biggest risks and helping them prevent injuries.
What’s the value of our team of safety experts? In the dental office example, it’s about $150 per year. That captures the time we spent consulting virtually with the policyholder on workplace safety improvements.
In the large manufacturer example, this value was closer to $2,500 per year. Perhaps we provided custom safety training to this higher-risk business. Or maybe our consultants helped them get a new safety program up and running.
The bottom line is, we do everything we can to help you prevent injuries – because it’s worth it, for both of us.
Example: Large manufacturing company
| Total premium | $350,000 |
| Safety consultation services | $2,500 |
Example: Small dental office
| Total premium | $2,600 |
| Safety consultation services | $150 |
3. Money-saving programs
Here’s the real test to determine whether your work comp carrier truly believes in safety: do they put dollars toward your most important safety initiatives? Missouri Employers Mutual’s safety grants do just that.
All policyholders can apply for a grant to implement equipment that improves safety. For every dollar you spend on an approved purchase, MEM matches it – helping you double your investment on your most impactful projects.
Policyholders who are awarded safety grants receive up to $10,000, and you can apply for another grant after one award cycle has passed.
For our examples, we’ll say both policyholders got safety grants. Our manufacturer is implementing safe lifting equipment for a total cost of $25,000 – so MEM pays $10,000 and they contribute $15,000. Our dental office purchases new ergonomic chairs for their hygienists for a total cost of $8,000. MEM pays half and they pay half.
Example: Large manufacturing company
| Total premium | $350,000 |
| Safety consultation services | $2,500 |
| Money-saving programs | $10,000 |
Example: Small dental office
| Total premium | $2,600 |
| Safety consultation services | $150 |
| Money-saving programs | $4,000 |
4. Special claims services
If a workplace injury occurs, you can still proactively manage the claim to minimize costs and their impact on your premium. Seeking appropriate medical care, reporting the claim quickly, and conducting an incident investigation can help reduce costs.
Some carriers offer claims services that provide additional value. These could include special claim reviews, training opportunities, subrogation recoveries, and incident investigations.
The value of these services varies depending on how many claims you have. If you have very few claims, congratulations! Your hard work, along with our safety services, is paying off. If you still have room for improvement or just had a rough year, our claims experts will ensure you have the tools you need to successfully manage your claims.
Our large manufacturer has hundreds of employees performing higher-risk jobs. Here, the value of our special claims services could be $12,000 in one year. That might sound like a lot, but the average cost of a workplace injury is about $42,000. If we can help you manage your claims well and prevent similar injuries in the future, it’s worth every minute of our time.
Let’s say our dental office with a few low-risk employees didn’t have any extraordinary claims this year, so they didn’t need any special services.
Example: Large manufacturing company
| Total premium | $350,000 |
| Safety consultation services | $2,500 |
| Money-saving programs | $10,000 |
| Special claims services | $12,000 |
Example: Small dental office
| Total premium | $2,600 |
| Safety consultation services | $150 |
| Money-saving programs | $4,000 |
| Special claims services | $0 |
5. Medical bill processing savings
The last piece of the puzzle is medical savings. Your work comp provider should have a robust medical provider network that allows them to save money on medical bills related to claims.
Why are these savings a benefit to you? After all, the carrier is the one paying these medical bills. That’s true, but every claim impacts your e-mod. Without these medical savings, your losses would be inflated and, over time, have a bigger effect on your premium.
For our manufacturer with several claims in a year, medical bill processing savings could be nearly $80,000. An additional $80,000 in claim costs could result in an additional $40,000 in premium expenses over the next three years. For a smaller policyholder, these claim costs could increase their e-mod by as much as 0.5. While these are just estimates, the value of these savings is clear.
Example: Large manufacturing company
| Total premium | $350,000 |
| Safety consultation services | $2,500 |
| Money-saving programs | $10,000 |
| Special claims services | $12,000 |
| Medical bill processing savings | $80,000 |
| Total added value | $104,500 |
Example: Small dental office
| Total premium | $2,600 |
| Safety consultation services | $150 |
| Money-saving programs | $4,000 |
| Special claims services | $0 |
| Medical bill processing savings | $3,500 |
| Total added value | $7,650 |
Snapshot: the value of a workers compensation policy
In our examples, you can see how these pieces add up to significant value for the policyholder. In the case of the dental office, the total added value is more than the annual premium!
This value is why it’s so important to choose a work comp carrier seeking a long-term partnership with you. Work comp is about more than the price you pay, and a good partner provides more than just a policy.
Our promise to you is to provide the services and resources you need to help every employee go home safe at the end of the day. To us, investing in your safety is a no-brainer. In fact, it’s central to who we are.