Throughout much of the country, declining workers' compensation rates are music to employers' ears. After all, that seems like long- awaited good news, particularly since workers' compensation is more often than not viewed as a necessity and a significant cost of doing business. Although most employers fail to recognize it, workers' compensation is a core business practice and a means for improving the bottom line. Rather than diverting attention and finances to other business priorities during periods of lower workers' compensation rates, employers can benefit by taking steps to guarantee long-term savings. Here are eight mistakes employers should avoid so long-term workers' compensation savings can be achieved.

Confusing Lower Premium Rates with Cost Reductions. Many employers are surprised to learn that a reduction in workers' compensation rates does not always mean a reduction in costs. Workers' compensation functions like a credit line to finance the costs of injuries. As such, premium rates alone do not determine the overall cost of insurance. An experience modification factor (MOD) tailors the cost of insurance to the individual loss performance of an employer. The MOD factor allows an employer to be compared with similar employers in the same industry classification. If past losses are lower than average, a credit rating reduces the premium. Conversely, if past losses are higher than average, a debit rating can actually increase costs in spite of lower rates.

Becoming Complacent. While increased attention to safety may lead to a decline in the number of workplace accidents, claim frequency is only one part of the equation. The other part, claim cost including indemnity (lost wages) and medical care, continues to rise. In many industries where there are tight labor markets, wage gains are expected to trend higher, suggesting further increases in indemnity severity. At the same time, medical care costs have marched relentlessly upward since the mid 1990s.

Even more disturbing is the fact that the growth in workers' compensation medical costs has been much steeper than in the health care industry as a whole. If claims remain open and injury costs escalate, this will affect the employer's experience modification factor, thus increasing costs. Employers should not become complacent, but continue to understand what is impacting medical costs and measure key metrics such as cost per claim trends in order to stay abreast of changing costs.

Focusing Only on Direct Costs. Ask a business person how much is spent on workers' compensation and almost all will respond with the price of the premium. Yet, the direct costs of workers' compensation often represent only 20 percent to 30 percent of the overall injury expenses. Indirect costs, including overtime, temporary labor, increased training, supervisor time, production delays, unhappy customers, increased stress and property or equipment damage represent several times the direct cost of the injury. A 2002 Safety Index report by Liberty Mutual tallied the direct cost of workplace injuries at $40.1 billion. The total financial impact of both direct and indirect costs was estimated to be as much as $240 billion. Injury costs - both direct and indirect - will have a much greater impact on an employers' overall costs than rate decreases.

Thinking That Rates Will Stay Low. Historically, the workers' compensation price cycle repeats in a predictable pattern: Rates decline, insurance is purchased for a lower price, employers shift focus away from workers' compensation, claim costs do not fall in relationship to reduced rates and employers' MOD increases and rates increase. During a declining rate cycle, the cycle suggests that if rates go down, so should injury costs. However, if employers do not manage injury effectively and claims do not go down, the employer's Mod will go up. When rates rise again, the increased MOD will wipe out any savings garnered during the declining rate cycle.

Viewing Workers' Compensation as an Expense. Employers should recognize that workers' compensation is more than a necessary expense; it is a controllable aspect of business that if managed properly will have a measurable and positive return on investment (ROI). In ROI Selling, authors Michael Nick and Kurt Koenig note three measures of ROI: "Return on investment occurs when a company realizes an increase in revenue, a reduction in cost or an avoidance of cost."

Viewing workers' compensation as an ongoing process and not an expense can accomplish all three. When injuries do occur, employers can increase their revenues by getting employees back to work quickly and reduce their costs by managing the injury effectively. By recognizing that workers' compensation begins at the date of hire, employers can avoid costs by hiring the right people.

Separating Workers' Compensation From Employee Retention. Retaining skilled employees is one of the most difficult challenges facing businesses today. Turnover is extremely costly. According to estimates, it is anywhere from 50 percent to 150 percent of an employee's annual salary. If a work-related injury is not managed properly, it can result in the unnecessary loss of a skilled, trained employee. The longer an employee is away from their job, the less likely they are to return. Statistics show that if employees are not back to work within 12 weeks, they only have a 50 percent chance of ever returning.

The fundamental reason for most lost time is not medical necessity but the non-medical decision-making and lack of a process that occurs after an employee is injured. The workplace response is key - studies show that employees' satisfaction with their employer's response has a much larger impact on employment stability than does their satisfaction with health care itself.

Devaluing Your Relationship With the Insurance Company or Agent. In a time of declining rates and new competition, there is a tendency to shop for the lowest premium price. The insurance industry is not immune to the old adage, "You get what you pay for." Chasing the lowest rate can result in poor service or having to deal with an insurance company's unstable finances. It is critical for employers to investigate the insurer's stability as well as its long-term commitment to the workers' compensation market. Furthermore, selecting an agent and carrier with an excellent understanding of workers' compensation is very important. The added benefits of improved hiring practices, medical relationships and comprehensive injury management services will reduce both the number of claims and the costs of claims.

Measuring the Wrong Thing. John Tukey, Ph.D., the prominent statistician, said, "When the right thing can only be measured poorly, it tends to cause the wrong thing to be measured well. When workers' compensation is treated as a commodity, the decision is reduced to the lowest possible common denominator - price. This shortsighted approach is equivalent to expecting gourmet food on a fast food budget. When viewing workers' compensation as a core business practice of comprehensive risk management, the focus shifts from price to tangible metrics that are driving claims costs. With this information, employers can address the underlying circumstances and conditions that are pushing up work-related injury costs and measure the value of their actions.

Although workers" compensation rates vary over time, it is necessary that these eight principles be kept in focus continuously. Difficult arises when tactics for managing workers' compensation costs vary over time. To obtain the best overall benefits, including reduced premium costs, issues relating to workers compensation need to be incorporated into a company's culture and business practices.

Based on an article written by Frank Pennachio

Manual material handling (MMH) work contributes to a large percentage of the over half a million cases of musculoskeletal disorders reported annually in the United States. Musculoskeletal disorders often involve strains and sprains to the lower back, shoulders, and upper limbs. They can result in protracted pain, disability, medical treatment, and financial stress for those afflicted with them, and employers often find themselves paying the bill, either directly or through workers' compensation insurance. At the same time they must cope with the loss of the full capacity of their workers.

This booklet is written for managers and supervisors in industries that involve the manual handling of containers. It offers suggestions to improve the handling of rectangular, square, and cylindrical containers, sacks, and bags.

Driver fatigue is a mammoth and deadly problem for the trucking industry. Each year, about 3,300 truck crashes involve driver drowsiness, according to a 2005 report from the National Highway Traffic Safety Administration. To help combat this problem, an Interim Final Rule (IFR) was made public December 11, 2007 by the Federal Motor Carrier Safety Administration, that requires truck drivers continue to be limited to driving only 11 hours within a 14-hour duty period. After that period they must go off duty for at least 10 hours. The IFR was developed after new data showed that safety levels have been maintained since the 11-hour driving limit was first implemented in 2003.

The agency noted that, in 2006, the fatality rate per 100 million vehicle miles traveled was 1.94--the lowest rate ever recorded. Similarly, since 2003, the percentage of large trucks involved in fatigue-related fatal crashes in the 11th hour of driving has remained below the average of the years 1991- 2002. In 2005 alone, the agency noted, there was only one large truck involved in a fatigue-related fatal crash in the 11th hour of driving while in 2004 there were none.

The agency also is working to finalize a proposed rule that would require drivers and trucking companies with serious or repeat hours-of-service violations to track their hours of service using electronic on-board recorders.

Make sure to attend the January 24th Teleconference titled "Establishing a Fleet Safety Program". To register or for more information please contact Tina Garrett at 847-699-1400 or tinag@meekermagner.com