speci al sect ion: safet y & health
October 2011
EXECUTIVE
Construction Executive
Construction
T H E M A G A Z INE F O R T H E B U SINESS O F CONST R U CTION
Strength in Safety
Making Accident Prevention Every Worker’s Responsibility
October 2011
Strength in
Safety
S e c t i o n : S a f e t y & H e a lt h
]
The Savings
S
By Christi an D. Malesic
afety is often thought of as a workplace environment issue, or as an indicator of how much management pays attention to detail and teamwork. Safety is all of those things, but it also should be seen as a profit center. To put it simply: Safer companies are more profitable. The Cost of a Poor Safety Program
The costs of safety incidents build up quickly. For example, a company must pay injured workers for their time, pay employees who respond to the injury and complete the paperwork, and pay office personnel who work with the insurance company, medical providers, inspectors and government officials. And it doesn’t stop there. When incidents occur,
30
| Construction Executive October 2011
in Safety
materials or equipment can be damaged, insurance rates can increase (including workers’ compensation and general liability rates), and productivity can decrease as workers discuss the incident or perform their tasks over-cautiously. Then, there is the possibility of inspections and fines from the Occupational Safety and Health Administration or other government agencies.
Many companies respond to a breakdown in safety—and the associated expenses—with emergency training programs, new safety gear and increased operations monitoring, which adds even more costs. Just as a poor (or nonexistent) safety program can be costly, a good safety program can provide savings to be put toward profit or used to garner more work through reduced bid costs and lower service charges. Minimizing safety incidents will eliminate or reduce all of the aforementioned costs, as well as reduce insurance premiums. The Real Money Made in Safety
Companies with a history of zero or only minor safety incidents could see their insurance premiums drop 75 percent
SuperStock/Getty Images
[S p e c i a l
[S p e c i a l
S e c t i o n : S a f e t y & H e a lt h
compared to what their competitors pay for the same policy. Conversely, poor incident history can lead to paying insurance premiums up to 300 percent of the going rate. Because workers’ compensation insurance is mandatory in every state and general liability insurance is required by governments at various levels, as well as by most clients, insurance premiums are one of the larger items in most annual budgets. Savings in this area translates directly to savings in the cost of doing business. Insurance companies report workers’ compensation loss information to their state rating bureau or to the National Council on Compensation Insurance, depending on state code. This information generates an Experience Modification Rating (EMR) factor for the state or region. A company’s EMR determines the proposed premium price offered each year by insurers. Companies with a 0.75 EMR pay only 75 percent of the premium the average competitor in their state pays for insurance, while companies with a 3.0 EMR pay three times (or 300 percent) the
32
| Construction Executive October 2011
]
A company’s EMR determines the proposed premium price offered each year by insurers.
premium of their competitors. Companies considered low risk (less than 1.0 EMR) may enjoy additional discounts, as high as 15 percent. Stay Informed
The EMR is based on a rolling three-year period, not counting the most current year because those losses are still developing. It rarely is calculated in calendar years, but rather in policy effective years. If a company’s policy renews on June 4 each year and is effective from June 4 through June 3 of the next year, the firm’s EMR reflects the previous three full policy-effective years.
Insurance agents can provide the company’s EMR from the rating bureau report and explain ways to improve it. The EMR changes from policy year to policy year as older years drop off and newer years are added. Moreover, many states’ formulas add a weighting system so newer years weigh more heavily in the EMR than previous years. This benefits companies that had high-cost incidents in the past and have taken steps to improve their safety programs. Contractors should review losses with an agent six months prior to the renewal term to make sure no open claims or claims that can be reduced exist before the insurance company files the “Unit Stat” report with the rating bureau. The formula that generates EMR can be difficult to understand for non-insurance experts, which is why an agent should be a trusted advisor and a long-term partner with the company. Christian D. Malesic is founder and president of CM Squared, Inc., Full Service Electricians, Harrisburg, Pa. For more information, follow Malesic on Twitter @CDMalesic.