Five dangers of ignoring Workers’ Comp because rates are low

There has likely never been a time when workers’ compensation insurance has been less expensive than it is now. For example, in 1994, employers constructing single-family homes in Florida paid a rate of $32.89 per $100 of payroll. In 2023, the rate for that same classification was $11.44 per $100 of payroll. Adjusted for inflation, the $32.89 rate from 1994 is equivalent to $68.14 in 2023 dollars. That is an 83% drop in the rate in just the past 30 years.

When you combine consistently falling rates with the current chaos in most other lines of commercial insurance, it is easy to understand why an employer would focus on areas where costs are going up. However, there are real dangers when you ignore your workers’ compensation.

1) This year will impact your costs for three years

If your business is experience-rated, you must remember that the injuries your employees suffer this year will impact your experience modification factor (mod) for three years. Your 2023 workers’ comp policy would be expected to appear on your 2025, 2026, and 2027 mods. This means that ignoring your workers’ comp program this year will likely result in you paying far more than you should be paying in each of those three upcoming years.

2) The health of your employees and their productivity 

All good business owners will tell you that their people are their number one asset. With unemployment at record-low levels, many employers have effectively discarded their hiring practices. When this happens, there is a greater risk that your new employee is not actually fit to do the job, which increases the risk of that new employee being injured at work.

Beyond the challenges of hiring the right employee, the health and well-being of your current employees needs to be your focus, regardless of the workers’ compensation rate environment. Reducing your emphasis on workplace safety will lead to unnecessary pain and suffering for the injured workers, as well as higher costs down the road.

3) The high costs of employees missing work or never coming back

The concept of “Return-to-Work” or “Light Duty” is not new. Insurance companies have been working to get employers to adopt this practice for decades.

Return-to-work has always been important, but with employees now more difficult to find than ever before, it has never been more critical.

According to research from the American College of Occupational and Environmental Medicine, when a worker is away from work due to an occupational injury for just 12 weeks, there is only a 50% chance of them ever returning to their current position. And the odds go down for every week they remain out of work.

Imagine for a moment that your best employee suffered an injury that will keep them out of their normal job for several months. What would it cost to replace that worker if they never returned? How would the productivity and profitability of your company be impacted?

Having a plan to bring your injured workers back, even if they can’t do their normal job, is imperative. It requires an employer to have a list of potential job duties that injured employees could perform. You also need a physician who will send the injured worker back to work rather than sending them home. In almost all states, employers have the right to dictate the physician an injured employee sees when they are injured. Taking advantage of that right will help both the employer and employee, as research consistently shows that injured workers recover more quickly when they are at work rather than sitting at home.

4) Errors in the system

Errors are rampant in the workers’ comp system. Everyone in the process makes mistakes from time to time, but it is almost always the employer that bears the cost of errors. More than 75% of premium audits are incorrect, most commonly because employers are unaware of how to correctly keep their records. Employee injuries are overvalued, inflating experience mods both because of non-existent/ineffective return-to-work programs and the overwhelming workload facing most insurance claims adjusters. Both issues (and others) result in experience mods that are not what they should be.

When an employer takes their focus off workers’ comp, these errors become even more likely.

5) You could probably be paying even less

No businessperson wants to pay more than they should for anything related to their business. Because errors and overcharges are so common in workers’ comp, it is extremely likely that even though your workers’ comp premium is as low as it has ever been, it could be even lower.

Your business likely has capital locked up in your workers’ comp program that you would rather deploy into other parts of your business.

Workers’ compensation rates will not stay this low forever. While there is no reason to believe they will return to anything close to the levels we saw 30 years ago, forces both inside and outside of workers’ compensation will eventually force them higher.

Allowing the current circumstances of the insurance market and the broader economy to reduce the focus on your workers’ compensation program can have a direct impact on the profitability of your business.

Kevin Ring is the Lead Workers’ Compensation Analyst for the Institute of WorkComp Professionals, which trains, certifies, and mentors insurance agents to help employers reduce workers’ compensation costs. A licensed property and casualty insurance agent, he is the co-developer of a workers comp software suite that will help insurance professionals in working with employers.