Loss prevention and risk management
Employers should use every safeguard and precaution available to protect employees from on-the-job injuries.
Risk management, also known as loss prevention, must become part of every operation to maximize production efficiency and eliminate injuries. Employers should use every safeguard and precaution available to protect employees from on-the-job injuries. In addition to keeping employees safe, significant economic gains may result from an organized accident prevention program.
Decrease downtime and increase profits with a robust risk management program
Consider both direct and indirect costs when calculating your operational costs. Direct costs are the expenses that result specifically from an incident and are incurred relatively quickly after the incident occurs. Indirect costs are the expenses that result from an incident that may not immediately impact a company’s bottom line and the correlation to the incident may not be clearly defined.
- Cost of medical and indemnity payments for the injured worker (workers’ compensation)
- Cost of property and/or equipment damage
- Increased insurance costs in the future
- Cost of business interruption
- Decline in public reputation and employee morale
- Recruitment and training for replacement employees
- Additional administrative costs
Costs associated with workers’ compensation impact the employer in two ways — rate classification and experience modification.
Rate classification: Rates are usually calculated on the loss experience (costs) associated with a specific class of employment. There are approximately 600 different classifications of employment in the rate-making system. The Commissioner of Insurance determines rates based on recommendations from the National Council on Compensation Insurance (NCCI) to pay claims and administrative expenses.
Experience modification: Each individual employer’s historical actual incurred losses are compared with NCCI expected losses for the employer’s given classifications and payroll. For example:
Employers A, B, and C all have a base premium of $8,000. Employer A has a high modification rating resulting in an increased annual premium. Employer B’s modification rating matches the industry average and does not result in a change in premium. Employer C has a low modification rating resulting in a credit that reduces their annual premium.
a) $8,000 base premium x 1.15 debit modifier = $9,200 annual premium
b) $8,000 base premium x 1.0 unity modifier = $8,000 annual premium
c) $8,000 base premium x 0.90 credit modifier = $7,200 annual premium
The above examples show that employer C, operating a successful risk management program, pays $2,000 less than the employer A for the same coverage.
The costs associated with property damage are usually obvious and determined quickly. These losses may be readily insurable but often require a significant co-payment.
Business interruption costs are difficult to measure and are usually overlooked. In an industrial accident, indirect costs may be greater than the direct costs. The following indirect cost items are found in every accident:
- Production loss due to shutdown of machinery or processes under the control of an injured employee
- Time lost by fellow employees assisting the injured employee, discussing the accident, and returning to normal production schedules
- Loss of future business or goodwill for failure to meet production schedules
- Time spent by the supervisor to prepare the accident report, investigate the accident, assist the injured employee, and train a replacement
- Possible decreased efficiency of the injured employee for the period immediately following a return to work
- Decreased efficiency of the injured employee’s replacement
- Wages paid to the employee for the time lost on the date of the accident
A low accident rate can be an important factor in establishing a reputation as a good employer. Employees may view an effective accident prevention program with a low injury rate as management’s interest in employee welfare.
Poor safety records have an unfavorable effect on public opinion and may result in decreased consumer acceptance of products. This is particularly true when catastrophes, such as explosions and major fires, receive wide publicity. An outstanding safety record can be used to improve public relations. A poor safety record may give the employer a bad reputation. This makes it difficult to maintain good community relations and may hinder recruitment of a satisfactory labor force during periods of low unemployment.
Promote a safe work environment
Creating a robust risk management and loss prevention program is essential for all businesses. Our expert team of risk management consultants can help create programs and training opportunities that promote a safe work environment, boost employee morale, and help save money. Find your risk manager and talk with them about your safety needs and goals.