Kan Dail
Insurance costs can be very high for construction companies, especially if there aren’t any proactive efforts in place to keep those premiums low. Obviously, you’ll need to maintain adequate coverage to mitigate financial losses and remain compliant with the law – but what measures can you take to keep insurance premiums low with those objectives in mind?
The Complicated Calculus of Insurance Premiums
To be effective in your pursuit of keeping insurance premiums low, we need to understand how those premiums are calculated. Obviously, there are many factors that enter the equation when calculating insurance premiums. Many of these factors are going to be beyond your control; for example, if economic inflation pushes costs higher for insurance companies, they’ll be practically required to increase insurance premiums to offset those costs in order to stay profitable.
However, there are some factors that are within your control. For example, there’s the Experience Modifier (or E-mod), which is a carefully calculated variable used by the insurance industry to “compare a company’s injury experience with that of similar companies.” In other words, insurance companies view your E-mod as an objective measure of your company’s susceptibility to injuries. Naturally, your E-mod is going to affect the cost of your insurance premiums.
This variable is influenced by several elements
- Primary loss. “Primary loss” is considered to be the first $17,500 of any claim. Measuring primary loss is a way of measuring the frequency of injuries and accidents within a specific company. As a simple example, let’s say one company has a single accident associated with $100,000 of expenses, while another company has four accidents, each associated with $20,000 of expenses. Even though the former company has greater total expenses, the latter company is actually considered a greater risk, since it’s associated with greater primary losses. This is because the latter company experiences a greater frequency of accidents.
- Excess loss. That said, excess loss is also considered. Excess loss is a measure of severity, measuring total expenses beyond primary losses.
- Experience Rating Adjustment (ERA). Some states benefit from an Experience Rating Adjustment, or ERA, which offers credit for certain “medical only” claims. If you’re able to get your employees back to work very quickly, thereby relegating accident expenses to only medical costs, you may be able to benefit from this.
It’s worth noting that the Experience Modifier operates on a three-year cycle in most areas, focusing on the three years prior to the previous year. In other words, accidents will continue influencing your E-mod, and therefore your premiums, for up to four years.
Improvements to Workplace Safety
One of the best ways to reduce your insurance premiums is to reduce the negative effects of your E-mod. And one of the best ways to do this is to make improvements to workplace safety.
For example:
- Establish a safety culture. One of the most important things you can do is establish a culture of safety. If your entire company is built on the foundation of taking safety seriously, your employees will be much more likely to follow the rules and much less likely to cause an incident.
- Provide safety training and education. Next, it’s important to provide safety training and education. Your employees won’t be able to conduct themselves in a safe, healthy way unless you teach them how to do it. It’s also important to have forms of continuing education and reminders in place, so your initial training and education don’t slip through the cracks.
- Eliminate or reduce exposure to hazards. As much as possible, you should aim to eliminate or reduce exposure to hazards on the job-site. The fewer hazards there are, the fewer accidents you’re going to have, and the lower your primary losses are going to be.
- Offer the best PPE. PPE is your last line of defense, for when you can’t eliminate, avoid, or reduce hazards any further. Accordingly, you should always have proper PPE available and buy the best quality you can afford. Once available, mandate that your employees wear the PPE properly – and discipline employees who disregard these rules.
- Develop a return-to-work program. Developing a return-to-work program can help you get injured people back to the job faster, so you can reduce secondary and tertiary expenses associated with employee injuries. It’s good for employees and it’s great for reducing excess loss; it can also help you get an ERA credit, if applicable.
- Report and investigate accidents. Some employers are tempted to avoid documenting incidents for fear of increasing their insurance premiums, but it’s always better to report and investigate accidents consistently. Not only will this ensure legal compliance, but it will also equip you with the information and tools necessary to identify safety risks and correct them before they cause any further harm.
Other Strategies for Reducing Premiums
Other strategies for reducing your insurance premiums as a construction company include these staples:
- Shop around. It’s a good idea to shop around to see what other insurance companies are offering. You might find a very similar policy for a lower premium.
- Ask for discounts. Sometimes, insurance providers offer discounts that aren’t well-advertised. If you ask your insurance agent, they may be able to recommend strategies or actions you can take to keep your insurance costs lower.
- Bundle. You may be able to reduce your insurance premiums by bundling your policies with the same provider. Ask your provider if they offer bundled discounts.
- Negotiate. Sometimes, you can negotiate for a lower rate. Push back against the quote you received to see if you can get a better deal, especially if you already have a relationship with this agent or provider.
With greater focus on workplace safety and the inclusion of other strategies for reducing premiums, you should be able to save money on insurance for your construction company. That said, navigating the terrain of safety and cost efficiency can be challenging, so don’t be afraid to hire a professional when you need some expert advice.