When Buying Cheap Insurance Leads to Disaster
Posted by Robert Phelan on Mon, Feb 01, 2010 @ 07:56 AM
Bad insurance decisions can sometimes have catastrophic consequences for construction companies. In most cases, cheap insurance is the culprit.
We came across a very successful third generation company with a large, loyal client base. But they had an insurance problem. Typical workers comp claims for one year usually totaled $50 - $100,000. Now they had a year with $1M in claims, ten times the average. Their EMR (Experience Mod Rate) had spiked to 1.24 costing them an extra $100,000 per year.
How does that happen? Two things had gone wrong. They chose an insurance company selling cheap insurance. They chose an insurance agent who provided no services to help them with their problems.
When we arrived on the scene (Risk Advisors to the rescue), their workers comp was Code Blue. We needed to prime the paddles and get the patient stabilized. When a company of this size has a million in claims in one year it isn't just bad luck. They had been buying cheap insurance from insurance agents for too long and it finally caught up with them.
How does a Risk Advisor approach this challenge differently than an insurance agent? An insurance agent has no tools in the toolbox other than insurance products. Unfortunately, this wasn't an insurance product solution. A Risk Advisor has a wide range of services and when the patient has no pulse, you need to diagnose quickly and then begin treatment. Here's what we did:
• Explained to management the financial consequences of a high EMR (they were stuck with that bad year for three years at an extra cost of $100,000 per year). They had to take immediate action because another bad year in the formula would compound the problem
• Obtained management's buy-in to invest in safety
• Provided customized safety training to all employees at all locations to create a safe culture throughout the company
• Trained middle management to understand the importance of a RTW (Return to Work) program. They needed to understand both the financial consequences as well as the importance of a quick recovery for the injured worker
• Worked with the HR department to manage all open claims for prior years (If you read my last post, this is another important distinction between a Risk Advisor and an insurance agent. Insurance agents don't service policies they didn't sell. A Risk Advisor does whatever it takes to solve the problem)
• Intervened with prior carrier (the one with the cheap insurance) to make them manage their claims properly so our client wasn't unduly penalized in their EMR.
Fortunately, this story has a happy ending. The patient was resuscitated before it was too late. They suffered for three years but their EMR is about to drop 40 points and return to normal. They're going to save $100,000 per year going forward AND provide a much safer workplace for their valued employees.