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The bottom line of a vibrant safety program is to not only saves lives, but also money - both clear reasons to make it a priority.
According to Bill Velin, Wells Fargo Insurance Services, it is extremely critical that auto recyclers have a good safety plan in place. Over the years, he has seen many cases where the auto recyclers who had a good solid safety plan put more money to their bottom line, instead of to paying workers compensation penalties.

“If you want to save money on insurance and workers compensation it is critical to preach proactive safety measures,” said Velin. “The only solid measuring stick that an insurance company has to give you a competitive quote is recent valued loss returns for all lines of coverage. They want to see what claims you have had and their severity.”

In general, Velin says that the claims for the auto recycling industry tend to be more severe than, for example, employees in an office, by virtue of the nature of the business.

“Anytime you have exposure to heavy machinery such as crushers, dismantling operations, forklifts and such, you have a better chance for serious injuries,” said Velin. “You may only have had two claims in the last five years but both of those involved fatalities. That will cause you to have a higher rate of insurance.”

How Does It All Work?

Your experience modification is compiled by your state. All worker compensation claims are required to be submitted to the state and the state compares your claims with other auto recyclers’ claims to come up with your experience modification rate. All recyclers start out with manual rates and if your experience modification is better than average you get discounts in the rate you pay. If your experience modification is worse than average, you get a surcharge added to your bill.

If 1.00 is the average and your experience modification rate is under 1.00, for example, .80, that is considered a good modification rate and you would receive a 20% discount. On the other hand, if you have an experience modification rate of 1.30, you would have to pay a 30% surcharge.

Once you have claims that end up in a Lost Time Injury, a weighted formula is used to calculate the experience modification. It’s weighted by 70%  against the recycler who is filing the claim. They are penalized, according to the severity and frequency of claims. 

Practical Advice

With all of this in mind, it proves that it is always better to be proactive in safety. While putting proactive safety measures in place will not eliminate claims altogether, it will reduce them.

When shopping around for insurance, three tips for getting the best price include that you:

• Must be able to show your computerized claims – if the risk is good, you have great loss experience (which means very little worker compensation claims) but are unable to produce computerized claims then the insurance company will not be able to offer good prices for their quotes.
• Be proactive up front, in your hiring processes.
• Understand your workers compensation rates. 

Making a Safety Plan

Now that you have an understanding of how safety impacts insurance, let’s get down to crafting an insurance-minded safety plan. Following these tips will provide favorable circumstances with underwriters.

1) Have a good, formal, written OSHA compliant safety program. 

“Even though it is imperative that auto recyclers have a good safety plan in place, and many do, there is still a lot of room for improvement,” said Velin. “Most ARA members who have the C.A.R. and Gold Seal certifications are already differentiated from your average or below average recycler and have formal safety plans in place. The key, however, is to make sure it becomes part of the culture of the business rather than just a plan.”

All ARA members that take insurance through Wells Fargo receive, at no cost,  a formal, written OSHA compliant safety program. According to Velin, that automatically saves you at least $2,500 dollars that you would pay to hire an independent consultant to do so.

The safety program provides a roadmap on how to have proven initiatives in place.

2) Once you have the safety program, the next step is the installation and implementation of the program. It’s making sure that you are doing what the roadmap is instructing you to do.

“We understand that it takes time and manpower to set up safety committees and if the auto recycler wants help doing that, we can provide someone to come in and help install the safety program,” said Velin. “The Wells Fargo representative will come in, for a fee, and actively set up committees of five to six people (depending on size of organization and employee availability). The first thing they will do is to start looking over claims and find the potential problem areas. Once the safety program is up and rolling, the Wells Fargo representative bows out, leaving the recycler to manage the established program.

Velin says not only will your workplace be a safer place, but it will help your bottom line.

“Once you have a safety plan that is established, not only will it keep your employees safer, but by putting these measures in place, it keeps losses down, price of insurance goes down and your bottom line goes up,” said Velin. “So much money is currently spent by companies on their property and casualty insurance. Having a good, effective safety plan reduces the number of claims and that savings automatically drops to your bottom line. It will save you money on property and casualty insurance policies.”

3) Avoid many workers compensation claims by being proactive in your interviewing and hiring process.

“You’d be surprised at how many no-brainers, lack of common sense accidents and claims I’ve seen,” said Velin, “such as someone lighting a cigarette while someone is taking gasoline out of a car and it causes an explosion. Or, newer employees lifting transmissions without using the proper equipment that their employers provide for them, and they hurt the soft tissue in their back, resulting in a back injury. Now the employer has to pay for workers compensation and medical bills, and also hire someone else to work while they are absent.”

Legally, you cannot ask a prospective employee if he or she has filed for workers compensation before, but you can ask questions that will give you clues. For example, someone applies for a job and during the interview you ask him if he will have a problem lifting 70 pounds. He says he can lift 70 pounds. Then, the first time he tries to lift a 70-pound alternator and he can’t and hurts himself, he files for workers compensation. You can find out that he had a pre-existing condition and he could be fired.

“It’s important that you follow the same sound hiring and interviewing process that any large company would do,” said Velin. “You should have a good interview process that includes checking references, conducting background checks, and having potential employees get physicals, and take drug tests. Doing so, could save you thousands of dollars.”

4) Try to get as many employees to buy health insurance as you can.

“We have a horrible case of the ‘invincible’ in this country,” said Velin. “They are a group of single males under thirty that decline health care coverage offered by the company. They want the extra money in their pocket. Then, during softball season they hurt themselves playing softball and tear their ACL. On Monday, they come into the office acting as if everything is ok, despite being in horrible pain. Then they fall down at work, grab their knee, and put in a workers compensation claim.

“How would the owner even have an inkling that this was bogus? It’s impossible for the owner to watch every move that an employee makes. The sad thing is that this happens all the time and business owners are paying for it.”

Another client of Velin’s saw a drastic difference in the amount of money he was shelling out for workers compensation when it became clear that he was being played.

“A few years ago I had a client that was a large manufacturer and he came to me with a 2.25 worker compensation rate which meant that he had to pay a 225% surcharge on his worker compensation claims,” said Velin. “I spent the entire summer in my free time graphing his losses and workers compensation claims and it became very apparent that over a ten-year period, twice a year there were spikes in the numbers of claims. During the months of May and June and then again in September and October there was an extraordinary amount of claims.

“The first thing we did is look at the demographics of his company and he said he had hired 1,500 single males – none of which took health insurance. He offered it to them but they declined coverage. I asked him if he was paying his employees to take time off during softball season and hunting and fishing seasons and he said no, of course not.  I told him, oh yes, you are.

“The bottom line was that employees were getting sports injuries or wanting time off to go fishing or hunting so they pretended to get hurt at work. Not only did they get their medical bills paid, they got time off, with pay. The owner was shocked and said he never would have believed it if I hadn’t graphed it all out for him to see.

“He went to his employees and didn’t drop the hammer, but let his employees know he knew what they were doing. He offered that they could have time off without pay to go fishing or hunting, but they did not want that. Suddenly there were less injuries and his experience modification rate was cut in half to 1.40 over the next several years.”

Insurance companies do not base their rates on what happened in just one year. After you put a safety program in place they will look at how well it is working by examining your claims to see if it has resulted in reduced loss experience. They will look at a period of three or four years and see if your safety measures have actually worked and reduced your worker compensation claims.

In addition to putting the above tips in place Velin offers a few more ideas to help you save some money and create a safer workplace. They are:

1) Change the mentality of the company about safety. During the safety meetings, explain to all employees how worker compensation claims affect your business and affect things that really matter to employees, like raises.

2) Try to eliminate the stupid things that cause claims. You can’t eliminate true accidents, but you can eliminate others that are caused by carelessness. For example, do not allow employees in the dismantling area to work too many hours in a week. The chances for an accident are greater and you will pay more for those exposed to greater risk, especially when it comes to health care.

3) Don’t wait until it’s too late and the claim is in. Get employees involved by asking for witnesses to the accident. You want to get the employees on board to keep an eye out for false claims. If they understand the impact it has on the business and on them, they will be more aware of what is going on in the workplace. Peer pressure does wonders in helping to reduce the number of bogus claims.

Following these tips should show you the merits of putting a safety program in place, if you don’t already have one. If you do have one, but it is not working very well, or you still have a claim frequency problem and want more information, you can contact Bill Velin at Wells Fargo Insurance Services for more specific advice. He can be contacted at bill.velin@wellsfargo.com or by calling 800-328-6311, ext. 3039.

Michelle Keadle-Taylor is a freelance writer based in Northern Virginia.

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