Strategies for controlling business insurance costs: minimizing risk while maximizing protection.

• Author: Barbour, Tracy
• Position: INSURANCE

Controlling insurance premiums is an important part of keeping expenses down for any business. However, the key is to reduce costs while maintaining coverage that provides adequate protection--and minimizes risks.

In Alaska and elsewhere, the most widely-used types of insurance include workers' compensation, liability, property, and commercial auto. With some calculated steps, business owners can capitalize on a variety of ways to decrease their costs for these and many other kinds of insurance.

Controlling Costs for Workers' Compensation

Government-mandated workers' compensation insurance is a major expense for most companies. And it represents one of the biggest areas for cutting costs. Workers' comp, as it's commonly called, offers protection from claims by employees who experience work-related injuries or illnesses sustained on the business premises or because of the operations of the business. Coverage provides employees with medical, rehabilitation, disability, and re-employment benefits, as well as death benefits for dependents in cases involving work-related fatalities.

The rates for workers' compensation insurance are static, with prices set for every $100 of payroll. The only real control employers have on costs is to maintain an environment where they're not going to have injuries, according to Mike Gordon, president of Denali Alaskan Insurance. That's because a major part of what determines the workers' comp premium is the company's "experience modifier," or loss history.

The experience modifier, often referred to as the "e-mod" or "mod," is a number that represents the employer's claims history over a three-year period. The e-mod is based on how an employer compares to others in its industry with similar employees, and it results in a reduction (credit) or increase (debit) of the company's insurance premium. A credit indicates that an employer has less than average loss experience, while a debit shows the opposite.

An experience mod of 1.00 is the average. A business with no or few claims may have a mod of 0.75, which translates into a 25 percent credit that comes off the workers' comp bill, Gordon says. A company with numerous claims may have an experience mod of 1.6, which will result in a 60 percent debit. This can have a significant impact on the annual premium. "With a $100,000 premium with a 1.6 mod," he says, "that becomes $160,000."

However, employers can effectively reduce their workers' comp premium by controlling their hiring practices. "Bad hires can cost you a lot of money," he says. "If you hire someone who bounces from job to job and has lots of injuries, that could be a problem." Gordon feels that having a strong safety culture is vitally important. And that culture must be engrained in the entire organization. Addressing safety issues, he says, can involve something as simple as cleaning up a spill or cautioning an employee not to engage in a potentially dangerous activity, such as standing on the top rung of a ladder. "If you have a good safety culture where employees are looking after employees, looking after the business, and looking after...