Workers' compensation insurance is one of the largest expenses for employers, particularly in industries with higher risks of workplace injuries. Insurers calculate premiums based on how much risk your business represents—evaluating factors such as the nature of your industry, your company’s claims history, and the strength of your safety programs. The higher your perceived risk, the higher your premiums. However, these costs are not fixed.

With the right strategies, you can take direct control over many of the factors insurers use to assess risk, reducing your workers' compensation premiums without compromising the quality of your coverage. By systematically addressing key elements like accurate payroll reporting, employee classification, and proactive safety measures, businesses can optimize their insurance to pay only for the risks they actually face.

In this article, we’ll explore several effective strategies that allow you to lower your workers' compensation costs. From regularly reviewing and updating your policies to considering alternatives like group insurance or self-insurance, we’ll show you how to minimize risks, manage claims, and ultimately influence how insurers calculate your premiums.

1. Implement Health and Safety Programs

Health and safety programs are structured initiatives designed to minimize workplace injuries, improve compliance with safety regulations, and manage potential hazards. At their core, these programs are designed to proactively manage risks and ensure a safe workplace. Common elements include:

• Safety Training: Regular training sessions to educate employees on proper safety practices, how to use equipment, and ways to avoid common hazards.
• Hazard Identification and Risk Assessments: Employers identify potential dangers in the workplace, ranging from ergonomic issues to heavy machinery risks, and put protocols in place to mitigate them.
• Safety Audits: Routine inspections and audits to ensure that safety protocols are being followed and that workplace conditions meet regulatory standards.
• Injury Prevention Programs: Specific measures aimed at preventing common workplace injuries, such as installing ergonomic furniture in offices, providing protective gear in high-risk environments, and instituting fall protection systems in construction.

When insurers assess a business's health and safety program, they generally focus on the following elements:

• Compliance with Regulatory Standards: Insurers check whether a business is meeting industry-specific safety regulations, such as OSHA guidelines. Full compliance often leads to premium credits, while violations may result in higher premiums or penalties.
• Documented Policies and Procedures: Insurers expect businesses to have clearly documented safety policies, including how they handle workplace risks. Consistent updates and enforcement of these policies show a commitment to safety and help lower risk.
• Implementation of Proactive Safety Measures: Beyond basic compliance, insurers look for employers who take steps to reduce risk, such as installing protective equipment, conducting regular safety drills, and offering safety incentives to employees.

• Consider Group Insurance or Self-Insurance Options, Including Pools

For businesses seeking to lower workers' compensation premiums, considering alternatives to traditional insurance may be worthwhile. Group insurance, self-insurance, and self-insurance pools offer different ways to manage risks and potentially reduce costs.

• Group Insurance: This approach allows businesses to pool risks with similar companies, leveraging collective bargaining power to secure lower premiums and more favorable terms. It’s ideal for small to mid-sized companies that may not have the scale to negotiate independently.
• Self-Insurance: Large businesses with strong financial resources and low claims can opt for self-insure, taking on the responsibility for paying their workers' compensation claims directly. While this provides control over claims management and safety initiatives, it requires regulatory approval and the capacity to manage the financial risks.
• Self-Insurance Pools: For companies that want the benefits of self-insurance but lack the size or resources to do it alone, self-insurance pools offer a shared-risk model. Multiple businesses combine their resources to manage claims collectively, allowing mid-sized companies to self-insure without assuming all the risk independently.

Which One Is Right for You? When deciding which option is best, consider your company’s size, financial stability, and risk profile. If you're a smaller business looking for predictable premiums, group insurance might be your best fit, offering collective bargaining power with less financial exposure. For larger companies with the ability to absorb occasional claims, self-insurance provides the most control but comes with higher risk and responsibility. If you're somewhere in between, self-insurance pools allow you to share the benefits and risks of self-insurance without bearing the full burden on your own.

• Explore Retrospective Rating Plans

Retrospective rating plans provide an alternative approach to managing workers’ compensation premiums by adjusting the final cost based on actual claims incurred during the policy year. This structure allows employers to pay an initial premium that is adjusted after the policy ends, either up or down, depending on the claims made during that period. Companies with a strong safety record stand to benefit from significant savings, while those in higher-risk industries may face increased costs.

How Retrospective Rating Plans Work
Unlike traditional fixed-premium plans, retrospective rating plans offer a dynamic approach where the final premium is determined by actual claims data. At the beginning of the policy, employers pay an estimated premium based on expected risk factors like payroll, employee classifications, and anticipated claims. At the end of the policy period, the insurer conducts a review of actual claims. If the number and severity of claims are lower than expected, the employer could receive a refund or premium reduction. Conversely, if claims are higher, additional premiums may be required.

When to Consider a Retrospective Rating Plan
Retrospective rating plans are most advantageous for companies with strong safety protocols and efficient claims management. Businesses that invest in ongoing safety training, conduct regular audits, and implement robust return-to-work programs are more likely to benefit from the lower costs associated with fewer claims.

On the other hand, these plans may pose greater financial risks for companies in industries with inherently high claim rates, such as construction or manufacturing. For example, having a year with unexpectedly high claims could result in significant premium increases in the long run, thereby outweighing the benefits of lower initial premiums. As such, these plans are better suited to businesses with more predictable claims histories or industries with lower injury rates, whereas employers in high-claim industries should first carefully evaluate their safety practices and claims management protocols before opting for a retrospective plan. 

• Establish Return-to-Work (RTW) Programs

Return-to-Work (RTW) programs are a vital component of managing workers' compensation costs. These programs focus on getting injured employees back to work as soon as medically feasible, even if that means initially assigning them modified duties or part-time work. By reducing the time employees spend away from work, RTW programs can significantly reduce the duration and severity of workers' compensation claims, helping businesses lower their premiums.

How RTW Programs Work
RTW programs offer a structured pathway for injured employees to return to the workforce in a capacity that accommodates their recovery. This could involve temporary light-duty roles, reduced hours, or modified tasks until the employee is able to resume their original job. Effective RTW programs involve collaboration between employers, medical providers, and employees to ensure the work assignments are appropriate for the employee’s physical condition while supporting their rehabilitation, and usually consist of the following components: 

• Modified Duties: Employees are assigned work that matches their current abilities. This might mean shifting someone from a physically demanding role to a desk job or reducing their workload temporarily.
• Clear Medical Guidance: Employers should work closely with medical professionals to determine safe and suitable tasks for injured employees.
• Gradual Transition: RTW programs often include a phased approach, where employees start with light duties and gradually transition back to full responsibilities as they recover.

The financial benefits of RTW programs are substantial. By shortening the length of time an employee is out of work, these programs reduce the total amount paid in wage replacement benefits. In turn, fewer claims and shorter claim durations positively impact a company’s EMR (discussed in detail below). Moreover, keeping employees engaged in the workplace—albeit in a modified capacity—can accelerate their recovery and prevent long-term disability claims, which are far more costly for employers and insurers alike.

• Regularly Review and Shop for Better Rates

Regularly reviewing your workers' compensation policy and shopping for better rates can significantly reduce costs over time. By analyzing key components of your policy and comparing industry standards, you can identify savings opportunities without sacrificing necessary coverage. When conducting your annual review, you should focus your attention on and evaluate each of the following areas: 

• Payroll Estimates: Insurers calculate premiums based on your projected payroll at the start of the policy period. If your actual payroll has decreased due to downsizing or restructuring, you may be overpaying. Conversely, underreporting payroll increases could lead to costly adjustments during a premium audit. As such, be sure to regularly update your payroll estimates and inform your insurer immediately if there are significant changes to avoid over- or underpaying.
• Job Classifications: Accurately classifying your employees is critical for controlling premiums, especially in industries with varied risk levels. Misclassifying low-risk employees (e.g., office workers) as high-risk workers (e.g., field workers) can inflate costs unnecessarily. Therefore, you should review your employee classifications regularly, ensuring each worker is categorized according to their actual duties to avoid overpaying.
• Claims History: Since your claims history directly affects your premiums, (particularly if there are recurring claims from certain departments or types of injuries), identifying patterns in claims can help you take targeted actions to reduce future incidents. Analyzing your claims history at least annually to identify trends and implement targeted safety measures. Additionally, if your claims have decreased, you can use this as leverage to negotiate a lower premium.
• Experience Modification Rate (EMR): Your EMR is one of the most critical factors insurers will use in determining your premiums, as it compares your company's safety record to industry averages. A higher EMR typically results in increased premiums, while a lower EMR can lead to savings. It's essential to verify the accuracy of your EMR annually, as it's usually based on a rolling three-year period of claims data (excluding the most recent year). If you've implemented significant safety improvements or experienced a reduction in claims, but your EMR hasn't reflected these changes, you may be overpaying. In such cases, don't hesitate to request a reassessment from your insurer or the rating bureau to ensure your EMR accurately represents your current safety performance.
• Coverage Levels: Make sure that your policy covers your business’s current risks without unnecessary over-coverage, so if you've downsized or changed the nature of your work, you may not need the same level of coverage. For example, if your workforce has shrunk or job functions have changed, you might be able to reduce your policy limits or eliminate coverage for specific job categories that no longer apply to your business.