Workplace Accidents: Financial and Insurance Strategies

Look, it’s fantastic you’ve created (or are in the process of creating) more robust safety and risk management programs. Your employees are noticing the changes and appreciate your interest in keeping them safe. In turn, they’re putting your programs into practice. 

However, even with the best practices put into place, there’s an unfortunate reality: accidents will still happen. And they’ll still cost money.

You need to prepare for that inevitability. ReNu Insurance Group has helped over 130 captive owners create more robust safety and risk management programs to relieve their financial burden. That said, every company with great programs will still deal with a severe claim once every five or six years. So we’ve shown them how to prepare for this inevitability.

In this article, you’ll learn where your financial burden will come from after a workplace accident and how to prepare financially. That way, you won’t be unprepared or caught with your pants down when dealing with an insurance claim.

How do insurance claims cause financial burdens?

Your financial burden will come in the form of an underwriting loss. This can happen through multiple small claims or one big claim. God forbid it’s one big claim. This usually means something terrible happened. We call these catastrophic claims.

From a captive perspective, you’ll potentially lose underwriting profit for that year, generate assessments, and possibly risk share. If you’re not in a captive, a carrier will either non-renew you or increase your rates to get as close to the whole—as in making their money back—as possible.

When a carrier says goodbye to your business, it’s like having an anchor attached to you. You’re seen as a bad risk, even though you might not be. As much as we wish bad things only happened to bad people, bad things happen to good people every day. 

So the challenge is ensuring these bad things don’t happen to good people like you.

Frequency claims (smaller claims that happen more often) and severity claims (larger claims) vary. If you’re constantly having claims come in, it affects employee morale, especially when more employees need treatment or to go to a hospital. Reasonably, employees start to get annoyed and frustrated. That’ll happen when they feel unsafe.  

While severity or catastrophic claims might not happen as often, they can kill morale in your company. For instance, let’s say one of your workers is transporting heavy pipe, gets cut off by some terrible driver, and has to veer out of the way, only for the load to move forward through the cab and result in death for your employee. You end up dealing with the consequences, and your employees feel unsafe.

And understand we’re not trying to scare you. These situations are very real. Forget the financial burden. When these situations happen to people you know, it’s not like watching an accident from a YouTube video. These hit home, especially when you’re the one telling a family someone isn’t coming back that day. 

Whether protecting your business from financial burden or keeping employee morale up by preventing accidents, being safety conscious at your workplace will only benefit you.

Being safety conscious is the top priority

If employees don’t believe you’re safety conscious, they have a negative view of you. This causes you to be negative, which makes them view you more negatively—it’s an endless cycle (that can be prevented). A perpetual loop of employers and employees thinking of each other negatively.

If you’re not safety conscious, this will affect your bottom line. People don’t want to work, management is frustrated, and the negativity spreading around affects productivity. 

One way we at ReNu found success in determining if a company is safety conscious is to ask the employees. While this may seem an easy solution, you would be shocked at how many businesses ask the question in a non-confrontational way and free of retribution.  

Hazard prevention and containment is essential to your bottom line

If you spend time, energy, and money on trying to help your employees become safer, people notice and feel better about their work environment. Remember the negative feedback loop discussed earlier? That can also happen the other way around, where you see more positive results.

Employees generally see training as a positive, especially when it means they and those around them are less likely to get hurt.

You can hire loss control experts. You can hire a full-time safety engineer. You can hire a full-time risk manager. And if your business isn’t large enough to do these things, outsource someone who can do these jobs. There are plenty of people willing to come and help you. They’ll do audits and look for holes in your risk management.

“An ounce of prevention is worth a pound of cure.” There’s a reason this expression exists

You still want to contain these accidents. Again, they happen inevitably one out of every five years. So, you want to ensure they minimize the impact on your business and protect your people. 

So, let’s use chemicals as an example. If you have a lot of chemicals in your warehouse or place of work, how do you protect your people? Solutions are having proper PPE, storing chemicals properly, teaching employees how to handle them, etc.

You’ll still run into issues such as chemicals getting under the goggles and into an employee’s eyes when they’re following rules to a tee. When that happens, you want to minimize the impact on that individual. 

Make sure you document everything with safety

And when these inevitable accidents happen, make sure you document them. You could have the world's most remarkable risk management program that protects your employees and minimizes accidents. But if you don't document these issues, your program may as well not exist. 

Having your documentation will go a long way, especially when OSHA comes in to do their inspections. And if you have a death in the workplace, the other number you’re calling—aside from 911—is OSHA. And if you don’t have fully documented procedures, training, and policies related to certain hazardous events, you’ll get hammered with fines.

And do you train your employees on safety? Are you varying your training, or is it the same thing over and over again?

Other financial safeguards to have in case of workplace accidents

Having more robust safety and risk management programs is good for preventing financial burdens. However, an accident is bound to happen. And it doesn’t hurt to have other safeguards. Here are other safeguards to have:

• Have a war chest in place, just in case. 
  • It’s always advised to put some capital away. It’s always better to be safe than sorry, especially when your business is on the line.
    
    
• Don't take out your underwriting profit.
  • If you’re in a captive, it’s a good idea to leave the underwriting profit you made in previous years and not take it out. Leave enough underwriting profit so you don’t have to pull out collateral to cover your claims.

Types of insurance coverage to mitigate financial risk

Here are three standard insurance policies that can minimize risk in your business. You are probably well aware of this, but we will add details on what each covers.

1. Workers’ comp

• • If you have an employee working and there is a workplace accident, that is where workers’ comp comes in.
    • This is statutorily required in every state (though you can opt out in Texas)
  • This covers the indemnity—the portion of the policy that covers the employee’s lost wages.
  • Medical benefits are also covered by these policies. There’s no policy limit on a workers’ comp policy.

2. Automobile liability and physical damage

• • Physical damage insurance covers damage to the vehicle and other expenses, such as medical that result from an accident.
  • Liability coverage in the auto policy covers third parties (people you injure) as a result of your negligence.

3. General Liability (GL)

• • Covers premises, products, and completed operations. 
    • So, if a third party comes into your restaurant and slips on your floor, GL covers what happened on the premises. Or you made a sandwich in your restaurant, and that person took it somewhere else, ate it, and got salmonella. This would be product coverage.
    • If you are a construction company with bad workmanship that causes a loss, the policy covers the damage but not the shoddy work.  

All of these will mitigate the financial impact, as they’re meant to do. But what else can be done to make sure you can prevent and contain these work-related accidents?

These policies are great, though you can also screen your employees annually and set them up for automatic flagging should they have something like a DUI. You don’t want their alcohol problem to impact you six months later and progress to the point where they’re intoxicated behind the wheel of one of your vehicles and cause an accident, which is a more significant problem.

If you find out someone has a problem, consider getting them help, such as rehabilitation, and get them back to work.

Employee-based safety committees are always a good idea. You’ll undoubtedly find employees who want to help out. And they’re motivated when they’re helping the workplace.

Another method is becoming a captive owner

If you’re focused on risk management and safety in your business, becoming a captive owner might be a good choice. Captives reward you for being more safety conscious.

And if you’re interested in captives or already a captive owner, you need to read our article on how captives can help you with cash flow. You’ll understand how captives can potentially help you make a profit through your more robust safety and risk management programs.

You also need to read our article on the general pros and cons of captive ownership. That way, you can figure out if captives are a good fit for your business. 

If you have questions about protecting your business from insurance claims or are interested in captives, schedule a call with ReNu Insurance Group. Knowing how to protect and insure isn’t something you have to do on your own.