Something that can keep the healthiest building service contractor awake at night is the fear of a workers’ compensation premium hike. Depending on the state(s) in which you operate, you may have seen staggering price increases and decreased availability of this mandatory insurance coverage.

Cleaning organizations start at a disadvantage. Cleaners are the fifth-most-injured workers in America. Every job title above them on the list is a job that is not part of most business’ day-to-day activities.

According to a recent Brigham Young University study of benchmarking best practices through custodial safety improvements, cleaning accidents can cost between $29,000 and $89,000 for each lost-day event. This is bad news when you go to insure your employees. They are in a category that nobody wants to insure — well, almost nobody.

There are alternative-risk programs that you may want to explore. These programs may reduce your cost of workers compensation while removing you from the cyclical nature of the guaranteed cost market of the state funds.

There are three basic options when you consider an alternative to workers’ compensation. They include:

• Large Deductible or Self-Insured Retention Programs. These programs are mainly for large organizations that pay more $1 million per year in benefit claims.

• Self-Insured Groups. This is where a group of companies create a risk program and share the risk, costs and benefits. This is probably the most potentially efficient program, but also scariest. If all in the group work diligently and lower accident rates and claims, it can be great for all. If one member of the group has a catastrophe, everybody in the group is on the hook for it.

• Captive/Rent-A-Captive Programs. The Captives and Rent-A-Captives programs basic premise is for every dollar of premium paid, a specific amount is used to cover expenses. The remainder is set aside to pay claims in what is called a loss fund. The loss fund earns interest that is returned to the captive group. Once all claims settled for the policy year any remainder is returned to the captive owner.

To protect the group from catastrophic claims, aggregate reinsurance is purchased. This protects the captive owners from claims that exceed a specific percentage of the premium, creating a defined loss exposure in the plan. The difference between the loss fund and the aggregate reinsurance is the actual risk that any of the captive owners face. The strategy for a successful Rent-A-Cap program is based on pooling the risk, assessing the safety programs through outside audits and installing a better custodial programs that assure improved safety.

These strategies are not well known, but perhaps it is time to get paid for a good safety program rather than penalized for everyone else’s shortcomings.




POSTED ON: 5/1/2005