Losses of productivity and high insurance premiums aren’t the only repercussions of a workers’ compensation claim. If your indirect costs exceed your direct costs, you could end up paying huge out-of-pocket fees. “You’ve got to understand the financial impact of one claim and how it affects the profitability of your company,” explains Bruce Eades of Insurance Office of America. In his presentation at NATE UNITE 2014, Bruce discussed an actual case study for a company where they incurred $83,000 in direct costs and $93,000 in indirect costs, which the insurance didn’t cover. Direct costs include your premiums, deductibles, medical bills, training, safety equipment, and safety director; whereas your indirect costs include things such as the increase in insurance premiums, experience modification increase, loss of production, legal feels, clean up cost, overtime, additional administration fee, training new employees, repair and replacement of damaged material or equipment, and many more.
Bruce illustrated with an example what the cost was for an actual company with a workers’ compensation claim. “Mitchem has a $9,855 worker’s comp claim. This one claim drove his mod (experience modification) up 6.4%. The financial impact is this: when it hit his mod the following year, indirect costs increased $4,693. It’s like a DUI—it’s not going away. Over three years, that claim has cost him over $14,000.” But workers’ compensation claims and accidents affect your productivity levels also, which is why safety training and proper equipment are extremely important. “When a guy gets a cut on his finger—what happens? It shuts the whole job site down for the rest of the day. You have to take him to the quick care, and now you have to pay the guy time and a half to get the job going,” Bruce explains.