Improve Safety and Loss Control to Lower Workers Compensation Costs

Improve Safety and Loss Control to Lower Workers Compensation Costs
September 2, 2024 7 mins

Improve Safety and Loss Control to Lower Workers Compensation Costs

Improve Safety and Loss Control to Lower Workers Compensation Costs

Workers compensation is an area of risk management that could benefit from a more holistic approach. A safety program that incorporates wellbeing and uses data in a meaningful way can contribute greatly to lowering costs.

Key Takeaways
  1. Safety and risk management professionals often think about workers compensation results differently — but sharing data can get them on the same page.
  2. An advocacy-based model of workers compensation can improve results by lowering the number of claims that go to litigation.
  3. Wellbeing, especially emotional wellbeing, is an often-overlooked facet of safety programs.

There has historically been a misalignment between risk managers and safety professionals. Where risk managers were concerned with costs, safety professionals were managing to a different set of data. Getting these departments on the same page can be a challenge for organizational reasons, but the benefits of them working together and using a data-driven strategy to reduce workers compensation results are numerous and quantifiable.

The Safety Disconnect

The biggest discrepancy between safety and risk management is that safety professionals focus on a certain set of data that is not as relevant to risk management. Injury rate and days lost are useful measures for reporting purposes (and indeed are required for most industries), but they don’t tell the whole story.

Meanwhile, risk managers are concerned with the amount spent on claims. The result is that safety professionals, who often report to operations, legal or human resources, will be under the impression that workers compensation costs should be going down, when in reality, risk managers are seeing the opposite.

Hidden Costs

Because risk managers are primarily focused on costs, it is worthwhile to discuss what those costs entail. With an injury, the obvious starting point is the medical costs around treatment, the wage loss benefits and — in some cases — a cash settlement. But there are more costs to consider than just direct medical costs. While some of these are easily quantified, others are not.

First is the cost of a replacement worker. If a worker needs to miss time because of injury, that person’s productivity must be replaced, either by hiring temporary workers or by increasing the workload of the remaining staff. That increase in workload, while perhaps not incurring a direct cost at the time, may increase stress and burnout among workers, which can lead to issues down the road. Another hidden cost is morale among workers. An injured colleague can make co-workers fearful that they will themselves will be injured, or that there are safety risks within the company that have not been properly mitigated. This can also lead to burnout, which influences turnover and results in rising costs for hiring and training new workers.

Prevention that Goes Beyond Physical Safety

Safety professionals’ goal is to prevent workers from being injured. But modern safety procedures are about more than just protective equipment, machine guards and ergonomics. A robust safety program aims to build a culture of care across the entire organization that includes both physical and psychological safety.

Wellbeing

Because safety is a preventative function, it naturally fits with wellbeing programs, which are also preventative in nature. Wellbeing influences safety in a few different ways. While having an existing health condition may or may not make a worker more likely to get injured, having a separate pre-existing health condition (sometimes called a comorbidity) like diabetes can increase the severity of an injury claim. Take, for example, a worker who badly sprains their ankle. One possible treatment would be a steroid injection, which reduces swelling and inflammation. If that worker is diabetic, a steroid injection would likely be contraindicated due to the effect of steroids on blood sugar, slowing treatment. While even the most effective wellbeing program can’t prevent all comorbidities, it can help reduce them, and thus their impact on the severity of an injury.

Psychological

Psychological safety can have different meanings and affect workers in a few different ways. Stress can lead to burnout, which can lead to lower situational awareness, which in turn can lead to more accidents. Stress causes several other physical conditions that affect overall psychological and physical health as well. Psychological safety is also about how workers perceive they are treated in the workplace. A worker may not feel comfortable bringing up potential safety concerns for fear of retribution, leading to the persistence of unsafe conditions.

A holistic wellbeing program that incorporates mental and emotional health can allow workers to minimize stress and avoid burnout. At the same time, creating a culture of psychological safety can build trust between workers and management that allows issues to be addressed in a timely manner.

Risk Managers Focus on Claims Cost Reduction

As mentioned above, a key metric used by risk managers to define success is the amount paid out in claims. One way to reduce the amount paid is to remember that time is money. A big driver of costs is whether or not claims go to litigation. Claims that go to litigation almost by definition cost more than those that don’t, for a few reasons. First is the cost of defending the litigation. Even though the company may win at trial, the potential of a large loss goes up because of the social inflation of jury verdicts. The faster claims are closed, the less the likelihood of litigation and lower the cost. Time is also of the essence in closing claims, because it means the return-to-work program can start, mitigating loss of productivity due to injury.

2.8M

employer-reported workplace injuries and illnesses in 2022.

Source: Bureau of Labor Statistics

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Differing KPIs make connections between teams complicated, but it’s critical to build the bridge. Safety needs to understand the financial impact of injuries and risk needs to understand safety strategies that are protecting the balance sheet.

Chris Iovino
Senior Vice President, Risk Consulting, North America
Advocacy-Based Workers Compensation
  1. The health and safety of employees is an absolute priority.
  2. A safe work environment requires a true team effort.
  3. Work injuries are managed with an employee-centric focus which fosters compassion and empathy.
  4. Injuries are reported immediately and each incident is assessed to continuously improve the culture of safety.
  5. Having a transitional return-to-work plan is essential to the employee’s recovery, health and wellbeing.

Using Data to Drive Down Costs

By sharing the right kind of data between risk management and safety, an employer can begin to lower costs. Safety professionals can use financial data, for example, to see the full picture of which injuries they should focus on preventing. Similarly, risk managers need to recognize ROI in safety. This is not always an easy task, as much of the work of calculating ROI is speculative. Will a new piece of safety equipment prevent one injury or fifty? By taking a holistic approach, risk managers can account for the psychological safety generated by the purchase, making the ROI less dependent on speculative numbers. The safety equipment will have a positive impact even if it prevents fewer injuries than initially intended. A data-driven strategy can also help safety and risk management professionals get the attention of the C-suite — an often difficult task.

In turn, safety professionals need more financial knowledge and focus on the bottom line. Measuring and reporting statutorily mandated days lost to injury statistics will of course still be necessary. However, if they can also report to senior management that they are driving down the cost of claims in addition to the number of claims, they’ll likely be able to make a better case for investment in safety programs.

Better Data Leads to Better Decisions

One data set that is helpful to both safety professionals and risk managers is benchmark claims data within their industry. By benchmarking against peers, risk managers show how their initiatives have improved results while comparing similar companies.

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A data-backed system that is strategy- and performance-based takes emotion out of the equation and creates ‘invest this much in safety to prevent this much in claims’ scenarios.

Rick Chandler
Managing Consultant, Casualty Risk Consulting, North America
Aon’s Thought Leaders
  • Rick Chandler
    Managing Consultant, Casualty Risk Consulting, North America
  • Chris Iovino
    Senior Vice President, Risk Consulting, North America

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This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.

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