Risk-Sharing
and $5 of indirect costs incurred for each $1 of direct costs. Keep in mind that insurance does not cover all of your expenses for a claim, only direct costs. There are approximately 100 different indirect costs that are not covered that could come directly out of your funds. Items like overtime paid and lost or decreased productivity due to the absence of an employee because of an injury are not going to be reimbursed. Even if you are unwilling to agree with these studies I think we can all agree on this; first and foremost, no one wants to see any employee get hurt.
Are Safety and Loss Control Programs a Good Investment?
Here are some solid financial numbers for you to consider. The frequency and severity of the claims experienced by your entity can directly affect the amount that you pay for coverage. For workers’ compensation, each entity has an experience modifier that takes into account your claims history for the past three years. If your history is good, a credit is applied. However, if your history is not good a debit is applied. For both workers’ compensation and liability, the underwriters and actuaries look at the loss ratios for the various lines of coverage that your entity has. A loss ratio is simply the dollars paid in for coverage versus the dollars paid out and/or reserved for claims over a given period. The benchmark is a loss ratio of less than 60%. If the loss ratio is greater than 60% there is a good chance that you are going to pay more for coverage. Unfortunately, these numbers are reactive rather than proactive as they deal with claims that have already occurred.
In recent weeks I have fielded questions from a couple of entities that belong to the risk-sharing pools concerning the effectiveness of their safety programs. As I visited with government leaders from those entities the central issue became readily apparent, “what is our return on investment for a safety program?” This definitely is not a new question in the safety field. For me, the first time that I was asked this question was while I was conducting one of my very first surveys on behalf of the risk-sharing pools back in January of 1995. It was a difficult question to answer back then and it really has not become much easier to answer today. Today however, I now have 20 years of experience in watching the positive results of proactive safety programs that are working for local governmental entities in South Dakota. Unfortunately, during those same years, I have also observed the costly results for some entities that have relied basically on “luck” or have only been reactive when it comes to safety. In recent years, large organizations such as Liberty Mutual Insurance, the National Safety Council, the American Society of Safety Engineers and the Centers for Disease Control and Prevention have tried to quantify the “Return on Investment” (ROI) for safety. Some claim that for every dollar invested in safety the ROI can be anywhere from $3 to $6 depending on which study or article that you read. Some studies also indicate that there can be between $2
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For members of the risk-sharing pools, here are some additional financial numbers to consider. Both Pools offer members a loss control credit for their safety efforts and for implementing the loss control recommendations that we make during the surveys that we conduct for their members. These credits are given to members who are trying to be proactive by trying to reduce the potential for claims and injuries. Safety programs do take time and a commitment by your supervisors and employees. Recently I was visiting with a Mayor of a South Dakota city that belongs to both risk-sharing pools. I had recently visited with their
SOUTH DAKOTA MUNICIPALITIES
