How Focusing on Workplace Safety can Lower Workers’ Compensation Premiums & Increase Employee Retention (Among Other Things)

“Safety should never be a priority, it should be a precondition.”

— Paul O’Neill 

When Paul O’Neill took over Alcoa in 1987, the company was on the brink of collapse. The global manufacturer had no clear focus, poor profits, and shoddy craftsmanship, among other problems.

Still, they had one area where they were doing pretty well: lost-workday rate (LWR), which measures how many days are lost at a company due to injury in a year. At the time, the LWR at the average American company was five. At Alcoa, a company with thousands of employees in more than 40 countries, it was 1.86. I imagine Alcoa’s safety director shared this statistic with O’Neill with some pride when he first joined the company.

O’Neill’s response: “I want it lower.” How low, exactly?

Zero.

In his first year, when O’Neill stood before shareholders to announce his grand vision to turn the entire company around and make it profitable again, you can understand their shock when he announced his focus: safety. 

Not cutting costs, not innovating, not expansion.

Safety.

Why? Because in O’Neill’s mind, safety was an indicator of excellence, and if they could improve that, everything else would follow suit. “Safety will be an indicator that we’re making progress in changing our habits across the entire organization,” O’Neill announced. “That is how we should be judged.”

And he meant it. Whenever an incident happened anywhere in the company, O’Neill had to know within 24 hours. When one manager failed to report a carbon monoxide leak, O’Neill fired him. When an 18-year-old was killed while being unsafe at work, O’Neill gathered the leadership and told them to their faces, “We all killed him,” referring to their lax commitment to safety standards.

Before O’Neill left Alcoa in 1999, he brought their LWR down to 0.126 (“I wish it were zero,” he later said) – and the company’s market value went from $3 million to more than $27 billion.

All because of a safety-obsessive leader.

But for most companies across America, safety is viewed more as an afterthought than a precondition for doing business. And it is almost exclusively viewed as a cost center rather than something that can help drive revenue, retention and competitiveness.

In reality, focusing on workplace safety can make your company more efficient and competitive by removing bumps and expanding your margins, among other things. 

Today, I want to look at three ways (among many) that building a culture of working safely can have a positive impact on your company’s bottom line, beginning with insurance premiums.

Lower Workers' Compensation Insurance Premiums

If you run a construction, manufacturing or other blue collar company, you already know that workers’ compensation insurance is one of your largest expenses. What you may not know is that the cost of your policy is largely within your control, thanks to your e-mod.

What’s your Workers’ Compensation Experience Modification Rate?

The Workers' Compensation experience modification rate (e-mod or x-mod, for short) is a numerical factor used by insurance companies to calculate an employer's workers' comp insurance premiums. Determined by the National Council on Compensation Insurance (NCCI), your e-mod is the primary factor in setting your workers’ comp premium. 

The NCCI takes your actual number of injuries over a period of three years and divides it by the average number of injuries companies like yours experience in that time. If you experienced lower than the average number of injuries, your e-mod will be below 1.0. If you experienced more, it will be above 1.0. 

Your e-mod is then multiplied by your insurance premium to determine how much you will pay.

For instance, say your company spends $1 million per year on workers’ comp insurance and after keeping injuries low for a few years, you’re able to get your e-mod down to 0.65. Suddenly, your million-dollar policy has dropped to $650,000, giving you a $350,000 credit.

Or if you had more injuries than average and your e-mod increased to 1.4, your policy would jump to $1.4 million. 

You have more control over your e-mod than you realize

When was the last time someone told you your workers’ comp insurance premium and then told you how you could lower it? Many people in the risk management industry treat the e-mod as an external, uncontrollable factor. In short, they’re saying your premiums are what they are and that’s that. 

But with an extended focus on safety, you can lower your e-mod (and premiums) considerably – and make your company more competitive in two ways.

First, it makes you more competitive by saving you money. If we have two companies that are basically the same, but one spends $650k and the other $1.4 million on workers’ comp insurance, the first business is at a greater competitive advantage with more money to compete on job bids, salaries and benefits.

Second, your e-mod rate can impact your ability to get jobs. In certain industries like construction, some jobs require your company’s e-mod to be below a certain number in order to give you work. Contractors don’t want to hire unsafe workers, so you’ll often see a statement like “E-mod must be below 1.2” in business requirements.

For these reasons, over time, lowering your e-mod by operating within a culture of working safely will outperform one that doesn’t.

Related: We host an e-mod masterclass at our offices a few times each year. Click here to register for the next one.

Safety has a major impact on insurance costs

Okay, that may seem obvious. That’s why you didn’t report your wife’s minor fender-bender to your car insurance company – you don’t want your rate to go up.

But commercial insurance isn’t just reactive – they’re not simply looking for reasons to increase your premium. Taking proactive steps toward increasing safety can have a positive impact on your costs.

If your company had a fleet of 100 vehicles, you could take several such steps, like: 

• Frequent safety trainings
• Technology that monitors driver behavior
• A zero-tolerance policy for certain infractions 

The bottom line is this: Insurance companies prefer to do business with people who prioritize safety over those that don’t. There’s an inherent danger for everyone involved when working with unsafe companies. For that reason, they will give safety-minded companies a better premium every time. 

With just a few safety-minded policies, your company can quickly become a “top-of-stack submission” for insurance companies.

More Productive Workplace

Safety can have a major impact on productivity if you make it a part of the employee experience from beginning to end. I like to look at it in three phases:

1. Pre-employment/onboarding – Activities like screening people to make sure they can do the work and training new employees.
2. Ongoing – Safety incentive programs, conversations, meetings, etc.
3. Post-injury management – Treatment, recovery, etc. When an event happens, what do we do? How do we minimize impact to the employee and the business? 

I talked about phases one and two a bit in my last article, so let’s look at post-injury management and how to view medical clinics.

The role of occupationally minded medical clinics

Getting connected with an occupationally minded medical clinic can be a game-changer when it comes to employee safety – and it’s about more than physicals and drug tests. They can help you with pre-employment screenings, “fit for duty” checks, training, and more.

But the biggest impact is finding a healthcare professional who understands the ins and outs of your profession. When it comes to the impact of injuries on your company, there is a huge difference between general care physicians and occupationally minded physicians.

For instance, if a foreman gets injured on the job, a general care physician will likely tell them to stay home from work for six to eight weeks until they are fully healed. Going a couple months without your foreman can have a pretty significant impact on morale for the team and the foreman, disrupting the flow of work even longer than the prescribed recovery period.

For the same injury, an occupational physician might tell the foreman to stay home for a week or two and then let them go back in a limited capacity to let them work as long as they don’t lift more than 20 pounds, or other similar guidance. If you have a strong recover-at-work program that the physician is aware of, they may not require the employee to miss any work at all.

The difference is that physicians who specialize in your industry understand the tasks of the job, and they will work with you to find a solution that maximizes productivity while also promoting healing. On the other hand, a general care physician doesn’t understand the details of a foreman’s job, so they assign the same recovery time to everyone they treat, regardless of what their job may entail.

The impact of safety on the health of your employees is undeniable. At the end of the day, people want to work for companies that care about their safety, so it will inevitably help attract and retain people. 

In addition, when your people get back to work more quickly, it has a positive impact on the health of your company.

Increased Retention

Lastly, focusing on a culture of working safely can have a huge impact on your key personnel. Again, no one wants to work at an unsafe company. If Company A and Company B offer similar pay and benefits, but Company B is a safer place to work, there will be a constant flow of workers from Company A to B.

In a study sponsored by the Construction Industry Work Force Foundation, researchers found that proactive safety and training systems at construction companies resulted in a 9% reduction in turnover and absenteeism, as well as a decrease in workers losing interest in their jobs.

Some companies even tie performance metrics for key personnel to safety, which helps deepen the commitment to a culture of working safely among your top leaders.

Invest in Your Company by Investing in Safety

By building a culture of working safely, you are not just protecting the well-being of your employees – you’re protecting your company’s future. Contact us to learn more about how safety can improve a variety of metrics for your company.