Making Workers' Comp WorkBy
After four years of rising workers' compensation costs, Ansonia Copper & Brass Inc. was near the breaking point. The Ansonia (Conn.) company's premiums were pushing $2 million per year, and injured workers were complaining that claims weren't being paid. If the costs of doing business in the state didn't fall, the company might have to leave. So in 1990, Ansonia made a last-ditch effort, switching to EBI Cos., its third insurer in seven years.
Three years later, Ansonia Copper & Brass is still in Connecticut. Upon switching to EBI, the change was almost immediate, says Ansonia President and Chief Executive George R. Wilson. EBI, a regional insurer in Farmington, Conn., paid claims that other insurers contested. And it improved safety for Wilson's 385 employees by talking with union representatives, and, among other things, installing safety guards on some machines. The result: Ansonia's employees have filed fewer and less costly workers' comp claims, decreasing the company's premium by 32.7% for 1993. "We've had other insurance companies promise what EBI's doing," says Wilson. "But it was just lip service."
At a time when much of the $30 billion industry is battling increasing claims and litigation expenses, many insurers have found ways to make money in workers' compensation insurance--or at least decrease claim costs. They have left unprofitable markets such as California and Florida. They have successfully petitioned a number of legislators to reduce benefits and combat fraud.
Most important, they're aggressively managing workplace safety and fostering less-hostile relationships with injured workers. Traditionally, insurers kept overhead down by, for example, giving case managers heavier workloads and stalling payments to injured workers. But that can mean costly litigation. So some insurers are spending more to manage claims, working with employers to improve safety, and requiring supervisors to report accidents as they occur. That results in more up-front costs but smaller claims payouts.
Orion Capital Corp., EBI's parent, conducts workplace inspections of potential clients, who usually have rising claims, before writing a policy. If the employer agrees to Orion's safety recommendations, the insurer provides coverage. "The key to success is to prevent the claim in the first place," says Michael A. Smith, a Lehman Brothers Inc. analyst. Orion targets "businesses where it can achieve very quick savings through improving safety." Then it maintains tight controls on claims expenses through teams of nurses, attorneys, claims representatives, and investigators.
MAIL-ORDER DRUGS. All of that pays off. Orion has lowered its expenses from $1.33 for every $1 in premiums in 1987 to $1.05 in 1992, vs. $1.21 for the industry, excluding investment income. "Our incentive to improve was one of company survival," explains Larry D. Hollen, Orion's executive vice-president.
Even multiline insurers, which have long offered workers' comp coverage as a convenience to clients, are changing. Take Travelers Corp. In 1988, its expenses topped the industry average. But in 1989, the Hartford insurer became one of the first to invest in managed-care plans to treat injured workers. And it's saving 25% off drug expenses through Tampa-based Pharmacy Management Services Inc., which mails prescriptions directly to injured workers.
Such steps aren't cheap. Travelers has spent more than $100 million to improve results, says Richard W. Palczynski, a senior vice-president. But its costs decreased from $1.18 for every $1 in premiums in 1988 to $1.05 in 1992 and should be equal to that or lower this year. How well workers' comp performs is important to Travelers' bottom line: It is 66% of the insurer's $4.5 billion commercial insurance business.
The Clinton health-reform plan, though, could upset these moves. It recommends creating a commission to study merging workers' compensation with health insurance, which could undermine insurers' role. Insurers now worry their years of efforts could wind up being too little, too late.
CUTTING WORKERS' COMP COSTS TRAVELERS Hired more than 600 workers' compensation claims employees, reducing individual case load by 50%. Also added 350 utilization-review nurses. ITT HARTFORD Set up a toll-free telephone line for employers to report workplace injuries. Early reports reduced payouts by 33%. ORION CAPITAL Employs teams including nurses, attorneys, and investigators to determine whether a prospective client is committed to reducing costs. CONTINENTAL Uses ergonomists to review tasks at businesses it insures and recommend changes to reduce work-related injuries. DATA: COMPANY REPORTS
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