Using Loss Control Tools and Techniques Within Captive Insurance Companies

Workplace safety has, fortunately, come a long way since Congress created the Occupational Safety and Health Administration (OSHA) in 1970. Back then, it wasn't unusual to hear managers express frustration about the new government interlopers who showed up unannounced and cited them for hazards in their facilities.

Today, it's rare to find a company leader who doesn't recognize and stress the importance of making sure their employees safely return to their homes and families after a productive day on the job. They've learned that creating and sustaining a safety culture not only has a positive effect on the financial impact of injury claims, but it also improves productivity and quality while reducing turnover. As younger generations enter the workforce, they bring strong expectations about workplaces that are healthy for both the employees and the environment.

Ready access to data has made it easier for companies to notice problems and pinpoint the underlying causes within their operations. For organizations in which workers compensation coverage represents a significant expense, a top priority is improving their experience modification rate (EMR or "mod rate") so they can reduce the amount paid in premiums. Unfortunately, that goal isolates only one cost associated with workplace safety.

A deeper and more comprehensive analysis of a company's loss history goes far beyond identifying simple savings by unearthing strategic opportunities to not only reduce the number and severity of injuries, but also to redeploy capital in ways that improve returns. Instead of focusing solely on reducing injury rates, a thorough analysis can lead to strategies that support the company's overall risk management efforts.

Taking this kind of approach is especially important for organizations that have established or participate in group captives, because it reduces losses and creates a plan for reinvesting any dividends generated by the captive insurance company.

Often, when companies examine their loss runs—whether that's workers compensation, automobile coverage, or general liability—they spot a problem and turn to their insurer or safety consultant for an appropriate remediation activity. For example, if they see an uptick in manual material handling accidents, they might decide to purchase employee training about ergonomics. However, that approach rarely achieves meaningful changes.

A more proactive approach involves quantifying and modeling the actual losses and potential responses to better understand their total financial impact. Suppose your company averages 15 manual material handling accidents. We might determine that better training would prevent 3 of them, reducing losses by $5,000. Having supervisors perform audits might head off 2 of them, saving $2,000. And adjusting the height of work tables might prevent 7 others, equating to $15,000.

Having a deeper understanding of the financial impact of both losses and potential solutions helps captive owners and participants structure coverage and premiums more effectively. Within group captives, few aspects are more important than identifying the minimum risk control standards for its members. For example, the captive insurer's rules may require every participating company to establish a nurse triage program or a particular type of return-to-work structure for employees who suffer injuries.

Captive insurance companies can also make access to tactics and new technology more affordable. A great example is software systems powered by artificial intelligence that can provide instant feedback on whether workers are performing manual tasks correctly. While those systems often carry a hefty price tag, the combined size of the captive's membership provides negotiating power to reduce the cost to members.

An often-overlooked benefit of captives is the ability to tap into the combined expertise of the membership. The captive can use what some members know to benefit the others. It may be that one of the members has a deep understanding of ergonomics and has successfully deployed that knowledge to reduce musculoskeletal injuries. Duplicating best practices throughout the membership will reduce the losses the captive insurer would otherwise fund.

As noted earlier, a holistic focus on workplace safety reduces turnover. It can also make a company more attractive to potential hires, especially the newest entrants to the workforce—but only if those commitments are shared in meaningful ways. When discussing benefits, companies typically mention health insurance, but they can also explain that workplace safety helps keep employees healthier, so they're better able to live their lives to the fullest, even after their retirement. Younger employees will also see this as evidence that the company cares about making the world a better place. Sharing that information also strengthens a company's reputation.

Over the years, workplace safety has transitioned from annoyance to reluctant compliance to a recognition that a safety culture pays benefits well beyond claim reductions. With the right partner, today's companies and captives can reap strategic benefits, too.

The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.