Workers’ Compensation Insurance: Direct & Indirect Costs 

Workers’ Compensation claim costs aren’t always straightforward; there are expected and unexpected costs. Direct and indirect costs can substantially impact employers and their finances. The below guidance reviews the difference between direct and indirect Workers’ Compensation claim costs and how employers can reduce these exposures. 

Direct Costs Overview 

Direct costs are those that are covered by Workers’ Compensation Insurance; they typically include: 

  • Employee Wage BenefitsBenefits when an employee cannot work in their full capacity 
  • Medical Payments: Medical costs needed to treat an employee’s injury 
  • Vocational Rehabilitation Costs: Costs associated with an employee’s rehabilitation 
  • Death/Dependency BenefitsBenefits for the spouse/dependents of an employee killed by work-related injuries 
  • Legal FeesAny fees associated with a Workers’ Compensation claim, including certain legal costs and settlement costs 

Indirect Costs Overview 

Indirect costs are those not covered by Workers’ Compensation Insurance. Costs vary depending on the extent of an employee’s injury. They typically include: 

  • Wage & Hour Costs: Additional costs incurred by employees who work extra hours to compensate for another employee’s time away from work 
  • HR Support Expenses: The increased work incurred by employees who handle Workers’ Compensation claims 
  • Claim Investigation Costs: Costs associated with investigating a Workers’ Compensation claim 
  • Hazard Mitigation Costs: Expenses associated with mitigating the hazard(s) that caused injury 
  • Production Deadline Extensions: An injured employee’s absence can cause delays, thus increasing production costs and negatively affecting business contracts 
  • Training Expenses: The costs of training other employees to fill in for an injured employee 
  • OSHA Issues: Depending on the circumstance, an employer may be subject to OSHA citations and fines 
  • Insurance Premium Expenses: The increase in insurance claims can lead to organizations being perceived as a higher risk by insurance carriers, which can lead to increased insurance costs and harder to place coverage 
  • Workplace Culture Concerns: A company with a high rate of injury may encounter poor employee morale 
  • Reputational Issues: Employee injuries and Workers’ Compensation claims can contribute to an organization’s negative reputation 

 

Controlling Workers’ Compensation Direct and Indirect Costs 

In addition to securing a Workers’ Compensation Insurance policy, employers can do the following to help reduce their exposure: 

  • Conduct regular training on safety and empower employees to identify violations or hazardous situations  
  • Check modification factor data for completion and accuracy    
  • Provide injured employees with light-duty upon release from treatment and follow doctor’s instructions – emphasize return-to-work as quickly as possible after an injury  
  • Analyze the facts and circumstances of each accident and, where possible, implement changes to prevent similar accidents in the future. Document these changes and communicate them to your insurance partners during the renewal and loss control process  
  • Train extensively: ramp up your organizational safety efforts and injury prevention methods—particularly when it comes to preventing falls, motor vehicle accidents, and “struck-by” incidents   
  • Work with your insurance partner to perform claims management programs, focused on outstanding reserves and efficiently resolving open claims    
  • Report any incidents to your insurance carrier immediately so they can proactively address medical care for the injured employee and investigation of the accident  
  • Implement and enforce workplace health and safety measures to help protect employees from COVID-19 exposure   

 

RBN Can Help 

At RBN Insurance Services, we are committed to helping our clients establish a strong safety program that minimizes Workers’ Compensation claim exposures. RBN can provide resources to help you establish a proactive safety program to reduce lossesimpact your mod score favorably, and control your Workers’ Compensation Insurance premium.  

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