Six Ways To Leverage What Premiums Are Paid Out
The six ways to leverage your Workers Comp premiums are listed below. Workers Compensation is almost always considered an expense. What if an employer decided to analyze WC as an investment?
The definition of leverage in this case is borrowing or using other funds to increase the rate of return on an investment. How does one leverage Workers Comp premiums? The following ideas on leverage are based on Workers Comp as an investment. They will not work when viewed as an expense.
1. Self-Insurance – by not paying the insurance company’s fees and overhead, the employer can retain this capital to invest elsewhere. This is a great way to reduce capital outlays if an employer does not experience a spate of bad accidents. The risk and reward are both high.
2. PEO’s (Professional Employment Organization) An employer can leverage their premium outlays by the pay-go concept. Workers Comp is only paid as payroll is incurred. There are no huge outlays upfront. PEO’s are one of my favorite risk-shifting techniques.
3. Large deductibles – basically modified self insurance. The main difference from self insurance is the carrier will still report Mods to the rating bureaus. The claims handling fees can be much more expensive than with pure self insurance.
4. Examine past policies and audits – recovering already expended funds can be looked at as “found money.” Employers are able to reinvest these funds into the company. One of the lower risk high returns of Workers Comp.
5. Safety Enhancement – while some employers consider adding in or enhancing a safety program as too expensive, we have seen a 4 to 1 return on investment when a new or improved safety program has been initiated. Keeping employees safe and out of the claims system reaps rewards for all involved.
6. Captives – the “cutting edge” method of leveraging premiums. Offshore captives allow for certain tax benefits. Employers are able to use funds that would have been invested in premiums in other parts of their business. There are many options for employers using captive arrangements.
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