Insurance

Are you controlling spending... Really?

Do you have expenditure limits? Really? Think for a moment about the system most companies use to control spending. Each level of management has a limited authority and expense limit. Field level employees usually have no ability to spend company funds. At the management level, the limit increases with position within the company. Even employees at the vice-president level have limits. Beyond that limit, it may require approval by a president, CEO/CFO, or even a board of directors or owners group. This makes good business sense. It allows due scrutiny, responsibility for expenses, and accountability for decisions made.

Risk Managers properly identify workers compensation insurance as the financing of losses rather than insurance in the true sense. Thus, in simple terms, it is a loan. Unfortunately, with the standard insurance policy carrying up to 30% loads for administrative and service fees, this loan carries a 30% (or more) interest rate. What a great deal! Current loss runs are reflected on the policy cost for three years via the Experience Modification Rate (known as EMR or "E-Mod"). So, how many loans do you want that have a three-year term at 30% APR (or up to 68% according to multiple sources)? How large would you like said loan? What could make less financial sense? How are we controlling this expense?

The foreman that ignores the employee working without proper fall protection 30 feet in the air just approved what could be a multi-million dollar loan. Silence is consent at all levels! Think about the first scenario and the approval system. How would a CEO/CFO react if (s)he had a loan of just $50,000, approved only by the signature of a field supervisor at the foreman, superintendent, or even project manager level? Remember, there is no possibility of declining the expense. The product has been delivered, the terms set, and the company must honor the debt. In most (if not all) cases, there would be serious consequences to this action. But, in the case of employee injury, there may be an incident report, or even a re-enactment of events, but does the management approach mirror that of other areas of the business?

Considering the depth of expense, the terms of finance, and the duration of impact, injuries and incidents must be managed as any other aspect of the business. There must be levels, limits, and accountability. Accountability must impact the bottom line of not only the company as a whole, but the individual manager as well. It must be an impact of sufficient magnitude to deter those that may consider poor performance acceptable. The CEO/CFO must place a formal structure to address this issue that mirrors the approval structure of expenditures. There must be upward review and accountability at each level. In the end, it is the CEO/CFO that will create, drive and support the control of this expenditure. With this system in place, the safety department becomes a resource to assist in improving performance for this component of the bottom line. With no system in place, insurance companies continue to write as many high interest loans as possible.