Menu

Loss prevention and risk management

Employers should use every safeguard and precaution available to protect employees from on-the-job injuries.

Two warehouse workers, one driving a forklift raising a pallet and the other standing on a rolling staircase taking inventory.

Risk management, also known as loss prevention, must become part of every operation to maximize production efficiency and eliminate injuries. Employers should use every safeguard and precaution available to protect employees from on-the-job injuries. In addition to keeping employees safe, significant economic gains may result from an organized accident prevention program.

Decrease downtime and increase profits with a robust risk management program

Consider both direct and indirect costs when calculating your operational costs. Direct costs are the expenses that result specifically from an incident and are incurred relatively quickly after the incident occurs. Indirect costs are the expenses that result from an incident that may not immediately impact a company’s bottom line and the correlation to the incident may not be clearly defined.

Direct costs

  • Cost of medical and indemnity payments for the injured worker (workers’ compensation)
  • Cost of property and/or equipment damage
  • Increased insurance costs in the future

Indirect costs

  • Cost of business interruption
  • Decline in public reputation and employee morale
  • Recruitment and training for replacement employees
  • Additional administrative costs

Costs associated with workers’ compensation impact the employer in two ways — rate classification and experience modification.

Rate classification: Rates are usually calculated on the loss experience (costs) associated with a specific class of employment. There are approximately 600 different classifications of employment in the rate-making system. The Commissioner of Insurance determines rates based on recommendations from the National Council on Compensation Insurance (NCCI) to pay claims and administrative expenses.

Experience modification: Each individual employer’s historical actual incurred losses are compared with NCCI expected losses for the employer’s given classifications and payroll. For example:

Employers A, B, and C all have a base premium of $8,000. Employer A has a high modification rating resulting in an increased annual premium. Employer B’s modification rating matches the industry average and does not result in a change in premium. Employer C has a low modification rating resulting in a credit that reduces their annual premium.

a) $8,000 base premium x 1.15 debit modifier = $9,200 annual premium

b) $8,000 base premium x 1.0 unity modifier = $8,000 annual premium

c) $8,000 base premium x 0.90 credit modifier = $7,200 annual premium

The above examples show that employer C, operating a successful risk management program, pays $2,000 less than the employer A for the same coverage.

Property damage

The costs associated with property damage are usually obvious and determined quickly. These losses may be readily insurable but often require a significant co-payment.

Production interference

Business interruption costs are difficult to measure and are usually overlooked. In an industrial accident, indirect costs may be greater than the direct costs. The following indirect cost items are found in every accident:

  • Production loss due to shutdown of machinery or processes under the control of an injured employee
  • Time lost by fellow employees assisting the injured employee, discussing the accident, and returning to normal production schedules
  • Loss of future business or goodwill for failure to meet production schedules
  • Time spent by the supervisor to prepare the accident report, investigate the accident, assist the injured employee, and train a replacement
  • Possible decreased efficiency of the injured employee for the period immediately following a return to work
  • Decreased efficiency of the injured employee’s replacement
  • Wages paid to the employee for the time lost on the date of the accident

Employee morale

A low accident rate can be an important factor in establishing a reputation as a good employer. Employees may view an effective accident prevention program with a low injury rate as management’s interest in employee welfare.

Public relations

Poor safety records have an unfavorable effect on public opinion and may result in decreased consumer acceptance of products. This is particularly true when catastrophes, such as explosions and major fires, receive wide publicity. An outstanding safety record can be used to improve public relations. A poor safety record may give the employer a bad reputation. This makes it difficult to maintain good community relations and may hinder recruitment of a satisfactory labor force during periods of low unemployment.

Promote a safe work environment

Creating a robust risk management and loss prevention program is essential for all businesses. Our expert team of risk management consultants can help create programs and training opportunities that promote a safe work environment, boost employee morale, and help save money. Find your risk manager and talk with them about your safety needs and goals.

Related articles

What is employment practice liability insurance?

If you run a business with employees, EPLI is almost certainly a must-have, even for businesses with only a few employees.

How to talk to employees about cybersecurity

As a small business owner, your employees are the first line of defense in preventing a cyberattack. It’s important to talk to your employees about cybersecurity and what to do if something happens.

Find an agent

Our independent agency partners will help you compare coverages and share industry insights as you shop for the right insurance policy for your needs.

Coverages may not be available in all states. Coverages described are subject to all the terms and conditions of the policy, including deductibles, exclusions, and limits of liability. Not all agents are authorized to write all types of insurance. Policies may be underwritten by SECURA Insurance Company or SECURA Supreme Insurance Company, affiliated companies referred to collectively as SECURA Insurance Companies. Please read the policy carefully. Any claim example is for educational and informational purposes only. The information in this document will not be used to determine the coverage of an actual claim presented. All claims are adjusted based on the relevant facts, conditions and coverages at the time of loss. For specific terms and conditions, please refer to your coverage form. Coverage is also subject to applicable deductibles and limits of coverage.

The information provided by SECURA on its Website (the Site) is for general informational purposes only. All information on the Site is provided in good faith, however SECURA makes no representations or warranties of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information on the Site. The information contained on the Website is to the best of our knowledge true and accurate at the time of publication, however it is generally to be used solely for informational purposes. The materials on this website are not guaranteed to be correct, complete or up to date. You should not act or rely only on information on this website.

The Site may contain (or you may be sent through the Site links to other websites or content belonging to or originating from third parties or links to websites and features in banners or other advertising. Such external links are not investigated, monitored, or checked for accuracy, adequacy, validity, reliability, availability or completeness by SECURA. SECURA DOES NOT WARRANT, ENDORSE, GUARANTEE, OR ASSUME RESPONSIBILITIES FOR THE ACCURACY OR RELIABILITY OF ANY INFORMATION OFFERED BY THIRD-PARTY WEBSITES LINKED THROUGH THE SITE OR ANY WEBISTE OR FEATURE LINKED IN ANY BANNER OR OTHER ADVERTISING. SECURA WILL NOT BE A PARTY TO OR IN ANY WAY BE RESPONSIBLE FOR MONITORING ANY TRANSACTION BETWEEN YOU AND THIRD-PARTY PROVIDERS OF PRODUCTS OR SERVICES.

UNDER NO CIRCUMSTANCE SHALL SECURA HAVE ANY LIAIBLITY TO YOU FOR ANY LOSS OR DAMAGE OF ANY KIND INCURRED AS A RESULT OF THE USE OF THE SITE OR RELIANCE ON ANY INFORMATION PROVIDED ON THE SITE. YOUR USE OF THE SITE AND YOUR RELIANCE ON ANY INFORMATION ON THE SITE IS SOLELY AT YOUR OWN RISK.

SECURA would like to remind you that the data contained in this website is not necessarily real-time or accurate.

SECURA and any provider of the data contained in this website will not accept liability for any loss of damage as a result of your reliance on the information contained within this website.