Facing hundreds of thousands of dollars in insurance premium increases, Commercial Lumber & Pallet (CLP) made the risky leap from the state fund to a large deductible insurance plan. At the same time, the company ramped up safety programs. What once looked like a big gamble has resulted in major savings and safety improvements for this City of Industry, Calif. pallet company.
Workers compensation insurance has become a major cost concern for most pallet and sawmill operations across the country. The forest products industry has a fairly high incident rate, which translates into steep insurance costs.
Many companies are insured by state funds. In the case of CLP, the state fund was one of the only options the company had. At the time, most insurance companies were not willing to do business in California.
Kathleen (Kathy) Dietrich, operations manager of CLP, said, “About three years ago, workers comp rates went through the roof. If we stayed with the state fund, our workers comp insurance bill would have gone up hundreds of thousands of dollars, and that comes right from our bottom line.”
The company had taken a look at self insurance and high deductible plans in the past. But things never worked out right. But the financial promise of riskier insurance plans changed when Governor Arnold Schwarzenegger instituted reforms that opened up the market to more competition.
Fraud was a big problem according to Kathy. She credited the new regulations as a major factor in curbing fraud and opening up new insurance options for employers. For example, the reforms made it harder to shop doctors just to find one that would agree to sign work absentee notices. Even though CLP did not have a major problem with healthy workers calling in sick, CLP was grouped with other companies where employees were not as conscientious about doing the right thing.
The high deductible insurance program reduced the premium that CLP must pay. The downside is that CLP must absorb more of the risk associated with claims. As long as the company keeps claims down, it saves money. CLP has decided to put more money into safety and accident prevention than in simply making higher premium payments.
The high deductible insurance program starts out with lower premiums. CLP agrees to cover all claims up to a certain stop loss cap. Once any one claim hits the stop loss cap, an umbrella insurance policy kicks in to cover the remainder.
Kathy said, “We actually call workers compensation insurance our best customer. We stand to make more money off changes to workers compensation cost than we do off any one big account.”
Safety was already a priority at CLP, one of the largest pallet companies in the country. But changes in the insurance program have pushed the company to improve a safety program that was already one of the best in the industry.
CLP picked a committee to focus on improving safety and creating a better workplace environment. The committee included machinery operators, fork lift drivers, supervisors and managers. One of the goals was to get all levels of employees to buy into what management wanted to see happen. This occurred because management spelled out the costs and allowed all levels of employees to provide input.
Kathy said, “The environment is safety. It’s how you live and work everyday.”
To illustrate this concept, she pointed to the differences between how people act at Angel’s Stadium and Disney Land. After a game, the seats at the stadium are littered with trash. Empty beer cups and peanut shells abound. People expect for someone to clean up the stadium.
A completely different mindset exists at Disney Land. Nobody just throws trash on the ground at Disney Land. That would be considered rude. Even little kids will walk over to the trash can and throw away trash. Kathy said that people respond to expectations and peer pressure. CLP wanted to create the same kind of environment when it comes to safety.
CLP and its sister company, Priority Pallets in Beaumont, Calif., have only had two recordable loss time injuries over the past two years.
When you do the math, CLP is saving a lot of money with its new approach. CLP spends about $300,000 in premiums which covers the umbrella insurance policy and the management associated with the program. CLP’s insurance provider offers loss prevention consulting and monitoring in addition to handling insurance claims and related paperwork.
Under the state fund, the basic insurance premiums were nearly three times what the company currently pays for major incident coverage. Claims over the last two years have not exceeded $100,000. CLP’s loss ratio this year is 13%. This basically means that it has paid out in claims only 13% of what it has paid in premiums.
In the old system, the good guys ended up paying for the bad actors in the coverage pool. New approaches are helping drive down costs by making things more efficient and reducing fraud. Looking at what CLP used to pay out every year whether or not it had a major incident, the new system saves the company hundreds of thousands of dollars.
Just in case CLP does have any loss time incidents, the company has instituted a back to work program and modified duty initiative. Kathy said that getting people back to work can be kind of hard to do in the pallet business because many of the tasks involve some type of physical labor. She said that CLP has become very creative in helping employees find tasks that they can do while recuperating. In the past, CLP has had employees do maintenance, pick up trash, restack lumber, etc.
Kathy said, “You have to let injured employees know that they are valued and you care about them. They have a value to us even if they are injured.”
CLP has a strong relationship with a local doctor where it sends any employee who is injured on the job. The company pays for the entire cost and will work with the doctor to find out what the injured employee can do.
CLP offers a generous benefits package including full medical, dental and vision coverage for the employee. These benefits actually help lower workers compensation cost. Kathy said, “If people don’t have insurance and they get hurt, it generally goes to workers compensation.”
Safety starts on day one for any new employee. All new hires must go through a complete physical before being put on the payroll. This includes a hearing test, eye exam, drug tests and back assessment. CLP wants to ensure that employees are healthy enough to work.
New hires go through about a week of training, which includes videos and on-the-job training.
Every day supervisors are assigned and required to walk around areas and look for safety concerns/checks. These daily assessments are turned into management. Additionally, management and supervisors do weekly walk-around inspections. They focus on proactive education to alert employees to potential safety issues.
At a minimum, CLP conducts monthly safety meetings. These usually last about 30-45 minutes and are mandatory. Employees are paid to be there, and they must have a very good excuse to miss. Employees are written up for not attending.
Positive rewards are used by CLP to reinforce safety messages. Employees are grouped in peers. For example, all the hand nailers will be grouped together. The forklift drivers will be in the same group. If everyone in the group goes a certain number of days without a loss time incident, they all receive a reward. The program starts out small, typically $5 cash for the first 30 days. After 60 days, the company ads a prize to the cash. Prizes range from sports events, movie tickets, half day off with pay, etc. The longer the group goes without an injury, the greater the cash award and prizes.
Kathy said, “We have found that if we put a little bit more money out there and talk more about safety, and put more resources on the front side, it reduces what we have to pay out on the backside in terms of insurance claims.”
Kathy believes one major reason for the program’s success is the fact that management rewards those employees who do the right thing. They don’t just simply give attention to those employees or areas that are a safety risk.
Kathy said, “You’ve got to thank the people who never get recognized because they always do the right thing too. Sometimes it is as much about recognition and ‘atta boys’ as money.”
After years of experience working in the pallet industry, Kathy had one major tip to share. She said, “Everybody has to buy in and that means the president on down.”
