Workers Compensation Insurance

RT-045 Topic Summary
RT 045


RT-45 was commissioned by CII to investigate Workers’ Compensation Insurance practices in the construction industry. Its research, published in 1998, had three objectives:

  • To identify key elements of effective workers’ compensation management practices and their impacts on project costs
  • To test the validity of using EMR (Experience Modification Rate) as a representative indicator of a contractor’s safety performance, and to identify possible additional indicators
  • To develop guidelines for more effective workers’ compensation management and measures other than, or in addition to, EMR to assess contractor safety performance

The research team collected data from many external organizations; prior CII studies; and surveys with owners, contractors, insurance professionals, and over 1,600 construction workers across the US. Key conclusions from RT-45’s research include:

  • Workers’ compensation insurance was a substantial labor cost component, with average premium costs exceeding 20% of direct labor costs in 18 states and premiums for some high-risk trades exceeding 100% of direct labor costs in some states.
  • Applying best practices for managing workers’ compensation issues could save upwards of $340 million annually in the construction industry.
  • EMR can be an inaccurate representation of a contractor’s safety performance for many reasons, and other factors in addition to EMR need to be considered when evaluating contractors from a safety perspective.

Key Findings and Implementation Tools

1 : Workers’ Compensation Management

Companies can undertake 13 possible courses of action to manage and reduce the costs associated with workers’ compensation insurance premiums and claims. (RS45-1, p. 21) In no particular order, these are:

  1. Prevent injuries by implementing the recommendations of the CII Zero Accidents Task Force as contained in CII Special Publication 32-2, Zero Injury Economics.
  2. Identify high-risk workers’ compensation jurisdictions when pursing business opportunities.
  3. Educate employers, employees, and employee representatives about workers’ compensation and its impact on business.
  4. Use post-employment medical health screening to identify appropriate work assignments for employees.
  5. Participate in the selection of medical providers.
  6. Use modified work programs for injured employees so that they can continue to work without further risk of injury to themselves or others.
  7. Actively manage the relationship and work processes with the insurance carrier/provider.
  8. Participate in approving/denying claims; watch for and investigate possible fraud.
  9. Maintain contact with injured employees to be sure their needs are being met and to keep them informed of worksite activates.
  10. Drive accountability for workers’ compensation costs down to projects and supervisors.
  11. Provide on-site first aid capabilities, commensurate with the size of the job.
  12. Place safety and workers’ compensation within the same organizational unit with clear expectations for close coordination.
  13. Evaluate subcontractors’ safety and workers’ compensation performance using the same guidelines as for the prime contractor.
Reference: (RS45-1)

2 : EMR Measurement

EMR has become too emphasized by Owners as a single measure of contractor safety performance. Consider the following four additional measures for contractor selection related to safety: (RS45-1, p. 23)

  • OSHA incident rates for recent years, for actual construction work
  • Contractor’s safety program, and actual practices followed
  • A new metric proposed by RT-45, the WCCFI (Workers’ Compensation Claims Frequency Indicator)
  • Specific performance of the proposed project manager in the above criteria
Reference: (RS45-1)

3 : Benefits

Based on industry expert input, workers’ compensation cost savings of 10-20% were considered possible by applying RT-45 recommendations, with those savings accruing through both direct and indirect benefits. (RS45-1, p. 24)
Reference: (RS45-1)

4 : Implementation Tool #1

IR45-2, Field Guide to Workers’ Compensation

This Guide provides information for use in minimizing costs and controlling the rehabilitation process so that injured workers can return to work as soon as medically feasible.

Topics covered in this Field Guide include:

  • Detailed breakdown of direct and indirect costs of workers’ compensation
  • Description of the appropriate roles and responsibilities of the various parties involved in workers’ compensation activities
  • Definition of EMR and description of each factor considered in its development
  • Injury prevention and avoidance
  • Pre- and post-injury management
  • Claims management issues

This Guide also contains three guideline checklists:

  • One for identifying and capturing information on your workers’ compensation team
  • One for use in assessing potential contractors’ safety performance
  • One for capturing facts when an accident occurs
Reference: (IR45-2)

Key Performance Indicators

Improved safety, Improved EMR, Improved WWCCFI, Improved cost

Research Publications

Improved Workers' Compensation Management in Construction - RR45-11

Publication Date: 05/1996 Type: Research Report Pages: 142 Status: Reference

A Field Guide to Workers' Compensation - IR45-2

Publication Date: 05/1996 Type: Implementation Resource Pages: 36 Status: Tool

Improved Workers' Compensation Management in Construction - RS45-1

Publication Date: 03/1996 Type: Research Summary Pages: 30 Status: Supporting Product