June 24, 2014
Strategic Implications of the Oklahoma Option
While the knee-jerk reaction is to want to get rid of workers’ comp insurance, the wiser approach is to look at safety as a strategic initiative.
With small businesses still struggling despite the economic rebound, there are opportunities for improvement available because of workers’ compensation reform that can help control costs, minimize risks and increase profitability. Even with all of the recent discussion of workers’ compensation reform, especially in Oklahoma, many people still do not fully understand how it can be used strategically.
Small businesses often lack the luxury of having dedicated in-house risk management experts, so they frequently look to their insurance agents as trusted advisers. For this reason, it is important that agents and industry professionals keep up-to-date on legislative reforms affecting workers’ compensation insurance and related compliance changes that could affect their customers.
Last year, legislation commonly referred to as “The Oklahoma Option” (SB 1062) was signed into law. Plans began taking effect this year. The reforms were designed to give Oklahoma’s businesses more choices and help control workers’ compensation costs by modifying how litigation and medical treatments are handled for injured workers. For instance, employees can no longer pursue a negligence action through the civil courts. Instead, all litigation has to go through the workers’ compensation administrative process.
Additionally, businesses that meet certain financial conditions now have the option to opt out of workers’ compensation insurance entirely, though they still have the responsibility to protect their employees and bear the costs related to workplace injuries and illnesses. Employers have some discretion with respect to how the plan functions (e.g. medical management), but they must still provide the same forms of benefits required under the administrative system, with at least the same dollar, percentage and duration limits. Those employers that opt out of the administrative system are still required to provide payment for the same forms of benefits, such as temporary total and partial disability, permanent disability, disfigurement and amputation.
Oklahoma and Texas are the only states that currently allow employers to opt out of the normal workers’ compensation system.
Workplace Safety as a Business Strategy
While some small business owners may have the knee-jerk reaction to want to get rid of their workers’ compensation insurance as a cost-control measure, the wiser approach is to look at workplace safety as a strategic business initiative. This is where independent insurance agents can play an important advisory role.
The Occupational Safety and Health Administration (OSHA) estimates that for every $1 invested in effective workplace safety programs, $4 to $6 may be saved as illnesses, injuries and fatalities decline.
Realizing these gains begin with loss control, which not only helps to make workplaces safer but also results in direct cost savings for the business. As a result, workers’ compensation costs decrease, fewer overtime costs accrue, productivity increases, turnover rates decrease and relations between labor and management improve.
By creating a culture of safety in the workplace, with a management culture that keeps everyone accountable, everyone benefits. Insurance agents can help their clients create a culture of safety by encouraging them to practice the following measures.
A strategic approach to workers’ compensation is just as important in managing costs as smart tax planning. It is just smart business no matter what the economic climate. By advising small businesses to create a culture of workplace safety, independent insurance agents can solidify their relationships as trusted advisers to their clients.