This post is the first of a four-part series.
Ask any business owner today how the marketplace has treated them the last few years, and you’ll hear a recurring theme: “It’s been hard.” But some have learned how to improve their risk management and shore up several facets of their business where profit leaks can occur. You can explore your own vulnerabilities to claims and correct them by following a system known as “PX4.”
The 4 P’s are:
1. Pre-Hire : What does your hiring process look like?
2. Post-Offer: What should you be doing after you’ve offered someone a job?
3. Pre-Claim: What policies and procedures do you have in place before you have your next loss (whether via workers’ compensation or something else)?
4. Post-Claim: What systems do you have in place to keep yourself and the insurance carriers from losing money because of things you let fall through the cracks?
We’ll cover the first P in this article, then discuss each of the other three in subsequent pieces, as we cover the concept of TCOR (Total Cost of Risk) and lay out tools you can use to streamline and organize various aspects of your business, such as training and claims management. Our goal is for you to take away several insights that could save your company hundreds of thousands of dollars or maybe even millions of dollars in lost profits and revenues.
If you’ve had to deal with an employee lawsuit in the past few years, you know they’re frustrating and lead to a major loss of profits. Lawsuits can come from many issues; for this series, we’ll cover lawsuits coming from EEOC issues or workers’ compensation claims.
In the last 10 years, the settlement costs of lawsuits have risen to more than $310,000. If you were sued by one of your employees, and the settlement was a mere $15,000, how much do you think that would cost your company? Would you be surprised to learn a claim like that would cost your company more than $50,000? If your profit margins were 4%, it would take you $1,250,000 in additional sales to make up for that loss.
Reducing your risk is critical to your bottom line. Business risk can take many forms, such as:
1. Financial Risk: Asset price volatility (currency, interest rates, material and labor costs)
2. Operational Risk: Efficiency, productivity, etc.
3. Hazard Risk: Lawsuits, insurance claims (workers’ comp, general liability, fire, etc.)
Of those three areas, companies are surprised to learn that operational risk is the costliest to companies. Although hazard risks are expensive, they can be transferred through the purchase of insurance policies.
To reduce your risk, you must begin with an assessment of your hiring practices. Do you feel like you have a watertight system in place, or have you gotten rusty because you’ve not been doing a lot of hiring in the past several years? Do you feel you’re using good employment applications and asking appropriate questions?
What successful companies realize is that the effectiveness of their hiring can be a great indicator for profitability in the future. Studies have shown that hiring the wrong person can be very costly, and not only from the loss of productivity or from having to find a replacement; bad hires can be fertile ground for workers’ compensation claims.
To avoid bad hires, it is always wise to request a Motor Vehicle Report on potential hires from a vendor who specializes in that service. A couple of good sources are the Insurance Information Exchange (www.iix.com) or LexisNexis Employment Screening (www.screennow.com).
You may also want to consider conducting a personality profile to make sure you don’t hire the proverbial “dog that can point but that can’t hunt”—someone who can tell you exactly what you want to hear but who isn’t a good fit for your company. Predictive Results (www.predictiveresults.com) and Zero Risk HR (www.zeroriskhr.com) are two companies that specialize in personality profiles; they claim a 96% success rate in helping you make sure you’re hiring the best person.
Back ground checks have become a routine part of the pre-hire process these days. You can contact First Advantage (www.FADV.com), Edge Information Management (www.edgeinformation.com) or National Crime Search (www.nationalcrimesearch.com ) for this important process.
Getting the Pre-Hire process right will get you moving in the right direction but is just the start. In our next post, we’ll look at the second part of the “PX4” plan – The Post –Offer process.