An increasing number of large companies are taking out ‘burning cost’ policies, which involve setting the premium range with the final amount to be determined by the organisation’s actual claims experience for the relevant period.
While it allows an employer to potentially pay lower premiums for their workers compensation insurance, it also carries the risk that they could ultimately be higher than a conventional rate, Suncorp chief workers compensation underwriting & portfolio management, Jason Allison warned delegates at the CFO Strategy Summit in Melbourne yesterday.
He said CFOs of large companies and their brokers need to be aware of the risks when they choose a Workers Compensation policy.
“Workers Compensation is typically the single highest insurance expense a business will face, so examining the options and the potential impact is a worthwhile exercise,” said Allison.
“Large companies that choose a policy with a ‘burning cost’ pricing arrangement [or ‘retrospective paid loss’ privately underwritten policies in NSW] rather than conventional premium rates can reap significant financial benefits, but they can also be impacted negatively by unforeseen claims costs.
“The advantage of these policies is that they provide a direct financial incentive for employers to prioritise worker safety and rehabilitation,” said Allison.
“A risk that has to be considered is claims costs that are incurred but not reported, such as on-going medical costs from problematic injuries.
“CFOs and their brokers need to ensure that they have comprehensive risk management and best-practice return-to-work programs in place, in order to maximise the benefit of ‘burning cost’ policies.”