In this bonus episode of the podcast, Mark Woodward, Senior Safety Trainer and frequent WorkSAFE Podcast guest, talks to Justin Scace of EHS on Tap about return on safety – the true benefits of prioritizing safety in the workplace. If you like this episode, subscribe to EHS on Tap, the Podcast for EHS Professionals. The following is a transcript of the conversation, which you can also hear using the player.
Hello everyone; welcome to EHS on Tap. I’m your host, Justin Scace, senior editor of the EHS Daily Advisor and Safety Decisions Magazine.
We all know that protecting employees from safety and environmental hazards is just the right thing to do. But business needs cannot be ignored. So, going beyond compliance, how can an EHS manager demonstrate to business stakeholders the return on investment of their efforts? Or, to put it another way, what is the return on safety in the organization?
Well, we’re talking with an expert today who can help us better understand return on safety, from proper safety investment to experience modification rates. Our guest today, Mark Woodward, is a senior safety and risk trainer at Missouri Employers Mutual, a safety company and Missouri’s number one workers compensation insurance provider. Throughout his career, Mark has instructed tens of thousands of workers to improve workplace safety and prevent injuries on the job.
He’s a certified safety consultant through the State of Missouri and a National Safety Council CPR, First Aid and AED trainer, Defensive Driving instructor and OSHA Outreach Trainer in Construction. He is also President of the Missouri Chapter of the Common Ground Alliance. Having spent 24 years as a volunteer firefighter and EMT, Mark sees the importance of safety firsthand. He is a frequent guest on the WorkSAFE Podcast, where he’s provided insight about safe driving, safety leadership and more.
Mark, thank you very much for joining us today!
You’re welcome, Justin. Appreciate the opportunity.
What is return on safety?
Absolutely. In the US, we have laws requiring companies to have policies and procedures to keep employees safe on the job. Plus, as I mentioned earlier, keeping employees safe is the right thing to do. But, does following safety best practices actually benefit companies? Mark, how does the return on investment, or ROI, break down?
Well, just a couple of quick thoughts on that: We’re going to save money and we’re going to save lives and our employees’ health. That’s just a quick summary. The avoidance of any injury, any damage, and fines are going to result in quite substantial cost savings throughout multiple areas of any business – and any size of business.
Your cash and your people are being put to use for more productive, business-growth work. We can actually go out and do our work and not have to deal with all of the drag of an employee injury, the cost, and all the resulting fines.
You know, if companies have an injury, they’re going to get fined by OSHA. You have to report loss of an eye, amputations, hospitalization, so when these things happen, there’s a good chance you’re going to get a visit by OSHA. When our companies experience fines and injuries, our people and resources are spent cleaning up these messes instead of actually working and being productive. So, the main thing is that we’re going to save our folks and keep them out there working and doing a good job, and then we’re going to save money that will obviously allow the company to grow.
Hard and soft costs of workplace injuries
Two ways of looking at that are hard costs and soft costs. A hard cost, in this discussion, is any cost to your organization that you can easily track and is billable. We see that insurance premiums in work comp can grow substantially, and we’ll get into that discussion with the e-mod rate. Insurance premiums, and general liability across all of your insurance. Fleet, if you wreck a company-owned fleet vehicle. Your work comp and all lines of insurance could potentially go up. You’re looking at reduced exposures to fines by governmental regulators. If an injury does occur, and you’re required to report that to OSHA, there’s a really good chance they’re going to come out and respond to that injury. So right there, you’re looking at a fine.
You also have repair work. If you wreck a company truck and you’re a worker, not only do I have to deal with work comp; now I have to fix the truck. You’ve got damage and re-work: What product did we mess up during the incident? So, those are your hard costs. Those expenses to your company that are easily tracked and billable.
Then, you look at the soft costs. These are things that really eat companies alive. We talk about the iceberg effect: You’re only going to see the top 10 percent of the iceberg sticking out of the water, but everything below the water line – 90 percent of these costs – are difficult to track. So, when we’re looking at avoiding injuries: If we have an employee hurt, we have to hire new or temporary help, we’re going to have to train them; we’re going to have down time, loss of business because you can’t get the work covered, and loss of jobs, okay?
These are all examples of soft costs that can be avoided. They’re difficult to track and assign a dollar value to. It just really hurts us. Right now, just about every industry is experiencing difficulty in hiring employees. Trucking, nursing – look at all of these different industries that are having trouble hiring people. When we do hire them, and they’re injured, that’s a really big problem.
So, return on investment through safety. Insurance carriers and safety experts over the years have always tried to prove the value of safety. It’s very difficult to prove what didn’t happen, but we look at the risk management aspect of things. When I’m doing my safety meetings and providing safety gear, enforcing good safety policies throughout the company, providing my employees with good equipment that’s well maintained – with those investments, usually, you’re going to see that return in lowered injuries as a result of those efforts.
Intangible benefits of workplace safety
Let’s talk a little bit more about that, I guess, the soft costs as you described them. Some of the less tangible benefits of workplace safety. Things like, maybe, does trust lead to higher employee retention? Are healthier employees more productive? Things like that.
Well, absolutely. I talk with employees all the time. I do tons of work with our customers and industry groups. I talk with a lot of folks, and your employees are going to know when you’re skimping on things. Your employees have probably worked for another company that has done safety meetings and required safety gear. They know what’s going on, and they can tell when you just plain don’t care. When you don’t want to get a truck fixed or a tire fixed, or you’re making folks work with junk equipment, or not wanting to provide safety gear. They’re going to know.
Safety is the ultimate moral and ethical obligation. How could you sleep at night when you know that your employees are working in a life and death situation? That could be in a tire shop where a tire could explode, or a trench that’s too deep and could collapse on somebody, or a confined space, or even driving for company work and they’re not wearing their seat belt.
So, the employees are going to know when you’re being wishy washy on safety. The biggest thing I can recommend for business owners, supervisors and managers, is to just take the time out of your day to make sure that your employees are taken care of. This is going to improve trust and productivity. You’ll have less turnover, and you’ll have more honest and open communication. That’s what I believe.
Employees will know quite quickly when they’re working for an employer that really doesn’t care or see the importance of these things. Then, we get an employee injured, and everybody stands around, looks at each other and says, “We’ve talked about this; how come we didn’t fix this hazard?”
Safety as a short-term priority
Right. Would you say that safety is a short- or a long-term investment, or I’d imagine a little bit of both?
It is a little bit of both. Start today with safety. Talk to your employees about safety. It doesn’t have to be anything crazy. Just get them together, sit down and say, “It’s hot, we’re in July, what do we need to do to make sure we get through this job without somebody getting too hot or getting sick?”
You can have a safety meeting today and it doesn’t have to be very technical, you know? I think people think that safety meetings have to be this long, drawn-out, one-hour or two-hour thing. They don’t. Just sit down and be real with your employees; sit down and have a Coke. I don’t care where you are, in the shop or on the job site. Just sit down and say, “Listen, what do we need to do? Keep an eye on each other.”
So, that’s a short-term thing: just sitting down immediately, and buying safety gear. You can get on any online vendor, anywhere, and get safety gear bought. Toolbox safety talks, providing safety gear, and making sure the employees use it. That’s another short-term thing. It doesn’t do any good to buy safety gear if you’re not going to make sure that it’s actually being used. That’s a short-term gain.
Providing necessary training to employees. If I’ve got folks out doing trenching or confined space work, there are competent person classes all over the place that you can send your people to, to get them the right education. Making repairs, that’s another thing we can do today. Make sure the lights work, the horns, the backup alarms. We can do these things – they’re the short-term investments that we can do today. It doesn’t take a lot of effort to do these things.
That’s your day-to-day. One of the things I stress when I’m doing safety meetings is, let’s make sure every day is a safety win. We have things we need to do every single day to make sure we’re going to win, and by winning we mean everybody goes home with no incidents. Those daily things are:
- Following safety rules that you probably already have.
- Having a quick safety meeting. I don’t care if it’s 30 seconds long. Let’s have a group huddle and talk about safety.
- Wearing safety gear.
- If something’s broken, let’s makes some effort to get it fixed.
We can do those things every single day.
Long-term safety strategies
Now, long-term strategy: that’s what the company as a whole is doing over the next year, two years, five years, to get those cost savings and make sure we’re keeping our turnover low, improving hiring practices, and growing the company. It’s going to be difficult to grow the company if we’re having injuries and problems with personnel dragging us down.
Some things that we think about are:
- What’s turnover now? What should it be in a few years? How can we improve our turnover rate?
- Reducing exposure to litigation.
- Better morale and reputation in the community.
- Lowered insurance costs.
- Increased budget allowances for safety training and gear.
- Process improvements.
So, there are your long-term thoughts with regard to safety. Safety touches every single aspect of your organization. It’s a really quick way to fix communication issues and a lot of personnel issues. By making sure your people are safe, a lot of other problems get fixed as well. The short-term stuff can be done today, and then as you want to grow and make the safety program a little bit more complex, you can do that too.
Prove the value of safety with documentation
Of course, the trick is getting people to make these investments. How can people in roles like safety coordinator, EHS manager, or even HR manager if they’re also in charge of safety – how can they use this return on safety to support safety initiatives with senior management or executives?
Well, we talk about this quite a bit. Think about the human behavior aspect of things. As a safety director myself, I want to prove to the company that I add value and that I’m saving the company money. That my position actually has value, and it’s not one of those that can be cut during a downturn in the economy. I’m proving return on investment for my payroll and the cost of having me in this organization.
The main thing I recommend for all safety folks in environments where you’re part of a larger organization – if you’re an EHS manager, safety director, that kind of thing – is to really document what you’re doing to make things better. I recommend regular reporting on proactive and reactive safety and work comp activities. Regular reporting to the executives on what’s going on with the work comp policy and what are you doing proactively in the safety program to prevent things from happening.
One of the things I’ve noted in my tenure here at MEM is that a lot of executives really don’t know what their current insurance expenses are. They’re focused on finance and sales, but they may not truly know what’s going on with their work comp policy. So, take some extra time to break down what you’re doing to reduce work comp costs. Regular reporting on proactive and reactive safety and work comp activities. Share a little more detail on your different lines of coverage. Providing a clear report is going to result in better executive support. They’re concerned about employees but also about dollars spent. So, let’s talk about that. What can we do to show cost savings?
Connect safety with a dollar value
Let’s report on what we’ve been doing. Show facts about what has been going on in the company. Routine reports on what I would call “the state of the safety program,” current work comp costs, and how each claim was managed. Open claims, closed claims, and how your management of those work comp claims ended up saving money. At MEM, we offer a bill repricing program; we have a network of providers that we use to help save money. We have a nurse triage program and a nurse case management program. All of those help save money, so if you’re using a carrier that offers these programs, report on that. “I’m using these carrier services to save us money.”
Report on safety improvement. Every improvement you make. If you take a machine out of service and put a better, safer one back in service, document that. I also like to specify what was unsafe about the process, machine, tool or equipment. What I’d do is, when I document this, ask yourself, if OSHA were to have found this hazardous machine, what would the fine have been? Would it be a serious fine? Would it be a willful fine? And literally put that in your report.
“I took a grinder out of service. It was a junk grinder in maintenance that they’d been using for two to three years. I took it to the dumpster, and we bought a new one with all the guards. We’re in good shape, and it cost me $150. If OSHA would’ve found that grinder (that’s an easy, chump change fine for OSHA to find, by the way), that would’ve been a $4,000 mistake.” So, I’m going to report that I may have avoided a $4,000 fine during a walk-through in inspection. I’m trying to assign a cost to everything.
Provide a report on training provided. Let’s say in the last month, I’ve provided 16 safety meetings. If you had an outside contractor come provide those, how much would they have billed you? Assign that cost as well. I’m an in-house guy doing safety training, but if we’d hired a contractor, it would’ve cost this much.
I’m looking at being very detailed about work comp costs and safety activities; what I’ve done to make things better. And then, the fines we’ve avoided. I’m also looking at my training: What’s the street value for that? Put all of these numbers together to show my value.
As part of a larger organization, I really recommend that safety folks keep a very detailed log of what they do throughout the day so that they can show value, at least to show a return on the investment of having their payroll. And then, let’s keep it going to show even more savings.
Experience modification factor (e-mod)
Okay. You mentioned, a couple of times, workers comp insurance costs and how often they’re overlooked by senior management or executives. So, let’s talk about the experience modification rate, or the EMR, or e-mod, for short. What exactly is an e-mod? Could you give us a high-level overview, for someone who doesn’t know how the equation works? How does it impact how much a business is paying for workers comp insurance?
Well, this may be an oversimplified way of looking at it, but: E-mod is unique to work comp insurance. It essentially punishes organizations for having too many injuries, and it rewards organizations that don’t have many injuries at all. That’s all based on dollars. If you have a bunch of injuries, and you’re spending a lot of money through your work comp policy, your e-mod rate could go up. If you’re not spending a lot of money – if you’re doing what you need to do from a safety standpoint – then your e-mod is going to fall and that’s going to result in savings. It’s literally the work comp system rewarding folks for safety and punishing folks for not doing safety very well. That’s what it is.
It rewards businesses for having fewer injuries, and it also makes businesses more appealing for work comp insurance carriers because you’re less of a risk. That’s another thing to think about. When your mod rate is really low, it makes you super attractive to the carrier. Every year, when your renewal comes up for insurance, you’re going to look a lot more attractive to carriers and you’re going to get way better pricing. Not only are you making things safer; you’re reducing your work comp costs, and you’re even reducing your costs further because the market sees you as a very appealing customer, because you’re what they call low-risk. You’re not going to have a lot of injuries. So, everybody’s winning at this point, when we have a low mod rate.
This e-mod rate number is calculated by NCCI (National Council on Compensation Insurance). They calculate the mod rate. It’s based on dollars spent through losses, and we multiply your premium times the mod rate, and we come up with the final premium. If you want me to explain it further, I can, but one of the things that I want folks to understand is that a 1.0 e-mod rate is average in industry. It means you’re like everybody else. So, if you’re a concrete ready-mix trucking company, you’re compared against like-size concrete ready-mix companies. You’re not compared against librarians or firefighters. You’re compared against like-size companies just like you. That’s your competition. A 1.0 is average; that’s like a kid getting a C grade in school. We don’t want our kids getting C grades. We want them to get A grades.
But in this case, you want the number to go lower, not higher. Right?
Yes, we want them lower. A 0.8 or a 0.9 is going to be like an A or a B. A 1.0 e-mod rate means you’re paying suggested retail price for work comp insurance. Well, nobody likes to pay suggested retail price! How many people walk out on a car lot and just pay the sticker price? Nobody does that. We always try to get a better price on everything. Business owners know how to do this. You’re buying fuel, supplies and everything from a vendor that gives you a better price. Well, that’s what you want to do with work comp. You don’t want to pay suggested retail price. Anything over 1.0 means you’re paying more for insurance, and anything under 1.0 means you’re paying less.
For example, if we have a framing contractor with a 1.16 EMR, that means you’re paying 16 percent more than the average. Well, who’s the average? It’s another framing contractor just like you. Nobody wants to do that.
Plus, the carrier may be adding other fees to you, because you’re more of a risk when you’re at a higher e-mod rate. You’re having more injuries. Let’s say you’re at a 0.84 e-mod rate. This means you’re paying 16 percent less than your competitor. Always remember, you’re being compared to your competition.
That’s really interesting, but when you look at the swing of a 1.16 to a 0.84, that’s a 32-point swing in premium. That’s a big deal; that’s a lot of money! Maybe I oversimplified it, but those are the first things out of the gate:
- You’re compared to your competition.
- Anything over 1.0 means you’re overpaying.
- You’re going to get extra fees if you’re over 1.0.
- If you’re under 1.0, you’re more marketable. You’re low-risk, you’re more appealing and the carriers are going to give you a better price.
That’s a big deal. The mod rate is usually the first number we try to lower when we’re talking about return on safety. What’s your current e-mod rate, and how do we get it down as soon as possible?
The biggest mistake in workplace safety
Clearly, it would be a mistake to ignore your e-mod rate. What are some other common safety mistakes that are costing businesses in terms of putting employees at risk and affecting the company’s bottom line?
I live in a small town in Missouri, and I watch folks drive around. I really think that with many, many companies – I don’t care if it’s a small or large business – I just watch how people do things, and I think our biggest mistake is complacency. You’ve got a lot of companies that, you know, true, they haven’t had a lot of injuries. Or they may not have even had any! I think people get soft, they get lax, and they don’t realize that at any moment, something can happen. That injury could be very costly. The average lost work-day claim is about $40,000 now. That’s a lot of money.
I’m a safety professional. Justin, you’re a safety professional. There are a lot of safety pros out there who are schooled in safety. They’re CSPs; ASPs; CIHs. We have been trained in safety. We fully understand safety, but we’re only a very small percentage of the working population. There are just a lot of people who don’t understand safety; they don’t understand what they need to do. There’s a misconception that safety always has to be complex. We try to make small business safety easy for people – not easy, but less complex.
I think you’ve got complacency. They’ve been lucky. I don’t think that folks really understand the need for safety in the first place. I think they rely too much on luck. I think they take things for granted. They take every day for granted and their employees for granted. I know this because business owners, managers, operations managers – whoever I’m dealing with in a company – will say “Well, my company’s too small. My people know what to do.” They make excuses for avoiding their responsibility for safety activities like meetings and inspections. It’s always “we’re too busy.”
And not taking time to understand their insurance policy. Just take a little extra time to learn about what your carrier can offer you, and how it can keep you out of trouble and your costs down.
Enlist your agent to help improve safety
If I could interrupt for just a second, let’s say that somebody wants to stop being complacent. They really want to start evaluating the return on their current safety investment and start to improve it. Where should companies start? They are, like you mentioned, very busy. Where should they start and what sort of metrics should they be looking at? We talked about e-mods, but is there anything else they should look at?
If I were going to start today to look at what I could do to improve the safety of my workplace, one of the first people I’m going to engage is my independent insurance agent. I’m going to ask, “What do I need to do out here?” and get them involved.
The second thing I’m going to do is ask myself: What’s the biggest hazard that my employees have to deal with? If it’s a muffler and tire shop, it’s going to be driving company vehicles, or working on tires where they could explode. If I’m a framing contractor, it’s going to be falls from ladders. I’m going to look at the big things. I can look at my personal experience and ask, how did I get hurt doing this job? I’m running the company now, but back when I was doing the work, how did I get hurt? And I’ll look at it from an outside-in perspective; what’s the biggest problem here? What’s the thing that keeps me up at night?
I’m going to engage my insurance agent and say, “Are there any resources that my carrier can give me? Videos, or anything online that I can find? If I’m going to have that five-minute safety meeting, where do I start?” Engaging the agency and the carrier is a big deal. And starting from that “worst first” kind of philosophy; what’s the most likely thing that’s going to get my people hurt?
Just start today. Just get your people together and say, listen, we may not be perfect, but we’re going to start making some improvements. We’re going to make sure our fire extinguishers aren’t blocked; make sure we have a first aid kit; make sure we have some safety rules. Make sure our employees are actually wearing eye protection when they’re using dangerous tools.
What to expect from your work comp insurance provider
You said the biggest thing is to talk to your insurance carrier; your workers comp provider. What should companies be expecting from their provider? Sometimes they think of it as just paying the bill. How can they get the most out of the relationship?
Well, I would recommend getting with your agent and chatting with them about that. What does the carrier provide to us? Many work comp carriers offer programs that support businesses’ safety efforts to better manage or reduce work comp claim costs. And then, if an injury does slip through, how to better manage that injury. You pay the carrier and the agency a lot of money for these lines of insurance coverage, so make sure that you’re utilizing these services.
Build a relationship with your agent and carrier. You want to get that bang for your buck. You’re paying a lot of money. One of the things we think about is: with MEM, we have a thing called SafetySMARTS, and that’s a suite of safety and work comp services that we offer our customers. Just as a couple of examples, we have medical bill repricing through our network of providers. We have telemedicine. We have nurse case management. We provide triage. Online safety resources; seminar and on-site consultation. A lot of carriers will actually send a safety consultant out to your site. Have them come out! Do a walk-through.
We also have a safety dividend program. The more safety achievements that you have, that results in lowered premiums. We have a safety grant program as well; if there’s safety equipment that you need to buy, we provide you with half of the funds to get that. It’s a dollar-for-dollar match for selected recipients.
Those programs are a big deal, and many carriers have these programs. To be honest with you Justin, a lot of these programs are woefully underutilized. Call in to your carrier and just say, “Hey, I’m a small business. Is there anything you guys can provide me to help me do this?” And they will. They’ll have a lot.
Right, and safety professionals are busy people, so the carrier should be able to help!
Yeah. That was kind of a mistake that I made as a safety director before I came to MEM, that I thought I had to do it all myself, and that was a big mistake. I should’ve engaged the carrier. I did at the end, and it was really great because I had certified safety professionals backing me up; providing me with sample policies, procedures and resources, and doing safety meetings for me. It was really good. So, I highly recommend engaging carriers.
Well, this has been great, Mark. Thanks very much for chatting with us today on EHS on Tap, and lending your insight into return on safety!
Absolutely. I appreciate it, Justin. Thank you.