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A workers’ compensation insurance claim can set your business back in more ways than you might think. 

However, having the right insurance policy minimises the direct and indirect costs of a claim.

In this guide to the costs of a workers’ compensation insurance claim, we will outline the unexpected expenses, so you know what to expect when dealing with a claim.

 

 

What is workers’ compensation insurance?

A quick refresher before we dive into the costs.

Workers’ compensation insurance covers the costs when an employee is unwell or injured due to their work or the working environment.

According to Safe Work Australia, more than 120,000 Australian workers submitted a serious claim in 2019/20.

Generally, workers’ compensation insurance covers:

  • Employee wages
  • Medical costs
  • Rehabilitation costs
  • Legal fees in the event of a claim
  • Disability benefits

Workers’ compensation insurance is a legal requirement for any Australian business with employees. 

But that doesn’t mean you should simply take out the bare minimum insurance coverage and be done with it.

If an employee makes a claim, having the best workers’ compensation insurance in Perth could make a significant difference to your business’s bottom line.

 

5 unexpected ways a workers’ compensation claim impacts your business

 

1. Workers’ compensation insurance premium

Insurers calculate your premium individually; there is no one-size-fits-all premium.

To calculate your workers’ compensation insurance quote, the insurer will look at:

  • Claim history
  • Industry
  • How much your business pays in wages

Like your personal car insurance, a long or substantial claims history could result in a higher workers’ compensation insurance quote.

A single claim does not always raise the insurance premium.

For example, if your business’ claim history is better than the industry on average, or the last significant claim was several years ago, your premium might stay the same after a claim.

It also depends on the size of the claim, the resulting medical and rehabilitation costs, legal fees and ongoing benefits.

 

2. Legal action

Workers’ compensation insurance exists to protect employers and employees.

Despite this, companies might choose to fight the compensation claim by entering into a settlement discussion or, in the worst case, a legal battle.

Legal fees can account for 10% of the total claim cost.

Medical costs make up 13.8% and income payments account for 39.5%, so legal fees are not an insignificant portion of the puzzle.

They include:

  • Legal advice
  • Representation
  • Witness fees
  • Mediation or arbitration costs

Even if you choose to settle out of court, the process can quickly become costly.

Having the right insurance policy helps your business pay the mounting legal costs, even if the matter takes time to resolve. 

 

3. Ongoing payroll costs

More than half of all workers’ compensation claims (58%) resulted in the employee taking time off work.

According to Safe Work Australia, the median time off work for a serious claim was seven weeks.

That’s seven weeks that your employees are unable to work.

Seven weeks of paying their wages, finding a temporary replacement, or paying overtime for other employees to cover the deficit.

In addition, you may end up owing your employee for lost wages not covered in your policy.

It’s essential to check your coverage carefully and speak to a Perth workers’ compensation insurance expert to know your business is covered while the affected employee recovers.

 

4. Reputation damage

It’s hard to predict or quantify reputation damage after a workplace accident.

If the incident attracts media coverage or goes viral on social media, your business could be in damage control mode for months.

Reputation damage might be the most substantial indirect cost to a business facing a workers’ compensation claim because it is so nebulous:

  • Hiring branding or PR consultants
  • Harder to attract good employees
  • Advertising costs
  • Lower employee morale
  • Higher staff turnover

The damage to your brand might be challenging to quantify, but it’s easy to see how serious a claim can be.

 

5. Administrative and rectification costs

Workers’ compensation claims are rarely settled immediately.

The process can take weeks or months.

During that time, your business faces mounting direct and indirect costs.

Direct costs:

  • Repairing or replacing faulty equipment
  • Investigating the cause of the illness or injury
  • Hiring OHS consultants
  • Penalties and fines

Indirect costs:

  • Lost time during the investigation
  • Producing company records
  • Retraining existing staff
  • Training replacement staff
  • Paperwork and administrative time

After an illness, injury or workplace accident, the company leadership will want to spend time fixing the issues so the incident can’t happen again.

Whether this process is voluntary or directed by WorkSafe WA, the administrative time and costs distract from running the business.

 

How to reduce your workers’ compensation insurance premium

WorkSafe WA reports that workers’ compensation insurance in Perth costs employers around 1.7% of the total wage cost in 2022.

That premium rate rose 4% from 1.64% in 2021 because of:

  • Higher than average claim value
  • Increase in contingency margins
  • Lower market interest rates

However, claim numbers are falling over time which shows WA businesses are committing to creating safer working environments.

There are a few ways for companies to lower their workers’ compensation insurance premiums.

 

Create a safer working environment

The best way to increase your company’s chances of a reduced premium is to improve the culture of safety in the workplace.

Investing in training, addressing safety issues at the source, employing skilled OHS representatives and creating a safety task force can all address your workplace safety record.

 

Employing apprentices

Employers who bring on apprentices can receive a discounted premium in some Australian states.

Although not applicable to workers’ compensation insurance in Perth, national or international companies can benefit from schemes in New South Wales and Victoria.

 

Find a new workers’ compensation insurance provider

Switching insurance providers can simultaneously reduce your premium and secure a better policy.

If it’s been a while since you reviewed your company’s insurance policies, consider shopping around for a few quotes.

Although some insurers provide workers’ compensation insurance quotes online, talking to a local insurance expert is the only way to ensure the coverage is suitable, affordable and comprehensive.

You can submit a quote enquiry through our online form

A Connect Business Insurance specialist will contact you to discuss your insurance requirements in more detail.

From there, we will build a competitive quote for coverage that helps employees feel protected and gives employers peace of mind.

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