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September 4, 2019

How does your safety program impact your insurance cost?

Scott Dunwiddie

At Marsh & McLennan Agency, we are fortunate to work with many great companies as they continually look to improve their day-to-day operations.  One of the areas that we focus on in particular is the development of an outstanding safety program within each company. 

As many business leaders can attest, when evaluating pros and cons of either implementing a safety program for the first time, or enhancing an existing safety program, cost and budgeting are at or near the top of the list as far as factors to consider.  From a cost perspective, it has been proven time and time again that an outstanding safety program helps reduce accidents, which in turn reduces the number of claims reported to the insurance carrier.  But how does that translate to insurance cost?

Insurance Cost 101
At a base level, each company pays a certain amount of premium to their insurance carrier in exchange for the benefit of insurance coverage.  The amount of the premium charged to each company is based on calculations that typically reflect past losses, estimated future losses, and amount of coverage requested.  Along those lines, a frequent metric that helps quantify a company’s losses is called a loss ratio, which essentially is the amount of claims dollars paid out versus the amount of premium received (see below).  If the ratio is 1.00 (i.e. 100%) or more, more dollars are being paid out than received, and the insurance carrier is going to have to increase the amount of premium being charged going forward, so the lower the loss ratio the better.  Conversely, the less dollars being paid out in claims, the less premium the insurance carrier will need to receive, and the insurance quotes offered will typically be more favorable to the company.

$(claims dollars paid out) / $(premium received) = % (loss ratio percentage)

When it comes to safety programs and insurance costs, there is still much work to be done.  According to A.M. Best, the commercial auto space, for example, hasn’t had a combined loss ratio under 100 since 2010 (Commercial Auto Market Should Improve This Year But Not a Lot: A.M. Best, April, 2019), which continues to drive insurance rates upward as well, especially for those companies who are not proactively developing an outstanding safety program.

Other Positive Effects
In addition to direct effect on insurance cost, there are several other advantages to establishing an outstanding safety program and safety committee that have a positive effect on your company’s bottom line, including but not limited to:

  1. Ability to pursue and secure high-value contracts with more lucrative customers.
  2. Reduction in out-of-pocket expenses due to injury and illness.
  3. Reduction in out-of-pocket expenses due to property damage.
  4. Reduction in your overall injury and illness rate (OSHA Recordable).
  5. Validation of senior leadership’s commitment to a safe workplace.
  6. Increased awareness and appreciation for the company’s safety culture
  7. Invaluable feedback to senior leadership to aid in decision-making. (Ray, 2018)

Final Thoughts
As you begin, or continue to focus your safety program efforts on items such as growing your safety committee, determining root cause of accidents and providing comprehensive safety training, don’t forget to take time to celebrate the safety successes along the way.  Some options include gift cards, cook outs, plaques and social media recognition.  These celebrations don’t cost a lot of money, but can have a big impact and help the great people who work for your company understand that you appreciate what they’re doing on a daily basis to reduce insurance cost to the company. (Page, 2018)


Commercial Auto Market Should Improve This Year But Not a Lot: A.M. Best. (April, 2019). Insurance Journal.

Page, S. (2018, October). Risk Consultant - Cline Wood, a Marsh & McLennan Agency LLC. Steve's Helpful Hints - Safety Committee Meetings.

Ray, K. (2018, October). Risk Consultant - Cline Wood, a Marsh & McLennan Agency LLC. Safety Committees: A Valuable Tool for Business Success.