InsuranceRisk ManagementTalking Shop

Talking Shop: Charging Stores for Workers’ Comp Insurance Claims

By September 21, 2023No Comments

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].

Context: Members of NeuGroup for Retail Treasury represent a variety of businesses that operate thousands of stores, restaurants and other retail outlets where the safety of customers and workers is a preeminent priority. But accidents inevitably occur. So it’s essential that companies managing the risk of people being injured at their facilities have workers’ compensation (WC) and general liability (GL) insurance coverage.

  • To incentivize managers to prioritize reducing accidents and the associated insurance costs, many retail member companies issue what members have dubbed “chargebacks” to store locations that file WC or GL claims. These charges hit the store’s P&L and may impact manager incentive pay. Companies can also award credits to locations for positive post-accident actions or superior safety records.
  • One member told NeuGroup Insights that he believes corporates are “borrowing” the term chargeback from banks and finance companies because “it works in much the same way.” He offers two alternatives: “Instead of chargeback, you could say ‘cross-charge’ (more of an internal construct, which is what this is) or simply, ‘charge.’”

Member questions: “A few months ago, all risk management functions, including insurance, enterprise risk management, and crisis management moved from legal to treasury. As part of this process, we have been reviewing and updating safety documentation with the goal to reduce claims that ultimately impact the bottom line.

  • “Do you issue chargebacks to locations for filed claims? If so, is it a flat rate or variable rate depending on some criteria (medical-only vs. lost time, repeat offender, etc.)? Do you issue a chargeback for general liability incidents?
  • “In which department does your operational safety function reside?”

Peer answer 1: “We have a carrot and stick approach: We use a variable schedule of chargebacks and credits to penalize failures and reward good actions. The chargebacks are internal only and are zeroed out for external reporting, but they will impact the location’s P&L and therefore the manager’s bonus.

  • “For example, a $5,000 charge to the P&L for a WC claim that results in lost time. Conversely, a $750 credit if the incident is reported the same day and/or a credit of $3,000 if the impacted employee returns to work within seven days. There are also longer-term incentives to encourage the desired behavior/focus (e.g., a $1,700 credit if the location has no injuries during the year).
  • “We use chargebacks similarly for workers’ comp and general liability claims. The issues are the same (ensure appropriate safety procedures are followed in an effort to minimize accidents), the difference is simply who was injured (an employee or a non-employee).
  • “This practice is also consistent with the general accounting concept of matching. While it might not be realistic or productive for a location’s P&L to bear the entire cost of a claim, it is only fair that some portion of the financial consequence resides on the P&L responsible.

“Our safety strategy and program design reside with the corporate risk management team, reporting into treasury. Safety program execution resides in the individual brands, led by ops and asset protection/loss prevention.”

Peer answer 2: “We issue chargebacks for WC and GL at a flat fee based on the type of claim (minor or major). We take the total estimate for the year, and charge all locations about half the fee, and use the chargebacks to cover the rest. We usually ‘overcharge’ them in total, which enables us to give back a bonus to safest locations at the end of the year.

  • “Safety is with asset protection (in ops).”
Justin Jones

Author Justin Jones

More posts by Justin Jones