Can VR training lower insurance costs? - Tacit
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Can VR training lower insurance costs?

Workplace injuries are a loss for everyone involved. Many advancements have been made thanks to new technologies over the last two decades, but there’s still a lot of opportunities to make workplaces safer.

According to OSHA, employers pay an estimated $1 billion per week for direct Workers’ Compensation costs.

“In addition to their social costs, workplace injuries and illnesses have a major impact on an employer’s bottom line … The costs of workplace injuries and illnesses include direct and indirect costs. Direct costs include Workers’ Compensation payments, medical expenses, and costs for legal services. Examples of indirect costs include:

  • Training replacement employees
  • Workplace injuries are a loss for everyone involved. Beyond the adverse outcome for the employees, the cost of injuries is a negative for the employer directly and it ripples out to the community at large in the form of higher insurance costs.
  • Many advancements have been made thanks to new technologies over the last two decades, but there’s still a lot of opportunities to make workplaces safer.
  • According to OSHA, employers pay an estimated $1 billion per week for direct Workers’ Compensation costs.

“In addition to their social costs, workplace injuries and illnesses have a major impact on an employer’s bottom line … The costs of workplace injuries and illnesses include direct and indirect costs. Direct costs include Workers’ Compensation payments, medical expenses, and costs for legal services. Examples of indirect costs include:

  • Training replacement employees
  • Accident investigation and implementation of corrective measures
  • Lost productivity
  • Repairs of damaged equipment and property
  • Costs associated with lower employee morale and absenteeism.”

Since such significant losses are the norm for many employers, it’s no wonder companies place an emphasis on safety training. Even a slight reduction in risk with regard to onboarding employees could save a business millions.

So, we asked Derek Richardson of Ollis/Akers/Arney some questions about how workplace injuries might be prevented. Ollis/Akers/Arney is a Springfield, MO insurance firm that focuses on helping their clients manage risk.

Are there different types of Workers’ Compensation claims?

Without getting too technical, we often see three different Workers’ Compensation types in our local model:

  1. Guaranteed Cost – Premiums are based on annual payroll, state filed rates, and loss experience. The insurance carrier typically covers all costs related to employee injuries. This plan is the most common, particularly for local and regional manufacturers.
  2. High Deductible Plans – This program is essentially the same as the Guaranteed Cost program with the key difference that the employer is responsible for the full cost of claims up to a dollar amount. We often see that the insurance carrier will administer the claim from day one and will collect reimbursement for claims under the predetermined threshold. We traditionally see these programs work well for mid- to large-size manufacturers that can easily retain the cost of minor injuries.
  3. Self-Insured, Fully Funded – Just as the name suggests, the employer assumes financial liability for any and all employee injuries. The employer typically hires a Third Party Administrator (TPA) to provide claims management services. These programs work well for large manufacturers with solid cash flow or manufacturers that belong to a self-funded pool.

What are the factors that determine a company’s expense with regard to Workers’ Compensation?

With exception to many self-insured programs, much of the Workers’ Compensation costs are associated with the Experience Modification Factor (EMOD or MOD) which is applied to the Workers’ Compensation premium as either a credit or debt, depending on loss experience. In terms of Workers’ Compensation, the EMOD is one of the only factors the employer has control over. This factor is calculated based on the amount of payroll, average loss experience for a three year cycle, and the expected losses for a company of similar type and size.

What do you think is the best way for companies to prevent injuries?

Very long story short, I believe that the vast majority of the injuries that take place in the manufacturing world can be attributed to a lack of training and reinforcement of that training.

Can you explain NCCI scores and EMODs?

The National Council on Compensation Insurance (NCCI) is the governing body that produces the manuals which much of Workers’ Compensation insurance premiums are calculated. Most notably, NCCI is responsible for the calculation of an organization’s annual Experience Modification Factor.

This Experience Modification Factor (commonly referred to as an EMOD or Mod) is determined by a relatively complex equation that aims to compare an employers’ Workers’ Compensation claims experience and payroll for the last three years with the loss experience for companies of similar size and industry for the same time period. Claims severity, frequency, and the amount of time an injured employee is off work all have a direct impact on this calculation. An average claims experience will result in a EMOD of 1.00, higher than average claims experience will result in a EMOD higher than a 1.00, and a less than average claims experience will result in an EMOD of less than 1.00. To no surprise, a factor over a 1.00 will be applied to the Workers’ Compensation base premium as a debit while a factor under a 1.00 will be applied as a credit.

With exception to payroll and some scheduled credits applied by the Workers’ Compensation insurance carrier, the Experience Modification Factor is one of the only factors within the premium calculation that an employer can directly impact.  In most cases, an EMOD can be kept in check through implementing and reinforcement of a sound workforce training program, facilitating a strong safety culture, and proactive claims management.

Can you explain how everyone benefits from fewer workplace injuries and fewer subsequent insurance claims?

There are many direct and indirect costs associated with workplace injuries. For an employer, high frequency or severity claims directly impact the cost of Workers’ Compensation premiums, thus impacting the “bottom line”. Other indirect costs of workplace injuries include decreased productivity, lost time in managing claims, litigation, and fines or penalties sanctioned by OSHA or other regulatory bodies. Organizations that provide products or services to some governmental entities might not be able to submit a bid for a job if their Experience Modification Factor exceeds 1.00.

From the injured employees’ standpoint, medical treatments, rehabilitation, scarring, and other permanent damages might reduce workplace performance or many other aspects of their personal and family life.

Societal impacts of frequent or severe workplace injuries can bog down judicial processes, medical facilities, the cost of medical treatments, and increases the cost of private Workers’ Compensation and state sponsored insurance pools. This often results in the increased cost for goods and services for all consumers.

How can technology, like virtual and augmented reality, help companies reduce risk? How is virtual reality uniquely qualified to help companies reduce Workers’ Compensation claims?

Studies have shown that workers are four times more likely to have a work related injury that results in lost time than workers with over one year of experience. These studies reinforce the importance of onboarding and training for new employees. Advanced technology such as virtual and augmented reality can provide a novice employee with a unique opportunity to gain hands-on experience while removing the inherent dangers of the job.  A well-developed virtual reality simulator provides both the employee and employer with immediate feedback on performance rather than relying on the often costly “learn-from-your-mistakes” approach.

The utilization of virtual and augmented reality cannot prevent all workplace injuries. However, if these tools can reduce frequency or severity of injuries while increasing the efficiency of a formalized training program, early implementers should be able to take advantage of a quick return on the investment.


Thanks, Derek!

VR and AR are emerging technologies that organizations can leverage in order to better prepare their new employees, and there are some significant benefits for the employers in the process as well. When applied intuitively, VR and AR are more effective teaching tools and they can help companies save money by preventing injuries and reducing costly insurance claims.

As new technologies become more readily available, our ability to create safer, leaner, and more efficient work environments should continue to improve alongside them.  

We hope this post will serve as a useful resource and a touchstone for those looking into the use of virtual and augmented reality for safety and job training.