Workers’ compensation remains one of the largest expenses for staffing firms, and while base premiums are tied to payroll and class codes, these factors only explain part of the cost. Rising claim costs combined with the way experience modification factors are calculated mean that hidden drivers like reporting lag, claims management, and reserve practices can play a far greater role in determining what staffing firms actually pay.
Here are four key cost drivers staffing executives should be aware of, along with practical steps to mitigate them.
1. Lag time in claim reporting
National Council on Compensation Insurance (NCCI) research shows that claims reported in the first one to two weeks have the lowest median cost. By week three, median claim cost is approximately 35% higher than week two, and claims reported after four weeks show attorney involvement in over 30% of cases (compared to 13% on day zero).
Impact on staffing firms: Reporting delays are common due to uncertainty between the client, the agency, and the injured worker. These delays increase total claim costs, raise reserves, and push experience mods higher.
Action steps:
- Establish a 24-hour reporting goal and track lag time as a KPI.
- Train employees and clients on how and where to report injuries immediately.
- Provide simple reporting tools (hotline, mobile app, or web form).
2. Rising medical and indemnity severity
While claims are less frequent, the costs continue to increase. Both medical and indemnity severity rose 6% in 2024, driven by medical inflation, wage growth, and longer recovery times.
Impact on staffing firms: Even a single claim can disproportionately affect premiums when severity is higher. This is particularly true for firms placing workers in higher-risk roles such as light industrial or healthcare.
Action steps:
- Direct injured employees to occupational health providers rather than emergency rooms where permitted.
- Monitor medical treatment and adjust claims proactively to prevent escalation.
- Develop transitional duty programs with clients to reduce indemnity duration.
3. Frequency of small claims
NCCI’s experience rating formula weighs frequency more heavily than severity. Multiple small claims can increase premiums more than one large claim.
Impact on staffing firms: Minor injuries—sprains, strains, and slips/falls—are common in temporary placements. When left unmanaged, these small claims accumulate and damage the experience mod.
Action steps:
- Focus safety initiatives on preventing the most common injuries.
- Encourage first-aid only or medical-only treatment where appropriate.
- Audit client worksites to reduce recurring hazards.
4. Reserving practices
Carrier reserves are included in loss runs and influence experience mods. When claims are reported late or lack information, carriers often set reserves conservatively high, inflating premium costs for years.
Impact on staffing firms: Without proactive oversight, inflated reserves artificially increase the cost of risk.
Action steps:
- Review reserves on open claims regularly with the carrier.
- Provide documentation of recovery or light duty to justify reserve reductions.
Escalate when reserves do not align with actual exposure.
Conclusion
Staffing firms can’t reduce workers’ comp costs by changing payroll or class codes, but they can address controllable factors like reporting lag, rising severity, claim frequency, and reserve practices. By focusing on these levers, staffing executives can reduce premiums, improve claim outcomes, and strengthen their overall risk profile.
For more information, please contact a Marsh McLennan Agency (MMA) advisor.
