Moving on from Guaranteed Cost—a Strategy for Reducing Workers Compensation Costs

By: Justin Gillette CRIS, CSP | Vice President & National Construction Practice Leader

Workers’ compensation is usually the most expensive insurance coverage for construction companies and contractors, with guaranteed cost programs being the most commonly used. The International Risk Management Institute (IRMI) defines guaranteed cost programs as “premiums charged on a prospective basis without adjustment for loss experience during the policy period. A rate is agreed on at the inception of the policy and is multiplied by the appropriate exposure base (e.g., sales, payroll, number of vehicles, or square footage) to yield the premium.”*

While guaranteed cost programs provide a certain security because they protect organizations from unanticipated costs, they are also costly. That’s because these programs are “use it or lose it” insurance, and unlike other workers’ compensation programs, many companies leave money on the table at the end of the year.

Construction companies with already successful safety programs—including low claims and effective claims management—can substantially lower their premiums by moving away from guaranteed cost programs and exploring workers’ compensation coverages that reward good performance. Hays has seen many construction companies lower costs through advanced claims prevention and severity reduction techniques, effective data analytics and predictive analysis.

Companies that implement best-in-class safety programs can save money by shifting from high-cost guaranteed costs programs to large deductible, loss-sensitive, and retrospective rating plans. For most mid to large-sized contractors, their potential for savings is in the six-figure range. Moving away from a guaranteed cost program is only cost-effective for organizations with a strong safety culture and low accident rates. Hays Companies’ evaluation and planning process can help construction companies assess their safety program and decide what workers’ compensation coverage is best for them and how to make the switch efficiently.


The Hays National Construction Team are experts at helping companies go through this process so if you’re interested in learning more, contact Hays Companies today.