Yes, robots don't need workers' compensation coverage

Insurance savings typically don’t top the list of return on investment (ROI) justifications for installing automation and controls, but a reengineered insurance program may yield benefits far beyond cost reductions. Automation can lower risk to employees in manufacturing. Forward a link to this article to the appropriate contacts in your company so that lower costs can increase your budget.


At the individual company level, management’s goal is to earn the lowest experience modification. The Workers’ Compensation Experience Mod is a factor calculated by the workers’ compensation bureau based on a company's prior loss experience. In simple terHere a bot, there a bot—almost everywhere robots are increasing production and distribution efficiencies while decreasing workers' compensation claims industry wide. While automation is a lifetime lower-cost solution, there are still more (often overlooked) opportunities to extend cost reductions through a reengineered insurance program.

Insurance savings typically don't top the list of return on investment (ROI) justifications when it comes to installing automation and controls, but such savings, most often achieved through fewer workers' compensation claims, have impact far beyond a single plant. In fact, safer workplace conditions across the industry will drive increased productivity and allow owners to attract and better compensate highly skilled workers.

If you thought this was merely about insurance savings, think again. This is about leveraging insurance savings for total profitability-where motivated skilled workers intersect with advanced technologies to yield a plant that can sustain growth from Millennials' first day on the job through retirement. 

Renaissance upon us

Globally, the manufacturing industry is facing immense pressure to end cheap labor at a time when it's also facing an aging workforce, a shortage of skilled workers, and the need for increased use of technology and education. Here in the United States, a manufacturing renaissance is underway. The U.S. Bureau of Labor Statistics reports a decrease in the need for manual labor, but a major thrust toward skilled labor and higher education for manufacturing activities.

But this renaissance hinges on far more than robotics. Industrial automation is much more than a technological advance; it is a social process that reflects easily defined divisions and fluctuations within our society. Investing in automation and deploying equipment and automation systems are always confronted by managerial concerns—including insurance.

Overall, those industries and companies that embrace the societal shift and automate are also those in tune with their risk management programs and are likely enjoying lower costs due to newfound control over insurance costs and human capital management. 

Insurance cost control

The mod factor and a plant: The biggest effect automation has on a company's insurance program is workers' compensation. The addition of automation leads to fewer injuries and workers' compensation claims. Automated systems use sensors and controls with software to perform material-handling functions that humans once did. An automated system greatly reduces the incidence of employee injury, such as strains and sprains or even major claims such as dismemberment or death. One of the most common types of injuries manufacturers must cope with results from repetitive tasks that occur over time, leading to carpel tunnel syndrome and other similar injuries. The cost of a typical carpel tunnel injury (from surgery to rehab) is $60,000. Just one of these claims can increase workers' compensation cost by 3%-5% for three years due to the negative impact. By installing automated systems, the company is greatly reducing the occurrence of these claims and will enjoy a positive impact on insurance costs.

At the individual company level, management's goal is to earn the lowest experience modification (mod). The Workers' Compensation Experience Mod is a factor calculated by the workers' compensation bureau based on a company's prior loss experience. In simple terms, if ABC Manufacturer has lower loss experience than the average company in its class of business, ABC receives a credit Mod (such as .750). This credit Mod correlates to a 25% discount off of the standard workers' compensation insurance rates. The lower a company's loss experience, the less money that is paid for the risk management program and the more money that is available to invest in other company endeavors.

Conversely, if ABC Manufacturer has loss experience that is higher than the average company for its class of business, ABC receives a debit Mod (such as 1.400). This debit Mod correlates to a 40% surcharge to the standard workers' compensation insurance rates.

The mod factor and the industry: At the broader industry level, decreased loss ratios will help drive down the manufacturing class code costs. Insurance companies will pay fewer claims for these classes of business within the manufacturing sector, in turn creating lower rates.

5 considerations with automation

Insurance implications extend beyond workers' compensation. The cost of workers' compensation coverage will decrease most significantly when operations are automated, but there are several other insurance implications that must be addressed. If you've recently automated some or all of your operations, don't overlook these top 5 questions:

  1. Has new automation equipment been appraised and insured to value?
  2. Have property and general liability exposures been reevaluated?
  3. Is it time to remarket the business to insurance carriers? (Automation makes companies more sophisticated and attractive to carriers.)
  4. Increased production leads to more distribution and contracts with new companies. Has your broker reviewed all contracts with business partners?
  5. Have safety procedures been reevaluated to ensure alignment with new automated production processes? 

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