I was 20 years old when I had my first significant work accident. A stand-up fork truck with hardened plastic wheels ran over my left foot, crushing my toes.
As I was lying on the ground, I could immediately feel the blood soaking my shoe, knowing I had severely injured myself. Afraid I would be in trouble for getting hurt, I gathered the strength and courage to get back on my feet and drive myself home. The clutch of my manual transmission required me to push it in with the blood-soaked shoe as my toes were throbbing with every ounce of applied pressure. Having extensive first aid training from the military, I convinced myself I could take care of myself to stop the bleeding. Eventually, I removed the shoe to see what I already knew – my big toe was smashed flat, and the skin was torn off at the tip from the crushing impact, exposing the bone and tearing off the nail. As many 20-year-old guys would do, I bandaged it up and had a drink (or two) to numb the pain.
Over the next few months, my toe began to heal, but the pain lingers to this day when it's cold out or when I bend it at the joint. Fearful for my job, I never filed a work comp claim and never reported it to anyone besides my manager (who operated the equipment that ran me over…). Eventually, others became aware of my injury, but I never was made whole. I sacrificed a large amount of quality of life in exchange for a $10/hr paycheck and an injury that would stay with me for the rest of my life. Believing that I wouldn't be treated fairly for an injury out of my control and considering that my employer would also be unfairly penalized, I never gained the courage to claim the benefits I was due.
After leaving the manual labor world, I embarked on a journey to learn the nuances of commercial insurance as an underwriter and eventually an agent & agency owner. My clients over the years have had one thing in common – their employees are the backbone of their companies, and they regularly are exposed to physical and financial harm from being injured on the job site. Being stubborn and frustrated with my inability to provide meaningful solutions to help my friends and customers materially, I decided to rebuild the system from the inside out. Instead of "that's just the way it is," it was time to tackle this enormous challenge and make a difference in the lives of the people we count on to keep our country running.
Fast forward 20 years, my toe still aches, and the same broken work comp system is still in place. It's the same system that President Theodore Roosevelt implemented in 1908, then perceived as a socialistic safety net that protected industrial workers from unsafe conditions. Not designed to make employees whole, the originators created the benefits to provide just enough support to keep things afloat for injured workers, incentivizing them to return to the workforce as quickly as possible. While I certainly don't advocate laying around watching Judge Judy reruns, I'm dismayed by the fact that America's workers aren't fairly compensated or appropriately protected for risking their wellbeing for their employers.
Nothing materially changed in over 100 years, and injured workers are limited to only 70% of their pre-injury wages, up to a maximum of around $600/week. $600 x 52 = $31,200. If my foot was run over today, causing a more serious injury, and I was out of work for a year, I'd receive $31k – the equivalent of $15/hr (minimum wage for most). Here's the thing about America's industrial workforce: contrary to some perceptions, industrial workers are the backbone of American capitalism and wake up and grind day in and day out to provide for their families. No one deserves to grind for $15/hr. They endure for a fair shake at a life of security and belonging, but the system doesn't provide the equality they deserve. If your office building burns down, your property insurance typically pays the full cost to repair or replace it. If your truck is stolen, your auto insurance policy typically pays the cost to acquire one of similar value. Yet if you are injured while working for someone else, the current work comp system doesn't make you whole, and that's not fair, and it's not right.
Worse yet, employers' cost for the federally statutory coverage is subjectively priced (by up to 95%!) based on a human underwriters' perception of the risk that employees are exposed. Within the insurance industry, agents and underwriters get frustrated when businesses continually shop for lower insurance costs. But miraculously, getting competing quotes almost always leads to lower premiums (because nobody gives the complete 95% away!).
To add insult to injury (pun intended), companies who build & sustain America pay 35X more for the same workers' compensation coverage as businesses employing clerical workers. I'm thankful I don't own a construction, trucking, or energy company – because paying up to 20% of payroll (or sometimes more!) for workers' compensation would be straining on operations, with the additional costs having to be passed forward down the line. I'm also thankful that my family's financial livelihood isn't at risk from getting injured on a job site (my kitchen table is a reasonably low-risk place to work, minus my 7-year-old zooming by on the hoverboard…).
Here is something you won't find on any blog or website about work comp premiums. Premiums ARE NOT as simple as your class rate X payroll X your experience mod (reflecting your past claims relative to expectations). There's a hidden (read: black-box) rating factor called a Loss Cost Multiplier (in 41 states) that provides pricing modification power of over 300%, subjectively controlled by the insurance underwriters. As a former underwriter, I made my best effort to utilize this tool to provide lower premiums to businesses that I believed deserved lower rates – and higher premiums for companies that I felt didn't have a strong safety culture. The problem was (and still is), those decisions are made with emotions based human subjectively, which can lead to adjusting premiums without supporting evidentiary data. The behavior ultimately leads to a perpetual cycle of premium and claims abnormalities due to negative results from uninformed decision-making. This cyclicality impacts companies with labor-intensive workforces due to underwriters being unequipped with the appropriate data tools to gauge actual risk – therefore, they are forced to apply high loss cost multipliers, which create higher than necessary premiums across the entire industrial insurance landscape.
Building a company that tackles these challenges head-on has been equally thrilling and maddening. There wasn't just one 800lb gorilla of a problem; there were two – and neither of them wanted to change their broken ways. We first had to tackle the subjectivity of underwriting to provide transparent and reasonably priced policies aligned with each company's safety. Since safe drivers can save 40% on auto insurance by proving their safety – we believe safe companies should be treated similarly. To solve this problem, we had to quantify the differences between companies that lead to workplace injuries (or avoidance of them). We then had to prove to the industry that our data science-based safety quantification was accurate, predictive, and credible. Our results to date have been excellent.
Not only have we proven a direct correlation of our Safe-Tier™ Index (STI) scoring to future claims, we've also learned how to price policies fairly and transparently, leading to an average customer savings of 24% annually. Nearly anyone can provide 10-15% savings (because 95% wiggle room is outrageous), but it takes a rigorous data-centric approach to align premiums reasonably with the nuances that make each company unique.
We then had to tackle an even more critical challenge – how do we make an injured human whole. Believe it or not, creating new products from scratch to supplement what workers comp doesn't provide has been an enlightening journey. That said, we've received countless levels of feedback advising us to focus only on selling work comp, not fixing the system, and not building new products that take care of people. Fundamentally, that's something we can't do. Taking care of people is core to me. I enlisted in the military at 17 years old, spent my 18th birthday in basic training, my 19th birthday in Kuwait, followed with several additional combat tours after September 11th, and remained in uniform for 20 years. Regardless of how much I wanted to quit, serving and protecting others is what makes me who I am. Our mission has always been to make people whole. We had to not only build a solution to one of the most significant insurance problems in America, but we also had to do it from the lens of value to our people.
At our core, we are a people company. We believe that people come first, are unique and essential, and deserve fairness, equity, and an insurance partner who values them for who they are. We're radically rebuilding workers' compensation and occupational insurance for our people, your people, the people we desperately rely on to build our roads, bridges, networks, and everything else that materially contributes to our lives. Our people are America. Our people are leading lives of hard work, sacrifice, grind, and perseverance. If you're an agent, we're your resource to take care of your people – your customers. If you're a business owner, we're here to treat you fairly & transparently and to provide insurance protection that doesn't break the balance sheet. If you're an employee – don't worry, we've got your back, and we're making a difference – for you and your family. We are here to make a difference in this world, and I hope you'll join us on this mission to fix what's broken and build a better future for the people of tomorrow. We're doing this for you, and we're just beginning.
Joe Mcilhon
Insurate’s Chief Executive Officer, Joe Mcilhon, is a multigenerational insurance professional with a history of profitable underwriting production and agency ownership. Joe is recognized as a leader in the industrial insurance segment, having placed and underwritten tens of millions of dollars in industrial premium over his career.
