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Business Case: How KPA’s Loss Prevention Services Lower Dealer Insurance Premiums

A Special Report for Automotive Services Owners and General Managers

By Eric Schmitz
Vice President, EHS Products

November 3rd, 2014

In January 2012, Federal OSHA published a whitepaper called Injury & Illness Prevention Programs1. The paper discussed the benefits of having an established safety program–something KPA has done for many years for its clients. Then in November 2012 Science magazine published the article Randomized Government Safety Inspections Reduce Worker Injuries with No Detectable Job Loss.2 While KPA does not conduct random government inspections, its onsite expertise in assisting with compliance inspections is similar.

Based on these two studies; KPA set out to see if it could measure the effects of its services over time, and calculate a true ROI. To do this, KPA obtained and analyzed data from the California Workers Compensation Insurance Rating Bureau (WCIRB) for about half its California clients (data for the remaining half was not available).

Year Average KPA Client
Experience Modifier (CA)
Sample Size
2013 89.1 172*
2012 90.1 437
2011 92.8 444
*Data limited to clients with a 1/1/13 renewal date based on results available on study date (1/31/13).

Initial Reduction in Premiums

The data revealed that the average experience modifier (EMR, learn more about Ex-Mods in this short video) for KPA clients in California in 2012 was 90; 10 points lower than the industry average of 100. Considering the average California dealership pays a $75,000 annual insurance premium, a decrease of 10 points can yield an initial savings of $7,500 a year.

Insurance Premiums for KPA CA Clients Versus Industry Average
Industry Average Insurance Premium (100 points) $75,000
KPA Client Average Premium in 2012 ($75,000 x 0.90) $67,500
Direct Premium Savings $7,500

Ongoing Reduction in Premiums

KPA then looked at what the EMR data could tell over time about its clients in California. The data for facilities that had been using KPA since 2011 showed a drop in average EMR of 3.7 points through January of 2013. This implies that customers using KPA services for an extended period of time see additional ongoing decreases in insurance premiums.

Avg. Dealership Worker’s Compensation Savings Over Time
Annual Insurance Premium $75,000
EMR Reduction (over 2 yrs) x 0.037
Direct Premium Savings $2,775

Together, the direct reductions in premiums for a California facility that has been with KPA for 5+ years is $10,275.

Effect of Accidents (Claims) on Premiums

While management is typically comfortable measuring savings directly tied to experience modifier rate reductions, it often overlooks the effect of indirect accident costs on future insurance premiums. For every dollar a facility pays in direct accident costs now, there is a ratio insurance companies use to adjust future premiums upward. Reducing accidents, therefore, indirectly saves facilities on their future insurance premiums.

"For most employers, all else being equal, somewhat greater weight is being given to their own claim experience. Employers that have better than average experience will generally receive a lower credit experience modification in 2013 than they would have received in 2012. Conversely, employers that have poor experience will generally receive a higher experience modification."
- California Workers Compensation Insurance Rating Bureau3

Assuming a facility’s direct premium savings are equivalent to a reduction in direct accident costs, (although this is likely an underestimation), then the $10,275 in accident cost savings from the example above can be multiplied by the corres-ponding Safety Pays multiplier of 1.1 to calculate indirect future premium savings of $11,302.

Insurance Premiums for CA Clients with KPA for 5+ Years
Initial Premium Savings $7,500
Ongoing Premium Savings $2,775
Direct Premium Savings $10,275


OSHA Safety Pays 4 Multipliers
Direct Accident Costs Indirect Cost Ratio
$0-$2,999 4.5
$3,000-$4,999 1.6
$5,000-$9,999 1.2
$10,000 or more 1.1


Indirect Savings for an Average Dealership ($75k premium)
Accident Cost Savings $10,275
EMR Reduction (over 2 yrs) x 1.1
Direct Premium Savings $11,302

Additional Savings from Loss Reduction

California continues to adjust the way it calculates experience modifiers, and the result over the last few years has been an increase in rates. However, because KPA’s programs focus on safety, many clients reduce their losses, which helps decrease their insurance premiums, despite the WCIRB hikes. While KPA cannot truly calculate this additional savings, it estimates that the average dealer with a $75,000 premium experiences an additional $1,000 in premium savings.

Together, the direct and indirect premium reductions, plus the additional estimated savings for a California facility that has been with KPA for 5+ years is $22,577.

Total Savings for an Average Dealership ($75k premium)
Direct Premium Savings $10,275
EMR Reduction (over 2 yrs) x 1.1
Additional Estimated Savings $1,000
Total Savings $22,577

How is a Workers Compensation Policy Premium Calculated?

Base Premium

Insurance companies begin with a base premium, which is based on the size of the company and the inherent risk of injury for the employees working there. This is known as the “class rate.” For example, receptionists have a lower inherent risk of injury than roofers, so their class rate is lower.

Other than this consideration for size and risk of injury by employee type, the base premium calculation is the same across all businesses and industries in a state. To offset their risk, insurance companies need a way to account for an employer’s safety culture and safety policies. They use an experience modifier to reward businesses with fewer losses and penalize those with more.

Experience Modifier (EMR)

The EMR is calculated by a rating bureau, which assumes that past losses (or experience) are a good predictor of future risk. When performing the calculation, rating bureaus use three years of losses, not including the current or previous policy year. For example, a policy renewing on January 1, 2013, will use the period from January 1, 2010, to January 1, 2012, for EMR calculation and ignore the period from January 1, 2012, to December 31, 2013. Additionally, the calculation weights loss frequency over severity. A company with one big loss is going to be penalized less severely than a company with many smaller losses. Having many small losses is seen as a sign that there is more potential risk in the future.

Policy Premium Calculation

A company’s actual policy premium (before any special discounts or credits) is based on the base premium and the experience modifier. An EMR of 100 (or 1.0) is considered industry average. An EMR above or below 100 will result in an equivalent percentage increase or reduction in the company’s policy premium. For example, a dealership with a base premium of $75,000 and an EMR of 90 will pay 10% less than the average dealership, or $67,500.

Most states use the National Council on Compensation Insurance (NCCI), a national rating bureau, to calculate the EMR and class rate for the businesses in their state. California uses a stand-alone rating bureau, the Workers’ Compensation Insurance Rating Bureau (WCIRB). Due to CAL-OSHA using stricter safety requirements than the national average, the typical dealership in California is likely paying more attention to safety practices than the average dealership in the rest of the country.

"KPA’s programs are effective in reducing the EMR in a state where the average business is already doing more than the rest of the nation. Implementing KPA’s programs in a state where the average business may be doing very little to reduce losses will likely have even greater effects on EMR reduction."

KPA’s Loss Control Product

As a result of increasing insurance premiums and state regulatory pressure, KPA has partnered with several insurance brokers to offer an additional loss control service product within California. This product includes a focus on 10 loss control management strategies and facility inspections that go beyond compliance to look at behavioral issues. With this product addition, KPA employees spend additional time in the facility reviewing management policies and observing employee practices and procedures to help identify areas for improvement.

Outside of California, KPA’s historical focus has been less on loss control and more on compliance with OSHA, EPA, DOT and local regulations. Traditionally the role of loss control has been left to facility management and the insurance carrier. As insurance rates continue to rise, more facilities are finding the added benefits of working with their brokers and KPA to assist with loss control practice implementation.

KPA History

KPA was founded in 1986 as an environmental consulting business in California. Founder Kip Prahl had previously operated an oil recycling business and was asked by the state dealer associations to continue serving his customers in a consulting role. The business rapidly grew to specialize in environmental compliance for the automotive services industry.

In 1991 California passed Senate Bill 198, requiring businesses with more than 10 employees to create an Injury and Illness Prevention Program (IIPP). Auto service businesses across the state needed a program and KPA stepped up to help. Overnight KPA became an environmental and safety compliance company. As KPA grew, dealers outside of California became interested in KPA’s services and KPA expanded nationally, with a strong focus on compliance.

KPA’s first endeavors into focused loss control came at the request of one of the large dealer groups that KPA assisted with compliance. The self-insured group was experiencing lower losses at some of its locations in California where KPA performed services and wanted to replicate that same performance outside of California. At its California stores with lower losses, KPA was assisting with IIPP compliance, holding safety meetings, assisting with onsite inspections, promoting hazard correction, and completing training—all on a quarterly basis.

By contracting with KPA and taking a similar approach at all of the group’s locations, KPA was able to assist management in lowering annual worker’s compensation self-insurance costs by over 300 percent. Today KPA has a national client base of over 4,000 automotive service facilities and a client retention of 97% (as of 2012).


  1. U.S. Occupational Safety and Health Administration, (2012). Injury & Illness Prevention Programs White Paper.
  2. Levine, David I., Toffel, Maichael W., & Johnson, Mathew S., (2012). Randomized Government Safety Inspections Reduce Worker Injuries with No Detectable Job Loss. SCIENCE, Vol. 36, pp. 907-911.
  3. California Workers Compensation Insurance Rating Board, (2013). Spotlight. Impact of Revised Credibility Values, p.2
  4. U.S. Occupational Safety and Health Administration, (206-2008) Safety Pays Calculator.

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