Why Food Manufacturers Are Wasting Money on the Wrong Workers Comp Policies | WIMC

May 21, 2025

See How We're Different

or call us: 866-226-4436

Why Food Manufacturers Are Wasting Money on the Wrong Workers Comp Policies

In the highly regulated and competitive landscape of food manufacturing, companies often find themselves focusing on minimizing costs, improving productivity, and ensuring high product quality. However, a critical and frequently overlooked area that can significantly impact a food manufacturer's bottom line is workers' compensation (workers' comp). In recent years, many food manufacturers have realized that they may be wasting substantial amounts of money on the wrong workers' comp policies. This blog delves into the reasons why this is happening and how food manufacturers can avoid making costly mistakes when it comes to workers' compensation insurance.

Understanding Workers' Compensation in the Food Manufacturing Industry

Workers' compensation insurance is designed to provide medical and wage replacement benefits to employees who suffer job-related injuries or illnesses. The scope of coverage varies by industry and type of employment, but its overall goal is to protect both employers and employees. Workers' comp policies are mandated by law in almost every state, and businesses are required to carry coverage based on the specific risks their workforce faces.

For food manufacturers, workers' comp policies can be especially complex due to the high-risk nature of the work environment. Employees may work in environments where they are exposed to machinery, chemicals, physical labor, or potential slips, trips, and falls. The job's physical demands, the machinery involved in food production, and the constant movement of heavy items or goods make the food manufacturing industry a high-risk sector in terms of workplace injuries.

However, despite the clear risks associated with food manufacturing, many companies still end up purchasing inadequate or misaligned workers' comp policies. This can lead to the payment of higher premiums, increased claims, and subpar coverage for employees, which can severely hurt a company's financial stability and operational efficiency.

The Mistakes That Lead to Wasting Money on Workers' Comp Policies

There are several reasons why food manufacturers end up wasting money on the wrong workers' comp policies. These can be traced back to a variety of factors, such as lack of awareness, inadequate risk assessments, failure to customize policies, and choosing the cheapest option without considering the long-term effects. Let's explore these mistakes in detail:

1. Lack of Understanding of the Business' Specific Risks

Many food manufacturers fail to take a detailed and accurate risk assessment of their operations when purchasing workers' comp policies. Workers' comp policies should be customized to reflect the specific risks present in a particular business environment. Food manufacturers need to account for the fact that their operations are unique, with a variety of tasks and work conditions. The use of heavy machinery, the exposure to extreme temperatures in refrigeration or cooking areas, and the handling of potentially hazardous materials such as cleaning chemicals or allergens are factors that need to be factored into the policy.

If a food manufacturer purchases a standard, off-the-shelf workers' comp policy that does not fully address the specific nature of its business, they may be overpaying for unnecessary coverage or underinsured for the risks that actually exist. In either case, the company risks wasting money.

2. Failure to Assess Employee Classification Accurately

One of the key factors in determining the cost of workers' compensation premiums is the classification of employees. Workers in different roles within a food manufacturing plant face varying levels of risk, and insurance providers assess premiums based on the type of work employees are performing.

Food manufacturers often make the mistake of not accurately classifying their employees. For example, administrative staff or office workers may be lumped into the same category as those operating heavy machinery, working on the production line, or handling raw materials. This leads to higher premiums for those employees who may be performing lower-risk tasks. On the other hand, employees who face higher risks of injury may not be adequately covered for the specific hazards they encounter.

Without a thorough analysis of employee roles and risk levels, food manufacturers can end up paying for workers' comp coverage that does not match the actual risk profile of their workforce.

3. Choosing the Cheapest Option Without Considering Long-Term Impact

Price is undoubtedly an important factor when choosing any type of insurance policy, including workers' comp. However, food manufacturers often make the mistake of opting for the cheapest policy available without considering the long-term implications. While a low-cost workers' comp policy might seem attractive in the short term, it may not provide the necessary coverage or services needed to manage workers' injuries effectively.

A cheaper policy may also have lower-quality service, which can lead to delayed claims processing, disputes with injured employees, and even lawsuits. In some cases, a low-cost policy may exclude essential coverage, such as benefits for long-term injuries or illnesses, which can lead to unexpected financial liabilities in the future. Therefore, focusing solely on the price without considering the overall quality and suitability of the policy can be a costly mistake.

4. Not Monitoring Claims and Workplace Safety

One of the biggest reasons that food manufacturers waste money on workers' comp is the failure to monitor and address ongoing claims and workplace safety. It’s not uncommon for companies to ignore the long-term effects of accidents or injuries, leading to an increase in workers' compensation claims over time. The longer it takes to resolve claims or address the root causes of accidents, the higher the costs for both the manufacturer and the insurance company.

Workers' comp premiums are often directly influenced by a company's claims history. Companies with high claims rates are considered higher-risk by insurance providers, which leads to higher premiums. By failing to address workplace safety issues or by allowing claims to linger without proper management, food manufacturers end up paying more for their workers' comp policies than they should.

A strong workplace safety program, with consistent training and clear protocols for reporting injuries, can help reduce the number of claims and, by extension, the cost of workers' comp. However, many food manufacturers overlook the importance of an active safety program, choosing instead to rely on the policy itself to cover any expenses.

5. Failing to Negotiate with Insurance Providers

Insurance providers have varying pricing structures, and premiums can often be negotiated based on the company's specific circumstances. However, many food manufacturers do not actively engage with their insurance brokers or providers to negotiate the terms and conditions of their workers' comp policies. They may simply renew their existing policies year after year, unaware that better deals or more suitable policies are available.

By failing to negotiate, food manufacturers can miss opportunities to secure policies that better match their needs, thus wasting money on policies that are not aligned with their current risk profile. It’s crucial for manufacturers to work with experienced insurance brokers who understand the nuances of the food manufacturing industry and can help secure competitive rates and comprehensive coverage.

6. Not Updating Policies as the Business Evolves

As food manufacturers grow or evolve, so do their risks. Whether it's a change in the production process, the introduction of new products, or an expansion of the workforce, any shift in a company’s operations can affect the type of coverage required. Many manufacturers make the mistake of not updating their workers' comp policies to reflect these changes, leading to gaps in coverage or paying for coverage that no longer aligns with the business's needs.

For example, if a food manufacturer expands into a new production line that involves different types of equipment or processes, the insurance policy may need to be adjusted to account for the new risks involved. By neglecting to review and update policies regularly, companies can inadvertently waste money on outdated or insufficient coverage.

7. Mismanagement of Return-to-Work Programs

A return-to-work program is designed to help injured workers re-enter the workplace as soon as they are physically able, even if it’s on a modified duty basis. Food manufacturers often neglect to implement or manage effective return-to-work programs. A well-structured program can help reduce workers' comp costs by minimizing the time employees are out of work and ensuring that claims do not stretch on longer than necessary.

By not prioritizing a return-to-work program or failing to ensure its success, manufacturers risk paying for extended benefits to employees who could be back at work sooner. The longer employees are off work, the higher the workers' comp costs for the company.

The Solution: How Food Manufacturers Can Avoid Wasting Money

To avoid the pitfalls of spending too much on workers' comp policies, food manufacturers should take several proactive steps:

Conduct Regular Risk Assessments: A thorough understanding of the risks involved in different areas of the operation is essential to ensuring that the right workers' comp coverage is in place. This assessment should be updated regularly, especially when there are changes to the production process or workforce.
Work with Experts: Collaborating with insurance brokers or agents who specialize in the food manufacturing sector can help ensure that the policy is customized to meet the company's specific needs. These experts can also help manufacturers navigate the complex world of insurance and negotiate better rates.
Implement Workplace Safety Programs: Prevention is always better than cure. A comprehensive safety program can significantly reduce the number of injuries and, in turn, reduce workers' comp premiums. This includes regular safety training, proper machinery maintenance, and ensuring that employees follow safety protocols.
Review and Adjust Policies Regularly: Food manufacturers should review their workers' comp policies annually to ensure they are aligned with their evolving needs. Changes in operations or employee classifications should be reflected in the policy to avoid overpaying or having inadequate coverage.
Negotiate with Insurance Providers: Manufacturers should not accept the renewal terms provided by their current insurer without first exploring other options. By comparing different policies and negotiating terms, manufacturers can potentially save significant amounts on premiums.
Establish Return-to-Work Programs: A well-executed return-to-work program can help reduce the length of time injured employees are off the job and lower workers' comp costs in the long run.