Society Insurance Offers Six Tips for Workers' Compensation

Workers' compensation coverage has it's own unique set of qualities and characteristics that set it apart from other lines of insurance coverage.  Many carriers have been formed to specifically address only that line of coverage.  Society Insurance is one of those carriers, though they have now expanded into many other lines of insurance.

Their VP of Workers' Compensation Claims wrote a nice article on how to improve your experience with this line of coverage.  Even though insurance is purchased, employers should be taking steps to reduce accident frequency and severity.  This article gives some good advice for employers to consider.

Three of these tips are preventative measures designed to minimize accidents or reduce the severity.  Two of the tips involve post accident steps.  The last tip, light duty, is both.  It requires some pre planning but is then instituted on a case by case basis after the accident.

When I think about these steps, and why a company would want to help reduce accidents that the insurance company is going to pay for, it takes me back to my basic risk management strategies.  After we identify risks, we then decide how we treat each risk.

Our options include

1. Risk Aceptance
2. Risk Control
3. Risk Transfer
4. Risk Avoidance

With workers' compensation there is no avoidance.  If we have employees we have the risk.  Accepting risk means being okay with the potential loss happening and paying the cost of it.  We can only accept the risk if we qualify for self funding, or maybe use a deductible on a traditional policy.  Risk Transfer is obtained through the purchase of insurance, but the cost of that will be dependent on your risk control efforts.

Most employers know full well their loss experience directly impacts their experience modification and therefore their premium.  It is important to stress that there are efforts that can be made, and they take planning, in order to help control those losses.

Above we addressed workers' compensation as a whole.  The next step in the risk management strategy would be to identify specific causes of injury to employees, and apply the same four treatment options.  There are certainly risk behaviors that can be avoided by employees and those should be identified and prohibited.  From there, you continue to make decisions for your business about how to address each situation that could lead to injury.

Medical Costs Rise In Indiana

I found this twitter post and it reminded me of the good old days.  In the good old days, Indiana battled Virginia for the title of lowest cost of workers' compensation.  I started my career in Indiana and thought we had a pretty good system.

In recent years I have talked with carriers about bringing their program into Indiana.  In all cases I was met with resistance based on the low rates.  I countered that we had a low benefit system.  The Work Comp Wire article shows exactly the reasons they didn't want to come into the state.

With 8% growth per year, for five years, it is no wonder they were hesitant. Thankfully, the medical cost reforms of HEA 1320 will go into effect July 1st.  It would be nice to get back to the good old days, where Indiana can offer low rates to employers, and carriers can make money at those rates.

As an individual employer, you can help in controlling medical costs by identifying a company doctor. In Indiana the employer has the choice of sending the injured employee to any doctor they want.  The employee must pay their own costs to see their personal physician.

Healthcare and the costs associated continue to change and evolve.  Our workers' compensation system and practices need to do the same unless we are comfortable with increasing rates.

Leave The Chainsaw In His Neck

Did you see the CNN story about a man with a chainsaw in his neck?  While a lot of luck was involved in his good fortune, his fellow employees get some credit.  They removed the motor and left the blade in his neck, which kept the bleeding to a minimum until he was transported to the hospital.

I know a company here in Indiana that had a traumatic injury where the employee had his arm caught in a machine.  In that case, the other employees left him trapped until the EMT arrived.  The machine acted like a tourniquet on the trapped arm preventing blood loss while waiting for the medical professionals to arrive.

In both of these cases the decision of the fellow employees played a vital role in the immediate medical care of the injured employee.  Would that be the case at your workplace?  In a recent post we talked about the hidden costs of injury, specifically the distraction of fellow employees.  In the immediate aftermath of an injury, we need that distraction in the form of first aid.

Every company, including an office (read my office injury post) needs to have employees trained as first responders.  I have been through CPR training, and while it is a good course and important training to have, it doesn't completely prepare me to respond.  A committee should be formed to review possible injuries and how immediate responders should react.

Unfortunately, some of the more severe claims need to be considered.  While they are less likely, the impact on both cost and the severity of the health impact to the employee make it worth the time to review the "what ifs" of those claims.

If your safety committee is only looking at past accidents and asking how to prevent them, shift their focus to possible accidents and preparing for the unfortunate day they do happen.

Trends In Workers' Compensation Underwriting

I recently attended the annual sales meeting for Accident Fund here in Indiana.  I was pleased that they take the time to share not only their statistical results for the year, but some of the causes for those trends.  The information they shared is helpful for consumers who want to understand some of the ways they can continue to try and control workers' compensation costs.

The first piece of information to share is that premiums shall continue to rise.  Of all lines of insurance, workers' compensation is seeing the most increase in premiums. All lines of commercial insurance are increasing, but workers' compensation is leading the way for the second year in a row.

Medical cost inflation seems to be the main driver in the poor underwriting experience carriers have suffered through.  That seems to have stabilized with some of the underwriting corrections over the past few years.

Yet, while carriers are trying to maximize efficiency, and underwrite more profitably, the reduction in investment income continues to impact results.  A carrier with a 95% combined ratio will make less money than they would have with a 100% combined ratio in 2003. This trend will only get worse as long term investments with locked in rates of return begin to mature and are rolled over to current investments with lower returns.  The message is clear, premiums will increase if losses warrant it on any particular account.

The second part of the message is that insurance companies are becoming very good at mining their data.  For years insurance companies have had mountains of data within their systems, but the systems weren't designed to spit it back out.  Now we are seeing an increase in analytics, being used everywhere from underwriting to claims.

The trend in underwriting has a negative reputation because it can be relied on too heavily, and an otherwise good risk get a large increase due simply to some underlying statistical data.  When used correctly, I see this being a positive trend.  Carriers are beginning to isolate risks by size, industry, and even geography.  With all these factors affecting profitability, each account can be more closely reviewed and accurately priced.  While a traditionally bad risk may not like this, any good account should be happy to have their price dictated by more of their own characteristics.

On the other end of the spectrum Accident Fund has taken this predictive analytics trend to claims.  Many sources will tell you frequency of accidents is down, but medical severity is up.  Yet, how many carriers are doing something about it?  If frequency is down, then our risk management efforts can shift focus from prevention to management.  What is the most largest area for management?  Doctor bills!

By mining their data, Accident Fund has been able to reduce claims costs by 22% through use of providers who are sensitive to and understand work related injuries.  In addition, monitoring of narcotics has been shown to greatly improve claims results.  If clients are to be underwritten to a higher standard, we need a claims advocate who is helping us meet that higher standard.  Sure seems Accident Fund is doing that.

Accident Fund isn't the only carrier using predictive analytics.  They aren't the only company reviewing claims statistics. It is imperative as insurance buyers, that you are on top of your trends within your workplace.  It is also imperative that you don't turn claims over to the carrier and hope for the best.  You should be an active partner with a carrier who is concerned with helping you mitigate long term costs.  If you don't feel that you are, it is time to shop.  In the end you will end up feeling the impact of predictive modeling.  The sooner you bite the bullet (read, the premium might not be the lowest bid) the sooner you can reap long term rewards.  Moving now to a carrier who is a true partner gets you on the road to fewer claims, better managed claims, and a prettier profile for the data geeks.

Hidden Costs of Claims

In our last post, we talked about the most common office claims.  Offices rarely see a lot of injuries, so the phenomena we are discussing today is worse in that environment, but exists in all industries.

You know how traffic slows down on the interstate, even though the accident is on the opposite side?  That same slowdown will happen in the workplace when an accident happens.

An injury with any amount of severity is going to have hidden costs that are not covered by workers' compensation.  When an employee is injured, he or she isn't typically by themselves, and typically will be tended to by another employee.  Right off the bat we are losing productivity of the injured worker and those in the immediate vicinity who are either attending to the worker, or just stopped in traffice like the drivers on the interstate behind the accident.

Once the injured employee has left the workplace, work can resume for the remaining employees.  However, just like the traffic, it will take a while to get back up to speed.  Some employees will be slower and more deliberate for fear of injuring themselves.  Others will be distracted by their thoughts recalling the injury.  Lastly, you will probably have some conversation among employees about the accident contributing to the slower pace.

The entire time the employee is off work, we have lost their productivity, or shifted productivity from another area to cover the missing employee.  There will be follow up paperwork and reports as a result, taking time from an employee or manager to do so.

As happy as we are to have the employee back to work, that will be another day in the slow lane.  Employees will take time to welcome their friend back, recount their stories of the injury, and hear about his recovery efforts.

None of this contemplates an injury that also caused damaged equipment, or required clean up of the workplace.  Prevention of injuries is important as we value the health and safety of employees.  We need to maintain that focus and realize there are costs associated with the injury, and the cost of prevention would be well spent to avoid the post claims costs.

Most Common Office (or non office) Injuries

SECURA did a nice blog post about the most common office injuries.  If we look at the major headings for the three areas, Trips & Fall, Overexertion, and Struck By Object, I would think it is safe to say that those categories apply to all industries.

I have been in insurance for 20 years, with most of that time having a focus on workers' compensation.  I have reviewed thousands of loss runs, and would tell you that the scariest occupations and most dangerous situations don't result in the majority of injuries.

I think there is some rationale as to why that is true.  If I am doing something I deem to be dangerous, I have a heightened sense of awareness.  The fight or flight instinct tells us that if we are working around a moving saw, or working at heights, or near extreme heat, we need to be careful.  As soon as we relax and walk away our brain goes into a rest mode, and we trip over something.

When the truly risk exposures do end up causing injury, it is when the worker has become accustomed to the risk, and let's their guard down.  As much as we worry about inexperienced operators, more often it is the worker who has been doing the job longer who gets careless.  Again, the instincts in the newer worker are helping him even though he has less experience with the task.

So how do we keep employees safe?  How can we keep them at a heightened sense of awareness?  As silly as it seems, safety posters could do a lot to promote vigilance.  If you meet with your staff every day, add a line to the agenda talking about stretching before lifting, or encouraging taking time to clean their work area to avoid accidents.  The injuries aren't caused by big things, and it won't take a big effort to raise awareness.

Specifically on lifting, nursing homes aren't the only place that need a formal lifting program.  If you haven't already done so, a document should be prepared, distributed, and posted with a formal plan.  The plan should identify what items specifically, or by weight, can be lifted alone, in tandem, or only with mechanical assistance.

Take some time to rethink employee safety, and find easy ways to emphasize that their safety is important.  Hopefully that will help avoid injuries that are costly, but preventable.

Workers' Compensation & Pro Sports

I recently read an LA Times article entitled NFL workers' comp victory comes at a price.  My first thought was using this as a platform to address some workers' compensation issues that apply to more everyday employers, not the professional sports franchises of the NFL, MLB, NBA, etc.  

My background puts me firmly in the camp that says you don't go file your claim in the jurisdiction most likely to pay.  That means I am in favor of the legislation, and opposed to the attorneys filing on behalf of any player who ever set foot in the state of California.  

An excerpt from the original article states "In anticipation of that deadline, workers' compensation attorneys scrambled to find players and file on their behalf.  San Diego lawyer Ron Mix squeezed in almost 300 athlete cases in the final month, according to state data. To get through the mountain of paperwork, he said he paid his staff triple overtime and hired numerous temp workers."

I don't know Ron Mix, and hopefully he is doing real good work for truly injured people being taken advantage of by their employers and insurance companies.  But my guess is he won't foot the bill for the triple overtime himself.  It will come out of the claims settlements for the "injured" players he filed on behalf of.

Pro sports, football especially, is a dangerous business.  The participants know this going in, and accept the risk associated.  I truly believe we are learning more every day about the long term effects, and so there is an argument to be made that all the risks are not known before hand.  Laws may need to be evaluated and rewritten to accommodate a late onset disease that has it's roots in the athlete's employment.

However, I don't think the solution is to run to another jurisdiction to file.  That sets a precedent for truck drivers, traveling salesman, and various other employees to pick their filing jurisdiction based on the highest payout.  It also does nothing to remedy the underlying problem with local legislation for those who don't travel out of state.

For example, the plumber who constantly bent over and stood up and has chronic knee problems as a result.  If he never left the state he is left without recourse.  Don't we owe him the same benefit for chronic, long term injury as these pro athletes are seeking?  Wouldn't the efforts of attorneys be better used lobbying for local legislation change than chasing the high profile cases en masse?

Our understanding of health and work related issues continues to change, and our worker's compensation system has to change with it.  In Indiana we made some real headway in capping medical costs, without limiting treatment of the worker.  Continued adjustment and enhancement is needed as we learn more about the long term effects cumulative work exposure.  But is has to be done in a way where the carriers and employers can plan for and pay for the care when needed.

Don't All Companies Charge the Same Amount for Workers' Compensation?

In an earlier post, I lamented that many clients (and some agents) feel the experience mod is uncontrollable.  Today I would like to discuss a similar sentiment that I hear too often.  Many clients (and agents) feel that the state rates and mod determine the premium and that is that.  No deviation.

It is true the state sets rates by class codes.  It is true your class codes are pretty narrowly defined meaning all carriers will use the same code and the same rate for your business.  In underwriting language, multiplying the payroll by the rate for the class code(s) and totaling it gets us a "manual premium".  The word manual comes from the "rate manual" as published by the state.

After we have a "manual" premium, we apply the experience modification.  Guess what we call the premium after applying the experience "modifier."  Yes, you guessed it, the "modified" premium.  Again, I concede the point that 95% or more of the carriers operating in Indiana will get to this same modified premium.  But that is not where pricing adjustments end.

In addition to the rates that are adopted by most carriers, the state sets out a schedule rating plan that is also adopted by the carriers.  This plan allows an underwriter to apply credit (or debit) to the modified premium based on specific characteristics of the insured they are reviewing.  The maximum deviation is 50%, though we aren't seeing those kind of pricing modifications in this market.

The reasons listed for the various credits are very specific.  In reality, pricing decisions are often made based on profitability evaluations, competitive reasons, and losses.  Then the specific discount is applied based on the amount of credit or debit needed to arrive at that price.

What it means to you is that all workers' compensation isn't priced the same.  If a carrier views your business as a good one, discounts can be applied.  Some companies are more liberal with discounts, and some are more conservative.

It is fair to say that these discounts are harder to come by the smaller the premium.  There isn't enough validity in the experience to justify additional credits when one loss could wipe out the profitability.  But if you have a large enough premium, and consistent enough loss experience, then your agent should be able to find you a carrier who can adjust premium accordingly.

How much credit should you expect?  Well most insurance companies are going to want a loss ratio at or below 50% on their book of business.  That means the most they will accept is 50% on your account.  Average your loss experience, and double it.  That is a premium target you could shoot for.  If your "modified" premium is greater than that, you might need to ask for some credit.  Just be sure to have the schedule rating plan memorized so that you can justify your request.

Alternative Duty Wage Replacement

A few weeks ago we talked about Alternative Duty as a way of preventing indemnity payments and keeping medical costs weighted 30% on the experience modification worksheet.  I would like to address the issue of Alternative Duty and reduced pay in further detail.

I have been in this industry for a long time and have known for a long time that you can pay an employee less than their normal wage during light duty, and the workers' compensation law requires the carrier to supplement that amount.  What I haven't ever investigated was the way the replacement was calculated.

In my error, I believed that the carrier only pays the difference between the reduced pay and the normal workers' compensation reimbursement rate.  Let me explain.

An employee has an average weekly wage of $1,000.  When off work for a temporary partial disability, workers' compensation would pay the employee $667.  Everyone with me?

If we bring that employee back to a job that pays only $600, the workers' compensation carrier has the obligation to pay the difference.  My erroneous thought was that the carrier was obligated for $67.  I believed $667 minus $600 was the calculation.

That isn't true.  I owe my education to a post by Buckner Blog dealing with Understanding Claims.  I owe thanks to State Auto tweeting the article, which brought it to my attention.  One of the aspects of the article had to do with the claim payment while a worker was on alternative duty.  Their article calculated the replacement differently than I expected, so I checked with my own expert.  Don Smith is a long time friend, baseball fan, and expert on all things workers' compensation related.  He confirmed the accuracy of the Buckner article.

Back to my example, if we are paying the injured worker $600, then workers' compensation is responsible for 66 2/3 of the difference between $1000 and $600.  Carrying that math forward the employee would receive $267 from the carrier, plus our $600.  That is a total of $867.  Now since the pay we provide is taxed, it isn't a clear $200 additional the employee is receiving, but I do believe they will come out ahead.

The reason for the long explanation is this.  When asking an employee to come in to work instead of staying home and collecting workers' compensation, we have another incentive for them.  We will more than likely be increasing their take home pay as compared to just receiving workers' compensation benefits.

That would be in addition to the fact that some level of work or activity would be physically and mentally beneficial to their healing.  Not to mention, the camaraderie of being around their fellow employees should be a boost to their well being.

Let us all remember that as long as we have been doing this, there are still nuances and details that may have escaped us for one reason or another.  I believe that is one benefit to the multitude of blogs and social media connections prodding us as professionals to constantly learn and improve.  Thanks to all who do so, and in the process improve our profession.

2014 Rate Changes

As previously mentioned, the overall 2014 rate change in the State of Indiana was a 7.7% decrease.  That average means very little to the individual client.  The rates on an individual class code could have changed up or down over 20%!

A few industries increased over 15% in their base rate.  Those include Window Cleaners (over 2 stories), rostered volunteers of municipalities, and a variety of manufacturers such as: Oil, pulp, battery, glue, and cottonseed.

A fairly new classification, inventory counters, was at the top of the list.  The fluctuation in that rate is somewhat expected as the experience will tend to even out over time.  The newness of anything being measured results in a a larger deviation as samples are added.

The winning class codes, with the most percentage reduction for the year, are

1. Asphalt Plants operated by the paving contractor  
2. carpet manufacturers.  

Both those codes saw a 33% base rate reduction.  The agent delivering those renewals should look like a hero unless the experience mod took a turn for the worse.

Following right behind those two codes with favorable base rate reductions were

1. Liquor Bottling
2. Architechts & Engineers
3. Pipe Mfg
4. Paperhanging.

All the standard exception classifications (Clerical, Drivers, Outside Sales) took a small rate reduction in between 5% and 10%.

So how exactly does all this information affect our clients?

While the rate reduction shows a positive trend in claims costs for the previous years, we shouldn't get too far ahead of ourselves in assuming all premiums are coming down for our clients.  If the advisory rate is down, then the expected loss rate is down too.  That means mods could jump slightly as the denominator has been reduced mathematically.

The converse is true when looking at the rate increases.  Those industries will probably have a drop in the mod, not counting the change in split rate that applies this year.

In the end, there is no golden rule in predicting an individual client's premium change based on rates.  Each case needs to be specifically evaluated, but that can be done about 120 days before their renewal. Researching their mod and the revised rates prior to your renewal meeting can put you in a position to be viewed as a proactive advocate on their behalf.

The data is out there, you just need to go look for it.

Death Doesn't Pay

Thanks to Cindy Hartman for posting this link to the Deadliest Jobs article on Facebook.  I had already planned to do a review of workers' compensation rates for 2014 in Indiana.  Now I can tailor the discussion of the most costly workers' compensation job classifications to the deadliest job classifications.

The overall rate filing for Indiana was a 7.7% decrease.  That is an average however, and rates for individual classifications could have reduced as much as 35% or increased by 20%.  Look for a post in the future about those categories with the largest increase in rate from 2013 to 2014.

For now let's focus on those classes of business that carry the highest rate per $100 of payroll in Indiana.

Iron or Steel Erection	55.38
Stevedoring Containerized Freight	31.87
Painting Ship Hulls	23.49
Logging or Tree Removal	17.62
Shipbuilding	16.67
Stevedoring	16.31
Athletic Park: Contact Sports	15.42
Shipbuilding Naval	13.31
Ship Repair Conversion	12.60
Logging or Tree Removal Non Mechanized	12.16

The only ones from this list that show up on the deadliest jobs are: Iron or Steel Erection at #5 and Logging at #1.  Why wouldn't more of the top ten deadliest jobs have higher workers' compensation rates?  Why would the deadliest job have a rate so much lower than the 5th deadliest job?  It might be that death doesn't pay.  

The medical cost of caring for an injured worker tend to drive the overall cost of any claim. An instantaneous death has a defined benefit amount that is typically much less than the medical costs combined with lost wages from a serious injury.

While death is tragic, so is a debilitating injury.  More important to look at in this infographic on the deadliest jobs is the causes of fatal work injuries.  Helping to avoid these situations in your business can go a long way towards keeping workers safe and keeping insurance costs lower.

Can I Control My Experience Mod Part 4

So far in this series we have talked about correctly setting up your workers' compensation policy to reflect real exposure, controlling medical costs with preferred company providers, and maximizing use of alternative duty.  Now we are on to the last part of the control of claims and their impact on the experience modification.

The injured employee is back at work, the policy has actually expired and renewed, and for the most part the incident is forgotten.  Except for the fact that there is a reserve still open for some reason.  Very often insurance companies are slow to reduce reserves on claims that for all intents and purposes seem to be done and over.

There are many reasons for this and I will not place blame on the insurance company for any of these.  The fact that reserves are tax deductible for the insurance company is usually the first item identified by the anti insurance company contingent when addressing this issue.  While it is a true statement, and artificially high reserves will lower tax obligations, it also affects the Profit & Loss statement.  It is a tricky issue and the main reasons a reserve is still open are usually much more basic.

A claims adjuster is not going to look at a claim every day.  They are going to set follow up reminders based on their best expectation of when it needs to be addressed.  That may not be on your schedule, and it may be arbitrarily long.  So a worker who has returned to work and probably requires no more medical treatment could be followed up on in 30, 60, or 90 days.  The adjuster may default to 90 just to make sure nothing has come up.  No ill will, just good time management.

Additionally, they may be waiting on information from a doctor.  Rather than bugging them every 30 days, they may put their reminder in for a greater length of time.  They also don't want to reduce the reserve while waiting and then have to raise it back up again based on new information.  That would reflect poorly on their job performance.

My point is, what is right for the insurance company at this point, may be negatively affecting your experience modification.  If the report to the NCCI is due on October 30th, and the adjuster follows up and reduces the reserve on Nov 1st, the reserve will reflect in the modification calculation.    You need to know when the report will be filed, and be proactive in trying to get claims closed and reserves reduced prior to that time.  

I would imagine that a last minute phone call to the adjuster would be received poorly, while constant communication during the claim would engender their support.  I hear from clients more than ever that adjusters aren't keeping them in the loop.  Heavy workloads, busy schedules, whatever the cause, it is a reality.  You need to be proactive and make the calls if you aren't hearing from the adjuster.

The ICRB has a schedule of reporting dates, based on the expiration date of the workers' compensation policy.  I advise you to maintain a copy and set your own reminder to discuss reserves with the adjuster and the help of your agent.

This concludes this series, but only in brief.  For further information and assistance, please contact me and I will be happy to spend some time in person going through effective management of the Experience Modification Factor.

Can I Control My Experience Mod Part 3

In Indiana, an employee is not eligible for lost wages due to a work related accident until after they have been off for seven days.  That seems pretty straightforward.  An employee injured on Friday would be eligible for payment of lost wages only if they missed the entire next week.  

While that is correct, there are many nuances that come into play.  For example, weekend days count in the calculation.  If an employee misses Friday, then Saturday and Sunday count as missed days.  If an employee works Friday, Saturday and Sunday DO NOT count as missed days.

That's a key issue if we are trying to keep from paying for lost wages.  If an employee has to miss work due to an injury, try to make it not be on Friday.  Many injuries requiring medical treatment will require follow up.  However, with the use of a good alternative duty program, it won't require missed work other than doctor appointments.  Work with your employee, the physicians, and your insurance carrier to make sure those appointments aren't on Friday.

In all of this, communication is key.  Make sure the employees knows he isn't being penalized or taken advantage of in any way.  By providing him an alternative duty job, you are allowing him to be around his co workers and friends and stay in a normal routine, which may aid in healing.  By being in on Friday, he is helping the company, but also getting the chance to socialize with co workers about weekend plans.  The same goes for Monday.  Try to have them at work on Monday too.  I also suggest paying them for the days they have to go to the doctor, and having them report to work afterwards to update you on their status.

Even a serious injury, requiring surgery could result in no "paid lost work days."  Most surgeries anymore are one day stays. While it isn't feasible in every case, I could see an employee being at work the day after an outpatient surgery.  In no way am I mandating an employee comes in the day after surgery, or attempting to endanger their health.  If circumstances require, they need to stay home.  But again, in many cases, they can recuperate while fulfilling some function to the company.

When an employee is working in a light duty capacity, they don't have to be paid at their normal rate.  They can be, if you so choose.  However, the pay can fit the job they are doing.  If it dips below the 66 2/3% wage replacement they would receive under workers' compensation, then the difference is paid to them by the carrier.

In that scenario, we would lose the benefit of the 70% medical cost reduction.  But at that point, we are now saving lost wages from being included in the experience modification.  So a worker earning $52,000 a year would get $667 a week in lost wages payments.  If you pay them $10/hour to work 30 hours while recuperating, then you would cut $300 out of that payment.  That reduces the impact on your mod by 50% and the employee receives the same money.

There might even be a case to be made that they will recuperate faster and better by being in the company of employees and friends, doing some light work instead of sitting on the couch, and desiring to get back to their normal job.

In our final segment, we are going to talk about large reserves and their impact on the mod sheet.

Can I Control My Experience Mod Part 2

We previously discussed controlling the experience modification by accurately classifying employees to the appropriate job classification, therefore letting the expected losses be an accurate representation of the exposure. 

Now we want to discuss what happens once an accident has occurred.  I am sure each person reading this has a safety plan and a post accident process.  Issues like providing immediate medical attention, directing treatment to a company physician,  prompt notification to insurance companies, and accident investigation are all critical after an accident.

But let's talk in a little more detail about how to take steps to limit the cost of the claim both in real dollars spent by the insured and their carrier, as well as the dollars included in the calculation process used by NCCI.

First of all, utilizing a company physician, especially one included in a network used by the insurance carrier, can reduce costs in real dollars.  The ER is not the most cost effective choice and should be used only when necessary for the health of the injured worker.  Well prior to an accident occurring, arrange for a physician to whom injured employees must go for work related injuries.  In Indiana, the employer has that right, not the employee.  They can see their own physician at their own cost if they wish.

Prompt notification to the insurance carrier can allow you to utilize their expertise in directing treatment and utilizing network discounts.  Don't forget they are on your side in keeping real dollar costs low.

Once the immediate medical attention has been procured, and probably even before the investigation begins, you need to be thinking about cost mitigation in the form of early return to work or alternative duty programs.  While it may seem wasteful to a company to pay an employee for doing less than a whole job, it really pays off.  Here is why.

The experience modification calculation does not use all the medical costs in the calculation IF the employee receives no payments for lost wages or permanent loss of use of a body part.  In those cases with no lost wages, they only use 30% of the real dollar costs.  That is a 70% reduction in costs just by allowing for alternative duty.  

Providing alternative duty, especially in Indiana where the employee has to miss seven days of work prior to receiving an indemnity payment, can reduce future premium costs substantially.  Take for example, an insured with a $1,000 medical claim.  With no lost time, that will only reflect as $300 on the experience modification.   The impact on the experience modification may only be 1 point, but even at a $2500 premium, with that loss affecting 3 experience mofidifcations, that would be $750 of additional premium.

Alternative duty is a tricky issue to deal with, especially with the increased ADA (Americans with Disabilities Act) enforcement.  "Creating" a job for an injured worker could get you in trouble with the ADA.  That is why a formal alternative duty program needs to be created ahead of time to allow for utilization when needed.  Insurance companies, private companies like Safemetrics, and other resources are available to develop these plans.

In our next update we will talk more about how to maximize the seven days provided under Indiana law to maximize the benefit.

Can I Control My Experience Mod - Part 1

Too often I hear that an experience modification factor is prepared by the state, and there is nothing a client can do to control that factor.  I would like to discuss what I believe to be two erroneous points in that statement.

First, the state doesn't prepare the experience modification factor.  In Indiana, there is an Indiana Compensation Rating Bureau which is charged with administering the workers' compensation rates and experience modification program.  However, they rely on the NCCI for statistical calculation and preparation of the actual experience modification.

Second, insureds have a great deal of control in influencing the experience modification factor.  I am a math nerd, so I Iove the calculation formulas and get geeked up about looking at the possible fluctuations of an experience modification factor. However, I recognize most of my audience will not be as geeked up as I am and so I will try to keep the math to a minimum.

Let's examine at a high level what an experience modification factor calculates. In brief, it compares three years of loss experience for a company to the same three years for all companies in the state that are in the same industry as the client.  By averaging all the experience in the state, an EXPECTED amount of losses (in dollars)  is generated.  By dividing a company's ACTUAL losses by the EXPECTED losses, we arrive at a factor known as the experience modification.  If the losses are better than average, the mod is below 1.00.  If losses are worse than average, the mod is above 1.00

That brings me to the first point that can be controlled by an insured.  Increasing the amount of EXPECTED losses will by definition lower the experience modification given the same amount of ACTUAL losses.  How, you might say, would I increase my EXPECTED losses?  EXPECTED losses are calculated by applying payroll to the rates for class codes that are assigned to a company.  Class codes are the numerical codes assigned to an employer based on the duties performed by their employees.

While there is a pretty strict interpretation of the eligible class codes for a given business, there is still some wiggle room.   Most decisions to place employees in a particular class code center around getting them in the cheapest code that is possible.  I would argue that is wrong.  First and foremost, place them in the correct class code according to their duties.  When there is a grey area, and therefore a decision to be made, choose the higher rated class code.  The additional amount of premium charged can be offset by the lower experience modification factor.  

I personally worked with a client to get their entire operation reclassified by the ICRB with the express purpose of getting them correctly classed and lowering their experience modification.  At the end of the day, an underwriter will be looking at hard dollars that need to be collected.   In this case, the underwriter agreed to a premium amount, and after all the changes the client payed the same premium, but was in a position to be more attractive to other underwriters due to the lower mod.

If your premium is artificially low, but the experience modification is high, that doesn't look good. When assessing class codes assignment for employees, I recommend you use the code that contemplates the majority of their work, even if it is the higher rated code.  

Next, we will talk about how I can affect my mod once a claim has occurred.  Stay tuned.

Welcome

After nearly 20 years in the insurance industry, I have come to the realization that workers' compensation is the specific area in which I have knowledge to share.  I have always focused on workers' compensation, but only recently did I realize that in doing so I had acquired knowledge that should be shared.

I have spent time as a teacher, and in doing so always treated the classroom as a place for mutual education.  I don't know everything, and could learn from students as much as they could learn from me.  The same is true here.  I will write about the things that I know, but I welcome comments and ideas, even if they are contradictory to my own.

My focus will be on Indiana.  That is the state I have worked in my whole life.  While I have experience in other states, and some of the information carries over, any specific information will be based on Indiana law and underwriting guidelines.

A specific focus within workers' compensation for me has always been the experience modification calculation.  My first job as an underwriter put me in a unique position to be the guy who reported to the NCCI for our company.  Combine that with my math background (guess what subject I taught) and it is a natural.

There will be more posts about experience modification than other areas because I know it better, and I feel it is more misunderstood than other components.  Plus, there are other blogs dealing more with the law, and claims, and I can reference those.

I hope you enjoy the content and share freely.  Any ideas and comments are welcome.