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.
Monday, February 24, 2014
Monday, February 17, 2014
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.
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.
Monday, February 10, 2014
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
Following right behind those two codes with favorable base rate reductions were
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.
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
- Asphalt Plants operated by the paving contractor
- carpet manufacturers.
Following right behind those two codes with favorable base rate reductions were
- Liquor Bottling
- Architechts & Engineers
- Pipe Mfg
- 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.
Monday, February 3, 2014
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.
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.
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