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.
Showing posts with label Rates. Show all posts
Showing posts with label Rates. Show all posts
Monday, April 21, 2014
Monday, February 24, 2014
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.
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 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.
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