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.
Monday, March 31, 2014
Monday, March 24, 2014
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.
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.
Monday, March 10, 2014
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.
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.
Monday, March 3, 2014
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.
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.
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 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.
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