Archives for February 2008

North Dakota Workers Compensation Program Woes

February 28, 2008 By JL Risk Management Consultants

North Dakota’s WSI

If you have been reading any of the recent Workers Comp publications, you may have seen some mention of North Dakota very intense problem with their Workers Comp Department – Workforce Safety and Insurance, or WSI.

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I have read at least 20 articles on the investigations of the WSI. They have been and will be, subjected to numerous audits over the next few months. People have been jailed, only to be reinstated into their position and then fired again.

We had reviewed a Claims Processing Audit RFP for the WSI that wanted all of their claims to be audited going back five years. This was a big task to do as the requirement was to be locally on-site in February. So many of our Worker comp claims reviews have been electronic since 2001, but the WSI did not have the data structures to enable an electronic review.

All this is a symptom of one main problem, and that has been what I have said since the 1990’s about states that handle their Workers Comp insurance programs like North Dakota. What is the problem? Check out the next post.

PS I just wanted to say that any of the personnel we had dealt with from the State of North Dakota were friendly, thorough, and very professional.

Up Next – What is the problem?

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Captive Taxes Decision – IRS Recently Shocks With Recent Ruling

February 25, 2008 By JL Risk Management Consultants

IRS Decided No Captive Taxes For Now

IRS shocks with no captive taxes decision.

One of the most hotly debated and controversial topics since the bid-rigging accusations have hit the Workers Compensation world.

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The Internal Revenue Service has performed a complete U-turn on attempting to tax captives upfront, or actually not allow the upfront tax write-off.

As I said in my last blog from a few weeks ago on this situation, I felt that the IRS was going to completely tax captives on the funds that were set aside to pay claims and not allow the taxes to be written off on the reserves set aside to pay claims when the claims were paid. The IRS had always said that a taxable event happens when the money is set aside for any type of financial arrangement. However, now captives are an exception to the rule.

Ever since September 2007, the IRS had said they were going to have public hearings on them taxing captives. I was 99.9% sure they were going to tax captives upfront when the money is set aside for paying claims – or in reality – were not going to allow a tax write-off, which is one of the main benefits for a large employer to create a captive for their insurance, especially for Workers Comp.

The IRS Captive taxes decision makes for a more hands-off approach to captive taxes. One has to wonder what the future holds for captives as a tax-reduction vehicle.

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Captives may now spread very quickly as an alternative risk financing arrangement. That is, until the IRS takes another crack at trying to disallow the reserve write off for taxes.

Captives are not the answer for all insurance situations, but they are now much more appealing with the advantage of an upfront tax write-off for reserves.

Next Up – The Woes of North Dakota’s Workers Compensation Program

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Workers Comp Policy Error Chances High – Look At Old Article

February 21, 2008 By JL Risk Management Consultants

Workers Comp Policy Error – The Probabilities

Finding a workers’ comp policy error can be a complicated search. How many chances are there for errors with a Workers Comp policy, premiums, or reserves? If one thinks about all of the inputs into a worker’s comp policy, reserves, or premium audit, the totals are astounding.

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I started to write this blog and remembered that it was discussed in a prior blog. Before you look back into the JL article on the subject, what would be the likelihood that an error has incurred in your Workers Comp premiums?

Check back further in the blogs to see the number. What do you think it is – 50 chances, 500, or 1,000? If you cannot find the blog, let me know. It is worth the read. The chances may be higher than you may think even in a structured system. Check out the chance of error here.

The next blog will be on a person we have followed often in his effort to straighten up the Workers Compensation laws in his state – Governor Mark Sanford of South Carolina. We have blogged the South Carolina Workers Comp System woes for months.

Up Next – Governor Mark Sanford’s Efforts

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National Council on Compensation Insurance (NCCI)

February 19, 2008 By JL Risk Management Consultants

What Is The NCCI?

The ( NCCI ) National Council on Compensation Insurance is based in Boca Raton, FL. They perform the Workers Compensation rating calculations for employers and insurance companies in over 20 states.

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Even the states that do not use them for their rating calculations base their Experience Modification Factors (E-Mods/X-Mods) on their math. There is really no other company that promulgates E-Mods.

Most of my interactions with NCCI have been very positive, as they do realize they are a service organization and seem to treat people as such. You may have noticed the large NCCI insignia on your rating sheets. If you have not seen those sheets and you have the fiduciary responsibility for your company, please obtain a copy of them ASAP, as they impact your Workers Comp insurance budget heavily.

There are many free services provided by the NCCI including State Advisory Meetings and a huge Educational Section on their website. They now even have a large library of videos that cover most of the Experience Rating basics.

One of the main tasks that NCCI has undertaken is to change their Classification Code system by what seems to be a consolidation of the number of Classification Codes that are in place. There are now over 600.

There are state minimums to have an Experience Rating. If your company has grown very quickly from a very small company, you may be in line to be Experience Rated. Also, if you have a large deductible program for your Workers Comp clams, the carrier is still going to report your claims to the NCCI or State Rating Bureau.

I will not go into the E-Mods or Classification Codes in this post. Please check out the prior and archived posts on those subjects.

Next Up – How many chances are there for a mistake to be made in a Work Comp policy?

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Self-Insureds – Really Out of Workers Comp System?

February 16, 2008 By JL Risk Management Consultants

Self-Insureds In or Out Of The Workers Comp System?

I often hear when talking about Workers Compensation self-insureds that they do need to worry about the trials and tribulations of the Workers Comp system as it is today. Actually, even if you are self-insured, the Workers Comp system is still there, but the numbers have changed.

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Loss Development Factors (LDF’s) are a twist on the E-Mods that are promulgated for regular insureds. The span of time involved is much longer – 10 years vs. 3 years for an E-Mod. You have to budget for those payouts just as if you had regular insurance. J&L has calculated a number of LDFs over the years. There is software out there that will do LDF’s, but there have to be some intuitive inputs to the programs. An LDF is not set in concrete.

The claims are handled by a Third Party Administrator (TPA). The files are handled the same whether an insured is self-insured or not. One of the areas that we sometimes have concerns over is that if there are self-insured and regular-insured files in an adjuster’s claims load, the self-insured files sometimes seem to have less care. I am not saying that this happens all the time, but we have seen enough in our audits to call it a trend.

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If you are self-insured up to a certain amount, say $250,000, the insurance carriers are still required to report your claims numbers to NCCI or the State Rating Board and your company will still receive an E-Mod.

You may look back in our archived posts on the post called the Self-Insured Phenomenon for another article on Self-Insureds.

Next Up – The National Council on Compensation Insurance (NCCI)(c) – who are they and what have they been up to lately?

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Follow up Question to Last Post By Devout Blog Reader

February 14, 2008 By JL Risk Management Consultants

One of Our Regular Blog Readers Has A Follow up Question

The follow up question on our software comes from one of our regular blog readers.

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We have received quite a few questions about the software that we have developed for analysis for Workers Compensation policies, premiums, E-Mods, and reserves. We are in the process of making the software available to businesses through our website on a per-use basis. Creating intuitive web-based software is a large task.

We had tried in 2004 – 2006 to create a software that was Excel-based. We still have a long way before finishing any type of software. J&L may produce a manual to aid in comp cost reduction. The best platform for workers comp analysis software comes from Microsoft – either Excel or Access(c).

As of now, we use the software internally as an aid to performing Workers Comp analyses for our clients. What is the number one error we have found on Workers Compensation policies and reserves? Check the archived posts to see what we have uncovered in our analyses.

The first step to cut your Work Comp costs is asking “why?”. If you or your company are just writing checks without questioning anything, you have a 50% chance of overpaying for your coverage. A good reference guide when dealing with Workers Comp is on our website at https://cutcompcosts.com/definitions.html. Print the definitions out or save them to your hard drive. They will come in handy.

Next Up – Are Self-Insureds Really Out of the Workers Comp System?

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Loss Run Review Question From J&L Article Reader

February 10, 2008 By JL Risk Management Consultants

Loss Run Review Question From Reader

A Loss Run Review Question From One of our Blog Readers – In one of your earlier blogs, you said that Workers Comp monthly or quarterly loss runs are like gold to an employer.

What are the deadlines for reviewing them to try to reduce my premium?

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Our recommendation is that you set aside some time after receiving each monthly/quarterly loss run to review the claims.

One of the reasons that you must review them very often is one of my old work comp rules –

You cannot go back and change what has been paid on a Workers Comp file or change the reserve after the file has been closed. Workers Comp reserves are the “here and now” money that is going to affect your insurance budget for up to five years.

Workers Compensation premiums have a look-back period where we can go back into the past a few years, but we can do nothing with the reserves on a file that has already been handled and closed. There are some companies that will go back into the past and try to sue their Work Comp carrier, but that is usually a long, drawn-out process where everyone loses.

There are some prior posts that cover how to look at your loss run in this blog. You must start talking to your insurance carrier three months after your new policy just renewed. That does sound strange, please read this carefully. Do not start trying to review your reserves in November for a January 1 renewal date. You are months late and will not help your E-Mod or premiums.

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Feel free to email me at [email protected] if you wish to know when you need to start reviewing your reserves and when your reserves will affect your E-Mod and premiums.

Up Next – Another question from our blog readers.

J&L Risk Management Consultants Inc – Question From Our Blog Readers

February 10, 2008 By JL Risk Management Consultants

Our Blog Readers Questions on J&L Risk Management Consultants Inc

The Blog Readers question about J&L Risk Management Consultants Inc history. Can you give me a quick history of J&L Risk Management Consultants Inc?

Without sounding like an ad, I started J&L Insurance Consultants, Inc. in 1996. I was originally helping the spinning mills in North Carolina straighten up their Workers Comp claims filings and to help them with their E-Mods. Some of them were disastrous with E-Mods over 2.0. Due to NAFTA and GATT, the spinning mills closed very quickly.

I started noticing that the Workers Comp policies were written incorrectly and had many mistakes on them. I had a heavy statistical background and decided to address and try to correct mistakes in the premium calculations and the reserving of files. What I wanted to offer was an analysis that started at the premiums paid and worked back towards the reserves that caused the E-Mods to change.

As far as I know, we are the only company that offers this service that is not involved with making an agent’s commission. Some companies are great at analyzing one piece of the process, but we are the only ones that have intuitive software for premium calculations and reserving.

Being a former Systems Engineer for a major computer company, I was able to construct software that would enable employers to analyze and cut their Workers Comp Costs. We have found it to be invaluable in helping employers cut their comp costs over time. We will alter the software to better fit our customer’s needs in the future.

We will add more services as needed by employers, insurance carriers, agents, and other companies in our customer base. Thanks for reading this article.

Claims Affect Premiums For How Long – Reader Question

February 6, 2008 By JL Risk Management Consultants

Claims Affect Premiums For Multiple Years

How do claims affect premiums for my company? This is a question we receive very often.

The first thing to look at is the state laws and rules on how your E-Mod or X-Mod is calculated. That will have some bearing on the length of time.

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Most states calculate the E-Mod/X-Mod over a three-year span. However, the three-year span does not “kick-in” immediately the next year. What happens, for example in 2008 will not affect your insurance company premiums until the 2010 policy. Why? Workers’ Comp is calculated on a delayed system. The E-Mod for a claim in 2008 will hit the E-Mod on 2010, 2011, and 2012 policy years.

Yes, you pay THREE times for a bad claims year. That is the way the Workers Compensation system is structured for losses. Do you pay 1/3, 1/3, and then 1/3 of the bad claims year of 2008? NO, You will pay more like 60%, 60%, and 60%. But wait, that does not add up to 100%. You can now see how a bad claims year can be very expensive.

The usual reason for having a bad claims year is the number of claims, not just one big claim. The old saying that five $20,000 claims is much more expensive than one $100,000 claim is very true in almost all cases.

Update – The main rating bureaus – NCCI and WCIRB have both altered their E-Mod X-Mod formulas to make repetitive claims much more influential on what you will pay in future years for workers’ compensation coverage.

The NCCI or State Rating system that is in place amplifies the amount that the Work Comp carrier reserves on the claims. Is it a fair system? It is the one we have in place. The best way to stay out of the system is with a safety program, making sure that you are being charged the proper premiums, and making sure that the reserves on your files are accurate.

Next Up – SC Governor Sanford is now in Federal Court trying to keep Workers Comp under control in SC.

Safety Person Should Be Most Concerned With This Number

February 4, 2008 By JL Risk Management Consultants

A Safety Person vs. The X-Mod or E-Mod

Is there one number that a safety person should be the most concerned with in their job? I have asked this question often when presenting to Loss Prevention, Safety Engineers and similar positions. The answers that I often hear are:

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Number of accidents
Lost workdays
Self-inspection results

Those are all important. When a VP or President of a company asks me what number is the most important in evaluating a Work Comp program, I always say the Experience Modification Factor (E-Mod or X-Mod). Why? Because it is the distilled number of what the claims costs are for a certain company. In other words, it is the insurance carrier’s notation of how the safety program is performing over a few years, not just one.

Many safety personnel have been fired due to the E-Mod X-Mod not turning around quickly enough. Employers and their safety departments sometimes do not realize that the Mod covers from four years ago until one year ago.

What just happened in the prior year, be it good or bad, does not show up on the E-Mod X-Mod until the following year. A great way to avoid concerns with the safety department or risk manager is to forecast the Experience Mods into the future.

Oh, and self-insureds are not immune from the E-Mod. There is a different term for the E-Mod for self-insureds and it is the Loss Development Factor (LDF). The LDF may cover more years than the E-Mod, but it is still the ultimate evaluator of a company’s safety program.

I often hear from safety personnel that the insurance is “some other department’s problem.” Nothing could be further from the truth.

Bottom Line – The LDF or E-Mod/X-Mod is the Workers Comp safety program’s effectiveness turned into cash.

Next Up – How long does one bad year of claims cost a company’s Workers’ Comp program?