Top 10 Workers Comp Questions We Are Asked Most Often

The top 10 workers comp questions received by us since we opened for business in 1996 cover many topics.   

1. I just had a payroll audit on my Workers Comp. My insurance carrier sent me a huge bill. Do I have to pay the bill? What can I do about it if I think the bill is too high?

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Yes, you do have to pay the audit bill unless you dispute it. Your insurance carrier must give you instructions on how to dispute the bill and where to mail/fax the dispute. We very often see an insurance carrier send out a bill without informing the employer that they may dispute the bill, and without providing the correct process to dispute it. Sometimes the insurance carrier will tell you that you only have 10 days to dispute the bill or pay it. You usually have longer than that to dispute the bill depending on the insurance laws of your state.

You must have a reason to dispute the bill. The reason of the bill being too high will only result in damaging the relationship between you, your agent, and your insurance carrier.

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One of the main ways for your payroll audit bill being large is that your company and payroll have grown very rapidly. However, do not just think that because you have rapid growth, you should owe a huge payroll audit bill. Never just write a check. Ask questions.   Always read your policy after renewal.  

Most of the time we receive a phone call or email is when you have a “gut feeling” there is something wrong with your Workers Comp program. We have found many overcharges when the employer has a gut feeling.

2. – No We Are Not Agents 

The top 10 question #2 that we receive on Workers Comp.

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2. Are you a Workers Comp insurance agency? Do you sell Workers Comp insurance policies? How do you get paid?

We are not agents. We consider it a conflict of interest to advise you on the structure of your policy and then sell you what we just advised you on how to place.

An agent fee has never been our goal in providing services to employers, insurance carriers, or other companies or organizations.  As we operate nationwide, we can recommend certain insurance agencies in your area.  Our services are at arms-length except with our clients.  

We get paid one of three ways for our services:

• We usually examine Workers Comp policies or audits on a contingency basis. That way we do not get paid unless you receive a credit or a check. We used to do hourly-only, but then we felt disappointed when we billed a company that we could not help.
• We can also work on an hourly basis. Some companies prefer this to the contingency.   We usually ask for a number of hours as a retainer to begin our services.  
• Flat fee – we work on a fixed cost basis which helps you to budget for the price of our services.   We prefer not to do a flat fee as future Workers Compensation Consulting hours worked is a difficult task. 

Either one of the three ways, once we make a correction to your Workers Compensation policy or audit, it becomes permanent and you will benefit from the changes from that day forward – unless your company changes its structure or business model. 

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3. What is the fastest way to reduce my Workers Comp premiums?

We receive this Top 10 Workers Comp Question at least weekly.

Unfortunately, there is no quick-fix to your Workers Comp policies. There are ways to reduce your premiums over time. We have found that asking “why?” whenever you are asked to write a check for premiums is a great way to start the cost-cutting process. We never advocate just being a “squeaky wheel” looking for oil. If you are reading this post, you have likely taken the first step, as this blog will tell you how to ask “why?”. One of our sayings to employers is “Quit just writing checks.”

There are 140+ posts here that all talk about reducing Workers Comp premiums. There is one that covers this issue exactly. You can get a ton of freebies under Definitions Tab The easiest way to reduce your Workers Comp is to become involved in every step of the process in purchasing Workers Comp insurance. I used to say there were “Four Keys/Secrets to Workers Comp Cost Reduction” then I added a fifth that involved an acceptance by management to reduce Workers Comp costs.

There are three areas where we see the most errors occur in Workers Compensation:

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1. Claim Reserves – feed into your Workers Comp E-Mod
2. Classification Codes – can be a very expensive mistake
3. Year-End Payroll Audits – we receive the most calls and emails on this one.

Why are these the top three? They are all actually opinions in one form or another. There is nothing really “stamped in stone” as you may have been lead to believe. It is all negotiable.  Reviewing your workers compensation policy, endorsements, and  premium audits is a great idea. 

4. – Self Insured Services 

Wikimedia Commons – Tangopaso

I see that a large portion of your website does not pertain to Workers Comp self insured companies. What can we do to reduce our Workers Comp premium costs? What services do you offer self-insureds? This comes in as one of our most popular Top 10 workers comp Questions. 

You are correct that most of this website does not pertain to self insureds. That is mainly due to our customer base not being self insured employers. However, that part of our market is expanding rapidly. In fact, we are presently performing a claims Third Party Administrator (TPA) performance audit for one of the largest self-insured employers in North Carolina and the nation.

Our self-insured services include:

• File Performance reviews – how is the insurance carrier doing on your self insured files?
• Loss Development Factors (LDF’s) – similar to an Experience Mod, but pertains more to long term future budgeting for Workers Comp expenditures.
• TPA RFP’s – assist your company in bidding our your Workers Comp file handling.
• Medical Cost Containment Networks – this is the largest cost-cutter for Workers Comp expenditures.
• Assist in tracking your claims and reserves with the TPA.

We will go more into how to cut costs if you are a self-insured after we have finished the Top 10 questions. The main thing to remember is that you should be doing the services that we provide, as they are your main ways to cut your Workers Comp costs.

Remember, when you are a self insured, someone is spending the $ directly out of your bank account.  

One mistake that many self insured employer make is saying they are outside of the workers compensation premium paying system.  Actually, a self insured is more in the system than ever before due to the requirement of monitoring every budget dollar spent directly on claims. 

5. Where do you see the most money being wasted in the Workers Compensation system?

What part of the Workers Comp system causes employers to pay more $?

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That is not necessarily an easy question to answer. Many facets to workers comp increase the payouts on a WC claim.  

I think it is the reserves that are set by the Workers Comp insurance adjuster. The reserves/total incurred is what the E-Mod is calculated from in all cases. The reserving of a file is unregulated. There are no laws or regulations that limit what a Workers Comp adjuster can put up on a file.

Loss runs enable any Risk Manager or employer to make sure the workers comp reserves justify the current status of the file. 

There are numerous posts on this page that explain how to counteract the reserving of the files. The first step is to obtain a Loss Run from your Workers Comp carrier. Review the loss runs. What to look for in a Loss Run to reduce your premiums is somewhat complicated.

PS – Do not just call up your Workers Comp adjuster and complain that your reserves are just too high and that you are paying too much premium. Do your homework beforehand. It may not be their fault.   The aforementioned loss run may solve your questions on certain files.   Online reserve access is crucial to controlling workers comp costs. 

6. Workers Comp fraud 

One of our employees is out of work with a back injury and drawing Workers Comp payments. We saw him lifting something very heavy over and over again. Should we try to pursue fraud against the employee?

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Believe or not, but no – as using your Workers Comp dollars/premiums to try to prosecute fraud is not a good idea. Yes, you should assign a Private Investigator; and yes, you should use the evidence you will gather to reduce the cost of your claim. You should also report the fraud to the State Industrial Commission or Accident Board.

Why do I say this? Almost no employees that commit Workers Comp fraud are prosecuted, but as I said before, the evidence gathered by using a Private Investigator can be used to reduce the payouts on a claim.  Many claims have been settled quickly with a PI tape pending. 

Certain states created Fraud Bureaus inside their respective Department of Insurance. 

Bottom Line- do not use your Workers Comp premiums or dollars to prosecute fraud. That is for the authorities to pursue.

7.  Difference in Quotes

As the Loss Costs or Advisory Codes are the same for each classification code in each state, is there really much of a difference between quotes for my Workers Compensation coverage? Can I just pick an agent and go with whatever she/he says?

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Yes, there can be a difference of up to 600%. This is because the Workers Comp insurance carriers can file deviations to as many of the Loss Cost codes as they wish to in any given state. Most insurance companies file one single deviation for all of the codes in a certain state.

I have seen the deviation in one state differ from .75 to 2.75 between Workers Comp carriers.

To add even more of a difference on your Workers Comp premiums, there are Scheduled Debits or Credits that can influence your policy. The deviations are from a 25% debit (additional premiums) to a 25% credit (reduction in premiums). That is a 50% difference in your Workers Comp premiums that is totally left up to the individual carrier. There are techniques to increase your Scheduled Credits.

Let’s use an example to show how much of a difference there can be between carriers. We are not counting in your E-Mod.

• Your company pays $100,000 in premiums.
• Using the rate deviations from above, the lowest would be $75,000 and the highest would be $275,000.
• Taking that one step further, adding in your Scheduled Debit/Credit would make the range of premiums start at $56,250 to $343,750.
• That is over a 600% difference, actually 611%.

Wikimedia Commons – U.S. Department of the Treasury

When you pick an agent, keep the 600% difference in mind. Is your insurance agent getting you the best deal? How do you know if it is the best deal? Are you in the State Risk Pool where you are charged 400% more for coverage? There is much more that should be considered beyond just picking a Workers Comp insurance agent. Where are you paying on the scale from $56,250 to $343,750?

8. West Virginia Recent Changes

I am a West Virginia employer. The open market is here on 7/1/08. Will the open market in West Virginia make any changes to my current policy?  

No, everything will actually be the same, except you will have 161 choices for your West Virginia Workers Comp coverage. You no longer have a monopolistic state fund and Brickstreet will not be the sole provider of Workers Comp policies.

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One of the areas that you may need a Workers Comp expert is in the area of how your policy is structured. West Virginia changed its Classification Code system from 90 Classification Codes to approximately 600 when the West Virginia Department of Insurance adopted the NCCI Classification Code system on 1/1/06.

The system had to be modified, as the prior monopolistic state fund did not have the proper values for NCCI to download. The 100% Classification Code System will be in place for West Virginia employers beginning 1/1/10.

One suggestion is to check your classification codes in your policies and workers compensation premium audits.  Do those codes describe what you do in your business?   They may not be exactly what your company does due to Classification by Analogy.   Sometimes the class codes come as close as possible but not exactly when describing your business functions.    No one knows your business better than you.   

Make sure that you have the proper classification codes for your policies. We assist employers and agents in West Virginia in being properly classified.

If you feel your class codes are not correct, then read over the procedures of how to begin an audit dispute.   

Overall, this will be a positive change for WV in the coming months.  Check back to this blog often for updates on the West Virginia conversion. 

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9.   Unexpected Experience Mod Increase

I had a great year with Workers Comp accidents this last year. Why did my E-Mod go up? That does not make sense.

We receive most of our most upset emails and calls on this question, except for Question #1 that was previously posted.

The E-Mod system is built on sustaining no or low loss years for at least three to four years.   In other words, the risk window is longer than just one policy year.    

Your E-Mod will never reflect the policy year that you just finished. The insurance system is just not built that way. Let’s say that you finished your policy year on 1/1/08. Your Experience Mod will be figured from January 1, 2004, through December 31, 2006, which is three years of time.

If you had a great year with little or no accidents in 2007, there is still a very positive effect. The 2007 policy year will affect your 2009, 2010, and 2011 E-Mods. If you have a great year this year in 2008, there is an additive effect, and the 2007 and 2008 policy years will show up in your 2010 and 2011 E-Mods.

The Total Incurred (see my many previous posts) is calculated for the 2009 E-Mod on 7/1/08, which lags six months behind the policy years. This timing allows the Workers Comp insurance company to have enough time to set the proper reserves on the newest claims.

Once again, I agree with you that this is odd, but that is the Workers Comp insurance structure that is now in place in most states. That will not likely change in the near future.  Other theories have been issued over the years.  However, the Mod systems across the US are going to be around for many years to come.  

There are ways to not be in the Experience Mod systems by using alternative risk financing.    

10. Who is the NCCI and how do they affect my Workers Comp insurance premiums?

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This ranking the last of the Top 10 Workers Comp Questions should not reduce its importance.

The National Council on Compensation Insurance is based in Boca Raton, FL. They are the main rate-making Workers Comp organization in the US.

The NCCI does not actually directly set the Workers Comp rates for the Classification Codes. They will make recommendations for increases or decreases to rates that must be approved by each individual state. Most states do approve their advisory rates without question.

Some states actually hold a Department of Insurance hearing that NCCI attends and testifies as to its recommended rates. 

The main function of the NCCI is to calculate your Experience Modification Factor or E-Mod. The E-Mod individualizes the Workers Comp rates to your company. Usually, even if your company is in a non-NCCI rated state, your company will be rated by the NCCI if you have risks in multiple states.

The NCCI is sometimes criticized for how they operate, but it is the best system in place to rate your company and provide your E-Mod.  Other rating systems have been attempted with little success.   

Let us know who we did answering the Top 10 Workers Comp Questions. 

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