Archives for July 2008

California Workers Comp Policies Have Disadvantage

July 30, 2008 By JL Risk Management Consultants

California Workers Comp Policies Have Built in Disadvantage

California Workers Comp policies have a built-in disadvantage when compared to other states.

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California has changed their rating rules quite often over the last few years. After attending many of the WCIRB conferences, I noticed that the CA rules for rating Workers Comp policies is becoming very similar to the rating regs 0f the NCCI.

One area that is very unfair to California policyholders is the limitation of the lookback period if a mistake is found in an employer’s Workers Comp policy. If the employer is owed a refund, they can only ask for a refund from their insurance carrier for one year in the past and the present year. Most states allow for a lookback period of three years and the current year.

What does that mean to CA employers? If you find an error in your Workers Comp policy that results in a refund, you will only be entitled to approximately 50% of what is received by employers in other states.

California Insurance Commissioner Poizner will hopefully be able to modify this rule. If an employer has been overpaying for many years, why should there be a refund limit of only one year in the past and not three?

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Short Rate Workers Comp Policy – Problems Many Employers Face

July 29, 2008 By JL Risk Management Consultants

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Short Rate Workers Comp Policies

The Short Rate Policy or Short Term Cancellation is when an employer and/or their agent makes the decision to cancel a policy before the renewal date.

There are many problems with Short Rate Policies including:

The ominous Short Rate Penalty – This penalty can be significant, as the employer is making the insurance carrier receive less premium than canceling at the renewal date. The insurance carrier has to possibly take on more risk, as the carrier does not have as long as usual to recover their paid losses by charging a full policy term premium.
Payroll Anomalies – We have been studying this phenomenon for the past few years and are still investigating the statistics. We have seen a disproportionate amount of payroll being loaded into, for example, a three month policy, and a new policy is then written. For some unknown reason, the Experience Modification Factor (E-Mod) can easily increase at a very rapid rate. The claims after the short-rate policy now have more claims vs. a lower amount of payroll. If both the claims increase and the payroll decreases sharply, the E-Mod can skyrocket.
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The employer’s insurance history may be marred, as having more than one short rate policy in a few years time may indicate a “workers comp premium shopper”. This could result in less carriers being willing to write workers compensation coverage for an employer.

If you think that there is something wrong with your insurance policy, do not just switch the workers comp policy. First, at least try to work things out with your carrier until the renewal date. You have many rights as the insured and one of them is to question how the policy has been written and at the time of premium audit.

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Assigned Risk Pool Can Be Avoided With Few Techniques

July 28, 2008 By JL Risk Management Consultants

Assigned Risk Pool – Getting Out Of It Is Possible

The Assigned Risk Pool makes an alternate decision very difficult. The easiest method to remove your company from the Voluntary Risk Market and place your Workers Comp coverage in the general marketplace is to reduce your Experience Modification Factor.

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Your company may likely have a very high E-Mod compared to similar businesses. We have posted many previous articles on how to reduce your E-Mod.

Another way to possibly remove your company from the Assigned Risk Pool is to make sure that your agent has shopped your business in all available markets. We have seen this method remove companies from an Assigned Risk Pool if there are workers comp insurance companies that specialize in, or better understand, the risks involved with your company. Never just assume that you should be in the Risk Pool.

Make sure that your company has the correct Classification Codes assigned to it. Quite often, certain Workers Comp Classification Codes have a high risk associated with them and no insurance company will write the coverage in the voluntary market.

Update – Looking at the alternative insurance markets have become very viable over the last few years. Agents/brokers usually cannot search the alternative markets.

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One mistake we have seen companies make is to think in the short term with cost reductions. Having a safer company will show up in your Workers Comp insurance in the second year of safe operations and will not be fully realized until the fifth year. We have seen companies switch their focus away from Workers Comp savings strategies, as there seemed to be no effect on their premiums.

There are a few companies that cannot be written in the voluntary marketplace due to the risky nature of the job functions.

Next Up – The Dangers of a Short-Rate Policy

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Assigned Risk Plan Definition – Also Called The Risk Pool

July 24, 2008 By JL Risk Management Consultants

Assigned Risk Plan Explanation – Necessary And Expensive

An Assigned Risk Plan is frequently called the Pool.

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The Assigned Risk Plan is a mechanism established by individual states to make sure that employers can obtain WC insurance even if insurance companies are not willing to write such insurance on a voluntary basis. Assigned Risk plans in many states carry higher rates than the voluntary market.

One caveat – The State Fund of California, often referred to as SCIF does not function as this type of insurer. SCIF does not necessarily have to accept your company. SCIF does provide a procedure by going through an intermediary to apply for coverage.

If your company is in the Pool, your company must do everything that is possible to get out of it ASAP. Why?

For instance. in a certain state, the Advisory Loss Cost for an Administrative Assistant Classification Code (8810) was 41 cents per $100. The same 8810 Classification Code in the Risk Pool was $1.41 per 100.

That is almost a 400% increase. How does a company remove themselves from the Risk Pool? The main method requires a large amount of patience by a company’s senior management or the owner of a small company.

Removing a company from the Assigned Risk Pool is not that easy. Other than a market with no carriers, something occurred over the last 5 years that increased your Experience Mod to a high risk level.

We will talk about that next time.

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Workers Comp Classification Codes – Great Blog Reader Question

July 23, 2008 By JL Risk Management Consultants

Question on Workers Comp Classification Codes

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In one of your earlier blogs, you talk about Workers Comp Classification Codes and how they describe the jobs that are performed in a business. Why do my Classification Codes seem to be different from what my business actually does, and why are they not the same as what our employees do on their jobs? I am confused.

This is one of the questions that is becoming more popular as the National Council on Compensation Insurance (NCCI) revises and eliminates their Classification Codes. This results in more of what is called classification by analogy. We have seen more of this type of classification in the last three years.

Classification By Analogy is the interpretation of what Workers Comp Classification Codes are the closest to the job functions in a company. The insurance company looks at each classification code as a level of risk. These are “guestimations” as there is no exact classification code that matches a job function or employee’s job description. The most important word is interpretation. No one knows your business as well as you do.

If your Workers Comp Classification Codes do not seem to represent the job functions in your company, then have your agent and carrier review your classification codes with you and explain how they best represent your business. If you still feel that something is wrong, consult an expert in Workers Comp.

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Audit Bill Handling and Response – Question From Blog Reader

July 20, 2008 By JL Risk Management Consultants

Workers Comp Audit Bill – Readers Question

The Blog readers question about handling a WC \audit bill. We received a huge bill from our Workers Compensation Yearly Payroll Audit. We cannot afford to pay it. What do we do? We do not want to lose our Workers Comp coverage.

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I would advise you to do four things:

Do not panic, as you need to make sure you are taking care of the rest of the business.
Check to make sure that you really do owe that amount; if not, then dispute the amount you think that you do not owe. Do not dispute the bill as a way of delaying your payment.
If you owe the whole bill, then immediately call the contact person on the bill and tell them of your situation. Almost all carriers will let you pay the audit bill over time.
Make sure the payroll figures for the next year’s policy are adjusted to the audited payroll amounts, or you will end up owing a huge bill again at the end of the year. Have your reserves examined by an expert before your next UNIT STAT date.

I will cover each of the four points below.

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1. As you are very busy running your company or the financial end of the corporation that you work for, worrying about the bill will not help. We have never seen an employer lose their coverage when they are making attempts to pay the bill.

Often you will see a phrase such as , “please pay immediately”, or “you have 10 days to pay.” Most state insurance rules will let you have a longer period, even if your Workers Compensation insurance policy says 10 days. However, if you do owe the bill, then at least make contact with the insurance carrier. DO NOT IGNORE THE BILL as this will only cause more problems later on with your insurance carrier.

2. If you are not sure that you owe the bill, then you do have a right to dispute the audit. You must have some basis besides – The bill looks high, or There is no way we can owe this much. If you know something is wrong and you need help, call in an expert to look over the bill. We do not mean your insurance agent. We do provide this service. It takes time to get the records together, so getting help with your audit quickly is crucial. As mentioned before, do not use the dispute process as a way to delay paying the bill.

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I have blogged How to Dispute a Bill very often. Please check my prior blogs on how to dispute a premium billing, or contact us.
Quite a few states now require the insurance carrier to inform the employer of how to dispute the bill. California is one of the states that is very specific on this point.

3. If you are sure that you owe the whole bill, but cannot pay it, do not just ignore it and hope that it will go away. On the bill, there will usually be a phone number, address, and sometimes email address of the billing department.

Call or email them ASAP and let them know that you will pay part of the bill. Making a good faith payment is a great way to keep your current insurance coverages. Send a check as soon as you can with the bill. It may be a good idea to call the billing department when the check is mailed.

Unfortunately, some carriers now are not accepting a partial payment, or at least they say they do not. I have never seen an insurance carrier to date send a partial payment check back to the employer. NOT EVER. Pay what you can when you can pay it. Communicate with your insurance carrier’s billing department.

One of our mottoes is STOP JUST WRITING checks. Make sure that you owe the Workers Compensation premium bill and be sure to question how the bill was calculated. Ask for the audit workpapers to see the complete documentation from the premium auditor on your audit. Your company has a right to see that information. Many times the auditor will send you a copy of their workpapers. However, the audit results may not ever been seen by the company, only the premium audit statement or bill.

4. Make sure the payroll figures for the next year’s policy are adjusted to the audited payroll amounts, or you will end up owing a huge bill again at the end of the year. Unless your company has had a decrease in payroll, you will likely owe another big bill. It is best to pay it through the year on a payment plan versus having to pay a huge surprise bill at the end of the policy year.

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We have often seen the situation lately where an insurance carrier will write a policy in complete contradiction to the audits. Check to make sure what was on the original policy resembles what is on the Workers Comp payroll audit. Agents will sometimes just copy what was on the policy from the previous year regardless of the audit results. The time to ask questions concerning your Workers’ Compensation policy happens before you sign off on the new policy.

Have your reserves examined by an expert before your next UNIT STAT date. A huge increase in Workers Comp reserves will make your next years’ policy increase sharply, as your Experience Mod (E-Mod) will increase exponentially.

Next Up – Classification Codes Revisited

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Payroll Audits Preparation In Workers Compensation – Readers Question

July 18, 2008 By JL Risk Management Consultants

Workers Comp Payroll Audits Preparation Made Easier

Payroll audits can be stressful. I just received notice that the insurance company auditor is coming in to audit my company’s Workers Comp information. How do I prepare for the audit? What information do I have to provide them?

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According to your insurance policy, the insurance company auditor has the right to examine almost any of the records that your company has available. If you refuse to show the insurance company auditor the information they need, that may look suspicious to the auditor.

There are a few things that one can do to get ready for the Workers Comp audit. The best thing to do is make sure that you have ACCURATE and highly organized payroll records together with a summary sheet of those payroll records. Make sure that all subcontractors and temporary workers are segregated on the payroll. The Certificates of Insruance (Certs) should be provided to the auditor. This will save your company many headaches with the subcontractor payroll separation.

Excel(r) helps organizes payroll very quickly including summary reports. Please remember that neatness counts in any type of audit.

Have someone that is the most familiar with the payroll records be available to answer any questions and provide any additional information that the auditor may request.

It is best to make sure that the auditor has a quiet place to work, away from the daily activities in your business day. There are many guides on how to try to influence the audit, but we do not agree with them as being upfront and honest are the two best ways to conduct yourself when the yearly Workers Comp audit occurs.

We have seen quite a few employers become part of a disturbing trend when it comes to the audits. We will discuss this on the next post- Delaying the Audit.

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Readers Question on What To Do With Premium Audit Bill

July 17, 2008 By JL Risk Management Consultants

What To Do (Not) – WC Audit Bill

Workers Comp – what not to do with the premium audit bill. I received my Workers’ Comp payroll audit results. The auditor says that I owe $67,587 more than I originally paid for my policy. We are a small company and that is going to kill our budget. Any ideas on what to do?

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We have commented on this question very often. Please check out prior blogs on this subject. The main thing I wanted to mention today was what not to do, which can possibly cost you even more premium dollars.

Do not:

Call up your agent or auditor and protest the bill without any backing to the protest. That may damage the relationships you have established.
Ignore the audit results or the bill – you may lose your chance to protest the bill, if necessary, and your carrier may cancel your current Workers Comp coverage
Panic, as you have time to look into the bill. Sometimes the bill will give you ten days, but in most states, you have up to 30 days.
Write a protest letter without looking at the numbers.
Write the insurance commissioner – worse thing to do initially
Try correcting the bill on your own – you may cost yourself more $.
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Think you can only protest the one bill – you may be able to go back many years to protest old bills, depending on the state
Think hiring a premium expert is too expensive
Protest the bill without reading your initial policy
Protest the bill without knowing your classification codes and what they mean
Just give in and write a check if you feel something is wrong. The word WHY is a very strong word to use. Most of the contact we receive from employers is when they have a “gut feeling” something is wrong.

Up Next – We will review what to do when you receive a Workers Comp Audit Bill

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Can California’s WC Judicial System Go Paperless Without Crashing System

July 16, 2008 By JL Risk Management Consultants

CA Workers Comp Judicial System = Paperless

Will California’s Workers Comp judicial system go paperless? Is the update/upgrade going to be the funds and time invested?

One of the goals of many Workers Comp carriers and TPA’s is to be totally paperless. Being totally paperless may not solve as many problems as expected. However, being paperless represents a “fashionable update” to any department. The upgrade usually hits many snags along the way.

When I started as an adjuster many years ago, the carrier that I was working for had been using microfiche and a very rudimentary system to handle Workers Comp claims. It was actually a true paperless system.

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However, the adjusters of today will print off what they need to review instead of reading it on a screen.

If all goes according to plan, by the end of this year the paperwork for disputed claims by injured workers will be missing an important ingredient — paper.

This month California began testing a controversial new paperless system for handling disputed workers’ compensation claims, and officials hope to completely switch over on Nov. 10. The shift, planned for four years, will affect tens of thousands of people, both inside and outside of the state Division of Workers’ Compensation and the state Workers’ Compensation Appeals Board.

Although program officials say the digital system will be faster and easier, critics contend it has significant problems that could make maneuvering through the already-complex workers’ comp system more cumbersome.

Launching the Electronic Adjudication Management System, or EAMS, will mean a fundamental shift for 1,160 state employees, 140,000 to 150,000 injured workers each year, about 7,000 workers’ comp attorneys plus their staffs, and numerous insurance companies and self-insured employers.

I hope this system works. I think there will be a huge amount of printing at the beginning of the process if it survives.

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Free Market System Increases Claims Experience Level

July 15, 2008 By JL Risk Management Consultants

Workers Comp Free Market System Is Best

One big advantage of the free market system for Workers Comp is the experience level of the providers.

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The following comment is from a recent meeting sponsored by the state of North Dakota on looking into switching from a monopolistic state fund. I did find it interesting that the comment inferred that the injured employees receive better medical treatment with private insurers.

Deputy West Virginia insurance commissioner Bill Kenny says private insurers have broader experience in workers` comp. He says they are re often willing to spend more on advanced medical treatment to help get an injured employee back to work more quickly.

This is a stark assessment of the positive nature of a when many competitors may bring about a great improvement in the ancillary services provided in such a system.

A free market system usually works in almost any market. North Dakota would serve its citizens well to convert the WSI to a private carrier and then let them compete with other carriers. The process has worked in other states. Let us see if North Dakota will become a Workers Compensation free market system.

Overcharged – Another Way To Know If It Has Happened To Your Company

July 10, 2008 By JL Risk Management Consultants

Your Workers Comp Premiums Overcharged

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Another way to know you been overcharged on your Workers Comp Premiums. The following is a prime example of a Monopolistic Workers Comp State Fund not providing the proper service to their insureds. If a carrier or fund of any type is mailing out or applying refunds, this means that the employers were charged too much premium when their original policy was written and then again at the year-end payroll audit.

The Department of Labor & Industries (L&I) began mailing dividend checks last week to 100,000 employers as the final step of a process to return excess funds from the state’s workers’ compensation system. Another 28,000 employers will receive credit toward their next workers’ compensation premiums. The remaining 11,000 employers will have their dividends applied to premiums already owed or other debts.

Last year, employers and workers enjoyed a partial workers’ comp rate holiday, according to L&I Director Judy Schurke. Employers and workers saved more than $300 million in workers’ compensation premiums by not having to pay Medical Aid fund premiums during the second half of 2007.

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To complete the rate holiday, employers who did not participate in L&I’s Retrospective Rating Program are also entitled to a one-time dividend. Retro employers receive their proportionate share through their retrospective rating assessments.

The dividends will total $37 million, and dividends will average $266 per employer. How much an individual employer receives will be based on the Accident Fund premium he or she paid in the second half of 2007. Checks will be sent to 100,000 employers in amounts ranging from $10 to several thousand dollars. About half the checks will be between $10 and $100. Another 28,000 employers will have their next-quarter premiums credited.

About 11,000 employers who owe workers’ comp premiums or may otherwise have a debt with L&I or other agencies may see their dividends applied to those debts rather than receive a check directly. An employer will be notified if a dividend is applied to debts

Monopolistic Funds and Their Problems Back In News

July 6, 2008 By JL Risk Management Consultants

Workers Comp Monopolistic Funds

Why do states create monopolistic funds? As I posted yesterday, there are quite a few state-created Workers Comp funds that are having many troubles.

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The reason for these problems might be the softening of the Workers Comp market. I think there are many problems with state-created funds including:

Poor customer service: If you are backed by the government, why does a fund need to have customer service, as there are no investors to answer to whatsoever?
The state will prop up a failing fund, but a private company will go under.
The funds are usually very large with departments not communicating.
Some funds attract and hire employees that could not make it in the private world. The pay rate is usually lower than the market average, which means the talented claims people or other insurance personnel will leave for more $.
The funds receive favorable loan rates which lowers the motivation to turn a profit to pay back the loans.
The state-backed funds “take on all comers” as they are sometimes the insurer of last resort. This means underwriting expertise will be sacrificed to write risky policies.
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The states do not keep any of the control over the funds once they have been started. I have seen this really harm funds as they have no one to answer for in their practices.
Their rates are usually higher than most carriers, which causes employers to go elsewhere to find Workers Comp coverages.
Internal fraud such as in CA, OH, and others.

There are many more, but I think you may be able to see a trend in these nine. Please note that there are great employees in many of these funds. I am mainly questioning the management of those funds internally and externally by the states.

My Insurance Designations Listed and What They Mean

July 6, 2008 By JL Risk Management Consultants

My Insurance Designations – What Are They?

Insurance designations can be very helpful in building a thorough knowledge of the insurance process.

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One of the questions that I often receive at Workers Comp presentations is, “what are the initials at the end of my name, and what do they mean?” (AIC, MBA, ChFC, ARM)

AIC – Claim professionals handle a wide variety of claims, including property, auto, workers compensation, and bodily injury claims. Earning the AIC designation can improve your technical claim handling abilities as well as your communication and negotiation skills. You can take the standard multiline approach, which covers personal lines as well as commercial lines, property, and liability; or, you can choose among four specialty paths if one of them would better suit your career needs.

ChFC – The Chartered Financial Consultant® (ChFC) designation program focuses on the comprehensive financial planning process as an organized way to collect and analyze information on a client’s total financial situation, to identify and establish specific financial goals, and to formulate, implement, and monitor a comprehensive plan to achieve those goals.The ChFC program provides financial planners and others in the financial services industry with in-depth knowledge of the skills needed to perform comprehensive financial planning for their clients.

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ARM – The Associate in Risk Management (ARM) designation is the undisputed professional credential for persons involved in the risk management field. The ARM designation signifies that an individual working in this field has attained a comprehensive understanding of the risk management process, from analysis to implementation and monitoring, risk retention and transfer, and the latest in advanced risk financing techniques. The ARM designation now has different career paths included in its curriculum.

All the designations are offered through the AICPCU institute. The institute is the best place to attain insurance designations.

Oklahoma State Fund Loses Ground To Private Insurers

July 5, 2008 By JL Risk Management Consultants

Workers Comp Oklahoma State Fund Shrinks

The Oklahoma state fund also known as CompSource has lost more market-share.

loses ground in . As I am originally from Oklahoma, news from the state on Workers Comp is of high interest to me.

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In this case, CompSource Oklahoma, the state-created workers’ compensation insurer, has been losing ground in its net number of policies at a steady clip since 2006.

According to CompSource, there is no regret to the loss in market share. CompSource’s lost policies are an indication of the strength of the private insurance market at the moment. But the data also indicates that hard times for the market may be on the horizon, as private insurers increasingly become the victims of their own success.

According to CompSource Oklahoma, private insurers may increasingly find themselves between a rock and a hard place as they balance the need to keep written premiums low with continued increases in medical costs. Workers’ comp reforms in several states have shown success in reducing the number of claims filed, but the cost of the average claim has grown enough to significantly erode the benefits of lowered frequency.

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According to the latest NCCI report, frequency of claims per 100 workers has declined from 1.7 to 1.1 between 1997 and 2006, but the annual increase in medical care costs per claim averages 8.5 percent over the last five years. Medical care costs are growing faster than the overall Consumer Price Index medical care costs, NCCI reports, accounting for 59 percent of total claim costs in 2007.

Demand for insurance coverage declines during times of economic recession, as employers try to cut costs. At the same time, studies show more workers are likely to file claims during times of economic hardship. Employers may also cut spending on safety-related budget items, contributing to a rise in claims.

The leading private insurer in Oklahoma, AIG, holds 15 percent of the market share. CompSource was the leader in market share in Oklahoma during 2007, at 37.8 percent. During the last hard market cycle, in 2005, CompSource’s market share peaked at 46.9 percent.

Overall, I think that Compsource may be in a state of denial. Losing market-share every month may be due to other factors. From what I have seen, quasi-monopolistic state funds have all had problems when they are state-created. Such prime examples are: