Archives for August 2009

Standard Exception Codes 8810 and 8742 – Important Classification Codes

August 31, 2009 By JL Risk Management Consultants

Standard Exception Codes Revisited

The main Standard Exception codes denote 8810 and 8742. We have received so many questions on these two class codes that I thought that I would post about them again. These NCCI (R) Class Codes are also used by the various state rating bureaus in the US. Why are they so popular?

Computerize of Matrices Standard Exception Codes graphic

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These two Class Codes are called Standard Exceptions. What does that mean? In almost all cases a business is given a governing class code. Let’s say that we have a trucking company that does only long haul trucking. Their class code is 7229 (different in certain states). Should the office workers and salespeople be classified as long haul truckers? They should not.

Quite some time ago, the rating bureaus all figured out that if an employer is paying the same Workers’ Comp insurance premiums for a truck driver as a salesperson or office worker, they were being overcharged for employees that were smaller risks. The Standard Exception Codes can apply to almost any company. As they are much smaller risk categories, the rates are much lower than most other positions.

Graphic Free Binary Standard Exception Codes Revisited

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Their is a caveat to Standard Exceptions. If an office worker (Class Code 8810) works for one hour a week as a mechanic or working around the trucks, this employee will be classified as a long haul trucker in this example. Their complete pay (remuneration) will be classified as a long haul trucker.Workers Comp premium auditors have become very adept at separating out the Standard Exception workers from the rest of the company.

There are pages and pages of Class Code information for 8810 and 8742. Office workers and salespeople are not the only workers that can be classified under these two codes. If you use the search box on the right side of the page and search for Class Code 8810 or 8742, you will find some of the other types of workers that can fall under these codes.

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Workers Comp Adjuster How To Contact on Reserves and Payments

August 27, 2009 By JL Risk Management Consultants

Contacting Your Workers Comp Adjuster – A Few Quick Tips

Your Workers Comp adjuster appreciates emails. Let us cover why adjusters prefer emails to phone calls, faxes, or letters.

This is one area that we have received quite a few calls over the last few weeks. If you as an employer feel that you are not sure how to proceed, you are in the majority.

As I have posted in the past, these conversations with your adjuster over Workers Comp payments can save money or cost your company greatly. Knowing which files to cover is crucial. Sometimes asking the wrong questions on the wrong files may cause a reserve increase. If you ever feel that you may cause more harm than good, it may be a good time to call in a reserve expert.

Graphic Cash in Envelope Workers Comp Adjuster Appreciates Emails

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I always recommend never emailing your adjuster and to say that the reserves on the files are too high and you want them reduced. I have seen agents do this. All this will ever do is cause a breakdown in communications.

Please remember that an adjuster can increase or decrease reserves at will – and there are no laws on the books that address how an adjuster handles reserves. Making any communications to adjusters a contentious situation will only make things worse and never accomplish your goals. Almost all Workers Comp adjusters are very overloaded, especially in this economy.

One thing that adjusters like is that you do not contact them if the question is on a payment. Emailing the adjuster’s assistant will usually accomplish what you need to know. Ask your adjuster to provide their assistant’s email address. This is the best person to email on payment questions as the adjuster will only forward your email to their assistant to answer the payment question.

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Workers Comp Adjuster – Suggestions For Working Relationship

August 25, 2009 By JL Risk Management Consultants

Workers Comp Adjuster Communication Always Saves Premiums and Budgets

Communication with your Workers Comp Adjuster. I have posted on this subject a few times in this blog. As I mentioned in the last post, your Workers Compensation adjuster is very important to your overall insurance budget. The following are a few tips on how to establish a working relationship with your adjuster:

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Knowing who handles your company’s claims – we often come across companies that do not know who is handling their files. I suggest immediately finding out the contact information of the adjuster or adjuster who is responsible for your company’s claims.
Phone calls and faxes are not going to get answered as promptly as emails. If you call your adjuster, they will only have to pull the file and get back to you. Phone calls are not recommended.
Emails are great documentation and allow your adjuster to give you an answer after reviewing the file. They are probably overloaded with files and need the time to familiarize themselves with the file. Scanning and attaching documents to your emails may also be a great idea.
Some insurance carriers and TPA’s have a concise claims status on the loss runs. The current status field – usually two or three sentences – may avoid the need to contact the adjuster directly. If the status seems to be out-of-date, email the adjuster to provide them with an new information.
Online claims access is the key to cutting down on the need for multiple communications on the file. As I have posted numerous times, online claims access is golden for knowing the status of the claims. Having online access will avoid you having to make status emails and phone calls to the adjuster.

I will post next time on contacting your adjuster(s) on reserves and payments.

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How Are Your Workers Compensation Premiums Calculated

August 23, 2009 By JL Risk Management Consultants

How Are WC Premiums Calculated?

How are your WC premiums calculated? Your premiums are calculated from a formula that has no less than 34 steps to it. Let’s first look at what is the driving force behind what you pay in Work Comp premiums. The reserves, better known as total incurred on the file, is the catalyst of the whole process.

Picture of Hand Premiums Calculated Holding Dollars

Wikimedia Commons – Milad Mosapoor

As I have said many times before, WHAT YOU PAY IN PREMIUMS HAS NOTHING TO DO WITH WHAT IS PAID OUT ON THE WORKERS COMPENSATION CLAIMS FILE.

The reserves are what the adjuster thinks you will pay out on the file for the life of the claim. As you read this, do you know what the total incurred is for each of your Workers Compensation files? Most employer do not know the answer. Do not feel like you are in the minority. Have your loss run pulled immediately. The Total Incurred figure usually appears as a Indemnity Total Incurred, Medical Total Incurred, and Expense (ALAE) total incurred. Do these Incurred figures look OK to you?

Do not feel bad as most adjusters take 3 years of on-the-job training to feel confident in setting reserves on files.

If not, you may be in for a real shocker. Immediately ask for your loss runs from your insurance carrier that show all of the files that are open. Review them closely to see what you are paying for in your premiums.

If the total incurred for a file looks high to you, ask the adjuster to explain their reserves.If you feel like you need help with the loss runs, consult a Workers Comp claims consultant as soon as possible. Remember, you are charged for THREE years for the total incurred on a claim.Tomorrow – More on the Premium Calculation

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Workers Comp Reserves – Large Reader Response

August 21, 2009 By JL Risk Management Consultants

Workers Comp Reserves – The Skinny

An article this week on Workers Comp reserves generated a huge response. I was going to post on Class Codes 8810 and 8742. This blog had the largest one day total of visitors ever earlier this week.

I will cover more material on reserving in this post. Thanks to all of our n

Picture of Hand Draw Workers Comp Reserves Graphic

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ew visitors, daily readers, and newsletter readers. If you are reading this and want to receive our weekly newsletter of the blog posts, the sign up button is down the page on the right side.

Reserving is actually an art of sorts. As I had told three different reporters this week, we all heal much differently. Our healing and return to work abilities vary as much as DNA varies which is greatly.

I received a large number of inquiries from employers on how to reduce or control the reserves on a single file or group of files. This is very difficult without at least 5 years of Workers Comp adjusting experience. Each state has their own guidelines on Workers Compensation, so how does an adjuster keep up with multiple states? It is very difficult at best.

I am going to let you in on a little secret. There is a person that has the COMPLETE control over your Workers Comp budget. Is it the actuary, agent, underwriter, or loss prevention rep? It is your workers comp adjuster. If you do not have a working relationship with your Workers Comp adjuster, you are burning through cash quickly. Why?

Picture Passing Secret Message Workers Comp Reserves The Skinny

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The only unregulated part of the Workers Comp insurance premium process is the reserves that an adjuster sets on the files? I have dealt with laws and regulations in over 30 different states. I have yet to see rules on how an adjuster sets reserves on a file. There are volumes on how the claims adjusting staff is to handle claims, but nothing on the books for reserves. I have seen many lawsuits on how claims have been handled but only a very few on how the claims were reserved.

How do you establish a working relationship with your Workers Comp adjuster? This post is getting long. I will leave that for the next one. Class Codes 8810 and 8742 will have to wait.

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NCCI Class Code Premium Audit Questions – Match Code to Job

August 18, 2009 By JL Risk Management Consultants

NCCI Class Code Can Be Complex

I have received a large number of questions on NCCI class code over the last month. I seem to receive the most about how to correctly match a company’s jobs to the class codes they have been assigned at the inception of the policy or at the premium audit.

Graphic Of Businessman NCCI Class Code With Question Mark

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The NCCI Class Codes are not necessarily based on a company’s SIC codes or NAIC codes. There are often NAIC codes within a classification code’s description. However, they cannot just be arbitrarily matched to the class codes. The matching can be very confusing and could even cause a company to pay even more on Workers Comp premiums in a down economy.

The easiest way to match your company to the class codes is by examining:

Experience Modification Factor sheets provided by NCCI
Your initial policy
The year-end premium audit and billing

Do they look accurate? That is one of the most ambiguous questions in Workers Compensation as there are almost 600 NCCI or State Rating Bureau class codes that can possibly be matched to your business. It is not an easy process and, as previously mentioned, it could cost you more in the long run.

I will post on Standard Exception codes 8810 and 8742 next time. These codes that can save or cost your company a large amount of $$$.

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Over-reserving Workers Comp Claims – How To Tell

August 14, 2009 By JL Risk Management Consultants

Over-reserving on WC Claims

WC claims Over-reserving analyses are difficult.I usually try to post every two days. I have not posted for four days as this area was too complicated to fit into one post.

Graphic Of Bar Graph Over-reserving with Magnifying Glass

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The bottom line is that it is very difficult if not impossible to identify reserves that are too high without at least 5 – 7 years of Workers Comp adjusting experience.

As I have said numerous times in presentations and in this blog, online claims access is the key to controlling the reserving on your files. If you are not up-to-date on your claims, questioning the reserves on any claim may end up with an unanticipated reserve increase.

Calling attention to the wrong claims may harm your claim reserve levels. Do not inquire about reserves on a set of claims without having some updated reason that would result in a claims reserve reduction. A positive medical status update may be a good reason for a reserve reduction inquiry to the adjuster.

I have 24+ years of experience in claims adjusting, underwriting, and statistical analyses, particularly in Workers Compensation. I find it difficult myself to just look at a loss run and decide whether or not the reserving is not in line with acceptable standards.

If I just have a loss run, I or someone on our staff has to email the adjuster for a status. If you have the availability of customizing your loss runs, ask for the status field to be added. At least then you will know where the claims stand that are affecting your E-Mod or Loss Development Factor if you are self-insured.

I tried to cover Workers Comp reserving over the last two weeks in detail. I hope it was helpful. If you have any questions, please drop us an email.

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Workers Compensation Loss Run Most Important Information

August 10, 2009 By JL Risk Management Consultants

Workers Compensation Loss Run Information Critical

The Workers Compensation Loss Run contains very important information. I have posted almost ten times concerning online claims access. If your company is unable to have online access to your claims, at least the loss run will contain some very pertinent information. If any insurance carrier has a claim open from even 20 years ago, your company should be provided a loss run for that claim. Having loss runs is not a privilege, but a right of the policyholder.

Man hand and cellphone important information in Workers Compensation Loss Run Information

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This may be a good time to pull out your company’s loss run and look at the numbers. As I write this, I am reviewing one for a transportation company. Their E-Mod increased from .9 to 1.6 in two years. One of the main pieces of advice that I can give to an employer is that the E-Mod cannot be fixed in one year. It usually takes 2 – 5 years. Why? The E-Mod is calculated from claims that have been open for less than four years. That is not an exact statement, but I want to keep this as straightforward as possible.

The main number to examine is the outstanding reserve, reserve, unpaid funds, etc. The outstanding reserves may be named with different terms. Regardless, it is the $ that has not yet been paid out on a Workers Comp claim. The outstanding reserves are the forecasted payouts by the adjuster for the lifetime of the file. As I have said often, even though the money has not been spent, it is charged off directly to your E-Mod, which in turn heavily affects your premium.

Clipart of unpaid debts in rope Workers Compensation Loss Run Graphic

The basic formula is Paid Funds + Outstanding Reserves = Total Outstanding Reserves. The total outstanding reserves are the figures that your insurance carrier reports to the NCCI or the State Rating Board. There is little that you can do about what has already been paid. There are a few specialists that we work with that can review the paid funds to see if there were very many overpayments.

The quickest way to cover the claims that may affect your company’s E-Mod is to look at claims that are five years old or less. The outstanding reserves for these claims need to be reviewed. If you look at any of these claims and the $ amount of the outstanding reserves seems too large for the injury, you may have found a way to cut your Workers’ Comp costs.

I could post well over 50 pages of what to look for in the outstanding reserves. These estimations can be complicated. I will cover outstanding reserves in your workers compensation loss run further in the next post.

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Automated Workers Compensation Reserves Concerns

August 9, 2009 By JL Risk Management Consultants

Automated Workers Compensation Reserves Area Of Concern

The Automated Workers Compensation reserves by carriers and TPA’s cause me much concern. Automated reserving is an area of Workers Compensation reserving with certain insurance carriers or TPA that causes me great concern.

Icons of Insurance Automated Workers Compensation Reserves

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I have actually been told more than once by a Workers Comp adjuster that the reserves (no matter how inaccurate) could not be changed as their computer system had set the reserves and they are 99% accurate. I have never seen anything involving insurance that was 99% accurate.

Automated reserving is basically fill-in-the-blanks adjusting. As everyone’s healing period varies greatly, there is no “one-size-fits-all” estimation of the files reserves. As each injured worker is very unique, so should be the reserves on the file. For instance, say that an employee fractures their arm and will be off work for quite some time. The only way that the reserves can properly be set is with the experience of the adjuster at how much it will cost during the lifetime of the file.

However, there are some reserving systems that do not even allow changes to the preset reserves unless a very important development occurs on the file. There are even some automated reserving systems that only allow for a supervisor to make changes after the adjuster has set the initial reserves – usually at 60 days into the file.

Picture Accountant and Client Automated Workers Compensation Reserves Area

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Automated reserves are not the same as an online adjuster’s reserve worksheet. The adjuster can input anything needed to properly estimate the file reserves with an online worksheet. Automated reserves ask very unspecific questions and then semi-magically come up with the reserves. If your company has online access to the claims files, you may be able to see the documentation on the reserving. If you have this type of access, the adjuster worksheets may answer quite a few questions.

I am not saying that all automated reserving programs are inaccurate. Unfortunately, I have not seen one that can forecast a person’s genetics. It may be a good idea to ask your adjuster if they use automated reserving software. If so, these reserves should be followed very closely.

There are two different software packages that will automatically set the reserves. Due to legal concerns, I will not mention them here. There is one monopolistic state that still uses this type of software to set reserves.

Workers Compensation Bill Review Charges Can Be Expensive

August 6, 2009 By JL Risk Management Consultants

Insurance Company and TPA Workers Compensation Bill Review Charges

Workers Compensation bill review fees can be exorbitant. The fees an employer’s TPA or insurance company charge for bill review have always been one of my sore spots when we do reserve and/or claims handling reviews for employers.

Picture of Dollars Workers Comp Bill Review And Medicine

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This is an area that seems to be the most confusing and misunderstood in the Workers Comp claims process. It is a good idea check these fees very closely when looking at your loss runs. However, are the bill review charges under Medical or Expense? There is a great amount of inconsistency on where these fees are located in the payouts.

There are many different combinations of charges by

Workers Compensation bill review companies. A few of them are:

Header Fee – a flat per bill set-up fee
Line Charge – a flat fee for each line processed on the bill
% of Savings – my least favorite way for employers to be charged. The employer pays a % of savings – no matter what they are – back to the bill review company. If you are being charged this way, you may require an immediate bill review by an outside consultant company such as J&L
Network Fee – If you access the bill review company’s providers, your company must pay a % of the savings back to the bill review company. For example, a total initial savings may be 15% of the post fee-scheduled bill.

Picture Drug Deal Workers Comp Bill Review Charges

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There are many other agreements that can be reached on fees Workers Comp medical bill processing. The one are that I mentioned previously in this post is where the charges for bill review are located. You may have to look hard to find them. The charges will not be on the loss run. If you look back into my previous posts, you will see where I heavily recommend online claims access. That is a great way to see how you are being charged for bill review and other charges. You may find some unpleasant surprises.

Travel and Expense Charges to Reserves (T&E) – Area To Check On

August 4, 2009 By JL Risk Management Consultants

Travel and Expense Charges to Reserves – Controversial Subject

Travel and expense charges to reserves creates many questions on how to handle these in the files.

Graphic Of Airplane And Suit Case Travel and Expense Charges Different Country On Globe

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There is one set of charges to reserves that employers should be aware of whether self-insured or not. Travel and Expense charges should always be absorbed by Workers Comp insurance carrier.

These charges should have been negotiated into the premiums paid in regular commercial policies. The same is true for self-insureds. In some of our reviews, we have seen adjusters charging off their expenses incurred into the file, usually under the Expense reserves.

Unless there is some type of hybrid agreement between the insured and the insurance company, these charges SHOULD never show up in the reserves of a file or in the adjustment costs of a TPA. The T&E expenses may not be that apparent if you are reviewing the reserves or the payments made by the insurance carrier.

These expenses are sometimes referred to as LAE (Loss Adjustment Expenses) or ULAE (Unallocated Loss Adjustment Expenses). Once again, these are calculated into the premiums or TPA costs before a policy or TPA agreement is issued. An employer should not have to pay these expenses twice.

There are a few other expenses that have concerned me when reviewing Workers Comp files that should not be covered by the reserves or TPA costs. I will cover those next time.

2019 Update – We have seen many large deductible policies where the carrier included these expenses as part of the ALAE. Review the large deductible side agreements very closely for travel and expense charges.

Workers Compensation Expense Reserves Are Often Ignored

August 2, 2009 By JL Risk Management Consultants

Expense Reserves vs. Medical Reserves

The third and final reserve figures are the Expense Reserves. These reserves have caused quite a large amount of confusion ever since I started my career in Workers Compensation. The confusion always centered on what should be included in the Expense Reserves vs. Medical Reserves.

Picture of Hand Draw Arrow Increase Expense Reserves With Dollar Signs Graphic

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The definition is the funds set aside for the cost of adjusting the Workers Comp file. The following fees are sometimes coded as Expense:

Defense Attorney
Independent Medical Exam (?)
Rehabilitation Nurse (?)
Bill Review (?)
Adjuster Time and Expense (T&E) (?)
Medicare Set Aside Services (?)

I inserted the ?’s as these are the areas that confuse all the claims departments as to where these expenses are included. Quite often, even inside each claims department these expenses are included in different reserves.

The best way to think about this category of funds is what the claims staff decides to directly pay to help adjust or process the claim – not medical or indemnity such as a weekly workers comp TTD check or a medical bill for a physician office visit. The adjuster has more control over the provider than any other type of payout.

There is no need for concern if you are not self-insured. The reserves are still charged to your Workers Comp premiums as one total (Compensation + Medical + Expenses). There are some other areas of concern that I will post next.

There is one expense that SHOULD NEVER be included as any type of reserve in the above list. Which one do you think it is?