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Work Comp expert witness reserve reviews premium audits for employers
Cleaners Asthma raised many questions about the use of cleaning fluids in the workplace. A newly recognized work-related injury or disease that has recently been studied. Workers who have been exposed to chlorine agents or bleach, have been found to have respiratory problems. The study included 13 cleaning employees – all found to have work-related asthma like symptoms.
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Accident year data is often used for statistical comparison analysis. Most of the time when I have Accident Year Data, the information involves:
I like to refer to this type of data as snapshot data as an employer can hone it on a variable or a given period of time and analyze it very heavily. One has to be very careful of just examining one year of accident data. Actuaries and statisticians call this the naive approach to data analysis.
We always recommend using the last five years of data at a minimum if you have that information available. There are many sources to compile this data. The use of Excel or Quickbooks is a great method to analyze the data.
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Does Workers Comp subrogation exist in Workers Comp claim department? Subrogation is one of those under- the-radar terms in Workers Compensation.
It is the act of recovering the amount paid for a loss by an insurer from the entity that is legally responsible. Subrogation is either granted by the terms of the policy itself or by law.
Also abbreviated to subro, it allows carriers to recover losses in the case of a second party’s liability in the claim. Subrogation reduces the amount of the loss for the carrier and the insured and can therefore reduce the insured’s insurance liability.
Update – I have been reviewing a large number of claims files over the last few months. The main weakness I have found is the investigation and notifying the responsible third party of a pending Workers Compensation claim and the payouts.
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Is Workers compensation becoming the forgotten insurance? The talk of the town has, is now, and will be health insurance. I expect the health insurance discussion to continue for many months into the future. My concern is that employers of all types will even more view Workers Compensation as just a cost of doing business. Who can blame an employer with all the new health regulation changes?
I have posted many cost reduction strategies in the blog. The one strategy that almost always pays
dividends in Workers Compensation is when an employer begins to analyze their Workers Comp premiums. The next step is the employer begins to question why they are writing premiums checks for a certain amount.
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Even with the extra burden of the health insurance changes, being vigilant presently on Workers Comp will lower costs well into the future. Please remember what happens today with Workers Comp can affect your premiums for up to five years under the current E-Mod system.
Even thought the darling of the media is health insurance, paying attention to Workers Compensation is a guaranteed money saver. The forgotten insurance can be devastating to a company’s bottom line.
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The Policy Provisions trip up employers when filing claims. Even adjusters sometime have trouble with the policy terms. The section of an insurance policy that defines the requirements of both the carrier and the insured. This section includes information about loss reporting and settlement, subrogation rights, and cancellation and renewal policies. This information can be found on the coverage form or declarations page of your policy and should be reviewed carefully.
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Read your Workers Comp Policy the opposite way. One of the areas of Workers Comp policies where most of our clients seem to run into problems is the rules and conditions that are in the policy, but not in the Declarations Page. When one of our client sends us their policy, we always read it back to front. The front is the obvious part.
A Workers Comp policy has many rules and regulations that heavily affect areas such as disputing an audit, cancellation, and many other parts just as important as what is in the first few pages. The advice we usually give is to read the policy from back to front, in other words – read the fine print.
Another helpful piece of advice is that not all policies read the same. Each time you switch Workers Comp insurers, the polices can differ greatly after the first few pages. There are state rules that govern the policies. However, the states do not dictate how each policy is to be written in each and every case.
As noted by NCCI(R), Workers Compensation is becoming more expensive per unit of coverage. Knowing what is in your policy is another great cost saver. If you have questions about your policy, email your agent and ask them and/or Google(R) the term.
Reading the policy from back to front may take about an hour. It is an hour well spent.
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A voluntary market compares to free market version of workers compensation insurance. Most states set the Advisory Loss Costs. Carriers deviate from the Loss Cost rates by filing loss cost multipliers (LCM)
A group of insurers in a competitive environment who underwrite coverage to insureds based on risk or market dynamics. Usually, employers with low risk (E-Mod) will be placed in the voluntary market. Employers that are more risky may still be placed in this type of market, but it may be very expensive coverage.
The Workers Compensation market itself may dictate whether a voluntary market for a certain business segment exists or not. Having a low E-Mod is not guarantee that an employer will be placed into the market.
If an employer cannot be placed in the voluntary market, they will have to turn to the assigned risk markets for coverage or to some type of alternative insurance plan such as a Captive.
States with assigned risk pools provide a much more expensive coverage if the insureds cannot find coverage elsewhere. The drawback consists of up to a 400% increase over market rates.
The reason for the massive increase in rates is the assigned risk pool is the “last change saloon” for employers that cannot find coverage in the voluntary marketplace.
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Montana has the highest workers comp rates. According to an Oregon-based report as covered by the Watchdog, Montana is the nation’s highest for Workers Comp Costs.
The Treasure State recently produced an RFP for a review of their Workers Comp system. According to the RFP, an outside audit has never been performed for its Workers Comp system. We were going to bid on the RFP, but it was too ambiguous for us to provide a bid. J&L does not bid on ambiguous RFP’s. You may end up contracting for something that was not expected at the beginning of the process. The state is not alone when producing ambiguous reviews for WC reviews.
The other four states that topped the list were Alaska, Illinois, Oklahoma and California. The one that surprised me out of this list was Oklahoma. Oklahoma had basically used Compsource as the state fund, then privatized it on 1/1/10.
One has to remember in these studies that only certain variables are examined. The title of the study should read “Out Of The Variables We Examined”.
I will research the study and each state in turn to see what caused the higher costs for Montana.
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A Prohibited risk is any class of business that has been excluded by the underwriters of an insurance carrier. These classes of businesses will not be insured under any circumstance. This is also known as uninsurable risk.
Workers Compensation insurers avoid certain markets resulting in groups of uninsurable risks. The state assigned risk pools prevent a business from being completely uninsurable. The tradeoff is exorbitant rates.
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Preferred risk is any risk that is considered to be a better risk. These risks have a lower expectation of incurring loss and if losses are incurred, they will be less significant. For example, a business who has a effective safety program in place can usually get a reduced rate because the chance of accidents occurring are far less.
The premium reduction for the preferred risk results from their E-Mod or Loss Development Factor.
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The term Net Loss is seldom used in Workers Compensation. The figure represents the final paid loss regardless of the reserves that were set on the claim. The final paid loss may differ from the Total Incurred if the file was closed after the Unit Stat Date.
The net loss would be reduced if there are subrogation, reinsurance, or Second Injury Fund recoveries. The best term to use with Workers Compensation is Total Incurred as it represents the numbers that will be part of the Experience Mod calculation.
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The NCCI says claims costs are increasing but the number of workers comp claims is decreasing . According to a very recent report by NCCI(R), the downward trend in the number of Workers Compensation claims has continued for 2009. The disappointing factor for cost cutters is that the actual costs per claim has increased. NCCI always does a great job in analyzing data and drawing various conclusions.
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My take on the numbers being down with costs increasing are threefold:
If anyone has more to add or disagrees, please post a reply or send me an email.
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In workers comp, loss constant is a flat amount added to the premiums of smaller businesses.The purpose of adding it in is to offset any unusual or more than average losses or claims. The smaller business can have a higher loss ratio. The Loss Constant offsets the risk of insuring very small businesses.
If you are a small business, then you probably did pay more if you are in a state that allows them..
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Most hazards cause workers comp premiums to increase eventually. Any condition that increases the chance that there will be a loss. Hazard exist in every workplace. Examples could be improper storage of office supplies which contain chemicals, or a slippery floor in a kitchen. Recognizing hazards and correcting them will provide a safer workplace, less risk, and ultimately lower premiums.
Employers with safety hazards in the workplace are penalized by the rating system through E-Mods and Schedule Rating Factors. Many carriers will not insure an employer that allows preventable safety hazards.
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These are the Workers Comp year end strategies if your company’s Workers Comp policies renew on January 1, there are at least 10 strategies to implement to cut your costs. The first five are
7. As I have posted many times, YOU MUST HAVE ONLINE ACCESS TO YOUR CLAIMS. Waiting for a monthly or quarterly paper loss run is throwing away $$$. Online access is worth paying a little extra for the service.
8. Make sure that you document all communications with any insurance personnel such as adjusters, auditors, agents, customer service. I always recommend sending a letter or email. Phone calls work well as a follow up to your letter or email. Phone calls are not a great standalone documentation tool.
9. Read your Workers Comp policy from front to back before renewal. This is especially important if you are switching insurance carriers. Ask your agent for a copy of the WHOLE policy. You will find some very interesting requirements and agreements from the carrier.
10. Work the numbers from the check you are going to write at renewal back to what was the basis for the charges. This is very TRUE for your yearly premium audit bill. You have the right to know what you are paying for at a renewal or an audit.
11. Bonus Before you renew your Workers Comp policy, ASK QUESTIONS. No one in the insurance industry, even your agent, is going to frown upon your inquiries. Companies that ask questions save $$$.
If you have any questions on the 10 Strategies, please drop me an email at [email protected]
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The first dollar coverage in A WC policy is the norm. The type of insurance in which payment of all losses up to the policy limits is provided without the use of deductibles. Because the insurer assumes more risk, the premiums will be higher. This form of insurance is also available for many types of policies other than workers compensation.
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This is sometimes referred to as pie chart insurance (coinsurance). One of the parties that provides additional insurance to the same person or policy. A Coinsurer provides partial coverage along with other coinsurers. Coinsurers are generally used when the amount being covered is too large for a single insurer.
States such as Indiana allow for coinsurance on a WC policy if properly applied.
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We often hear that Workers Compensation premiums are just part of doing business. Would premiums then be the same as a tax? The final answer is no. I thought I would list a few of the similarities and differences.
The following are similarities between Workers Compensation premiums and payroll taxes – they are both:
The bottom line is that Workers they are are not just part of doing business like taxes. Worker’s Compensation was never designed to just be a component of doing business. Do not just write a check as if you are paying for the electric bill. Participate in the Worker’s Compensation audit process by reviewing everything that crosses your desk from before the policy is signed until the final audit bill arrives usually 30 days after your premium audit.
If you feel something is wrong with your Workers Comp policies or audits, look them over very closely. Stop just writing checks is one of our old mottoes. The Workers Comp bill you receive is not just part of doing business. Check out how they figures were arrived at before paying the bill, especially in this economy.
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The unearned premium represents the portion of a Workers Comp Policy Premium that has been paid beyond the current period. The Unearned part of the term means the insured has not yet used that part of the premium in their policy. If the insurer or insured decides to cancel the Workers Comp policy there will be a refund due depending upon the final audit less any short-rate penalties.
Also known as a Contractor and/or Owner Controlled Insurance Policy, a Wrap Up Policy is a single policy naming all participants in a project as insureds. The use of a Wrap Up Policy for workers compensation provides coverage without each individual worker or contractor purchasing it’s own policy. The industry most likely to use this type of policy is construction.
An employers Risk I.D.# is assigned by it’s rating organization. Each employer’s Risk I.D. # is uniquely it’s own. Through the use of this system, each employer’s past Workers Compensation experience can be isolated and tracked.
The true core AIG is still growing steadily in the Workers Comp arena. In the last post, I included a passage from a very recent publication by the US Treasury Department on the TARP program.
As I have posted very often, the core of AIG’s business was never going to fail. The financial products area was failing, but AIG the insurer was doing well. The point that the Feds missed was that a bailout was never needed for the insurance services part of the business. I have friends that work for AIG that I verified this with before posting anything on the bailout.
Splitting the company into the two halves may have exposed the underbelly of a financial services area (not just AIG) that was very risky at best. However, in my opinion AIG Insurance Services would have had a good balance sheet. The Feds may have decided to mix the funds to not create a panic if AIG’s financial services area had to be bailed out on a standalone basis.
The Government Missed The Point of AIG.The following is a passage from a document published by the UNITED STATES DEPARTMENT OF THE TREASURY – OFFICE OF FINANCIAL STABILITY Troubled Asset Relief Program:
Two Year Retrospective. This is better known as the TARP program. Yes, I did read this to see the Feds take on the crisis. Approximately 9 pages were dedicated to the AIG Bailout. I am going to include the passage and then comment on it in the next post.
At the time, AIG was the largest provider of conventional insurance in the world, with approximately 75 million individual and corporate customers in over 130 countries. AIG’s assets exceeded $1 trillion. It was significantly larger than Lehman Brothers. It insured 180,000 businesses and other entities employing over 100 million people in the U.S. It was a large issuer of commercial paper and the second largest holder of U.S. municipal bonds. AIG’s parent holding company, which was largely unregulated, engaged in financial activities that strayed well beyond the business of life insurance and property and casualty insurance. Its financial products unit was a significant participant in some of the newest, riskiest, and most complex parts of the financial system.
In the chaotic environment of September 2008, the Federal Reserve and Treasury concluded that AIG’s failure could be catastrophic. Among other things, if AIG had failed, the crisis would have almost certainly spread to the entire insurance industry, and its failure would have directly affected the savings of millions of Americans in ways that Lehman’s failure did not. Therefore, the government took action to protect the financial system.
The Ballast Value comes from an old sailing term. Sailors were known to put large rocks in the bottom of their ships to enhance stabilization.
In general, the definition of Ballast is something, such as a weight, added to give stability , usually a ship. It is an old English word. In Workers Compensation, it is the factor of the experience rating formula that prevents the x-mod from shifting too high or too low. As expected losses increase the value increases linearly not necessarily proportionally.
The ballast variable in the E-Mod equation is G
ERM is the acronym for Enterprise Risk Management. A Practice that attempts to ensure the risk position of a company or organization as it tries to satisfy it’s goals. There are just a few steps to this practice but they are definitive. One is clearly defining the strategy and goals of a company and then forecasting any possible events that may keep the organization from achieving it’s goals.
Workers Comp Claim Reserving should be followed closely as part of your workers compensation premium reduction program.
One of the most mystifying areas of Workers Comp is in the area of reserving. I have written often on reserves, as believe it or not, they are just as mystifying to the claims adjusters and supervisors. I can guarantee that if you set down ten adjusters/supervisors in a room, give them the facts on a Workers Compensation file, you will receive a spectrum of reserve levels. Why?
One thing to point out early in this post is that setting reserves on any Workers Comp file is an art unto itself. I have seen software packages that will set the reserves for adjusters – SOME OF THEM WITHOUT AN OVERRIDE FUNCTION. You can add the software package to the spectrum of reserve levels in the room of claims adjusters and supervisors.
The Explanation of Benefits (EOB) is a new term in the Workers Compensation industry. Until recently, EOBs were common to the Health Insurance industry and are sent out to claimants so they are aware of the benefits that their insurance carrier is paying out on their behalf.
Recently, EOBs have been sent out to Workers’ Compensation claimants by a handful of carriers, self-insureds, and TPA’s.
Adjusters send these out as soon as they consider a claim compensable.
A Hard Market is the term used to designate the period after a Soft Market. It usually occurs after a wide-scale catastrophe that ends a soft market. During this time, standards for underwriting become more rigid, premiums rise as well as profits, and competition lessens.
A soft/hard market in workers’ compensation can be very state specific. California survived many in the 1990s.
This market condition occurs in any type of economic situation when there are more buyers than sellers. Price increases are expected.
Part of a cycle, the term soft market describes the time when premiums are low, profits dwindle, and competition increases. As the number of claims increase, insurance carriers can no longer afford to lower premiums to increase volume. When this happens, the soft market portion of the cycle comes to an end.
Agents and underwriters also use the term buyers’ market.
The term in general economics means that prices remain low due to more sellers than buyers.
The California Governor signs workers comp bill quietly. California has a great system for finding out if the contractor you are about to hire has Workers Compensation insurance.
You can also find out whether or not your potential contractor has been suspended from the Contractors State License Board for some reason. I am sure there are other states that have something similar, but this one seems to be the model of how it should look and operate.
Yes, it is California only again. However, what happens in CA will happen in the rest of the country in the next few years.
(1) Existing law requires private employers to secure the payment of compensation by obtaining and maintaining workers’ compensation insurance or to self-insure as an individual employer or as one employer in a group of employers. The Contractors’ State License Law requires every
workers’ compensation insurance even if he or she has no employees. Failure to comply with this requirement results in the automatic suspension of the license. However, with respect to a license that was active on January 1, 2007, and included a C-39 roofing classification, existing law, until January 1, 2011, requires the registrar of contractors, in lieu of suspending the license,
to remove the C-39 roofing classification from the license if the contractor does not have workers’ compensation insurance coverage. This bill would extend the operation of those provisions until January 1, 2013, with respect to a license that is active on January 1, 2011, with a C-39 roofing classification. The bill would require the suspension of any license that, after January 1, 2011, is active and has had the C-39 roofing classification removed, if the licensee is found by the registrar of contractors to have employees and to lack a valid Certificate of Workers’ Compensation Insurance or Certification of Self-Insurance.
The Retaliatory Employment Discrimination Act involves Workers Comp in certain cases.
The Department of Labor’s Employment Discrimination Bureau (EDB) is responsible for the enforcement of the Retaliatory Employment Discrimination Act, or REDA. Through this act, employees who are involved in a Workers Compensation Claim are shielded from any form of retaliation or discrimination by their employers. Complaints of retaliation or discrimination must be reported within 180 days.
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