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Failure Spiral – 10 Ways To Tell In A Workers Comp Program


10 Ways To Detect Workers Comp Program Failure Spiral

Your WC program failure spiral usually cannot be reversed after a few years of spinning out of control.

One of my favorite books on entrepreneurship is The E-Myth by Michael Gerber. I have borrowed one of the terms he invented concerning how a company fails over time. I decided to use it to describe a Workers Comp program that is failing and may cost a company greatly or even cause it to fail.

My Top 10 are:

Picture Man Jumping Rocks Wrecking Ball Failure Spiral
(c) 123rf.com
  1. Senior management or ownership views Workers Comp as a quasi-tax or just a part of doing business. This is a slippery slope to paying significantly higher premiums. The adage of “Who is minding the store?” comes to mind. This has to be the first fix if this problem exists or the other nine will be a grand waste of time. Turning this over to your agent is just the wrong thing to do to save $. This is and has always been my first recommendation when analyzing a company’s Workers Comp situation.
  2. Your company uses subcontractors that do not have Certificates of Insurance. Who do you think will pay when it comes time to pay an injured subcontractor who has no insurance? See my previous articles on The Ladder Of Insurance here and here. One caveat is that all certificates must be valid for the length of the job. An expired certificate of insurance is worthless. Keeping a schedule of when the certificates expire is priceless.   2022 Update – Certs are more important than ever.  Make sure that the Certs are verified before allowing a subcontractor to begin work.
  3. You do not know what your E-Mod is this year and what the E-Mod has been for the last few years. Your agent can supply you with these if NCCI or The State Rating Bureau has not mailed you a copy. If your E-Mod has increased greatly and the explanations that you have been given go against your gut feeling, you should seek out expert help quickly.
  4. You or no one in your company has ever reviewed your Workers Comp loss runs on a monthly basis. You are throwing away $$ if you are not doing this on a schedule. I have posted on this so much over the last three years. It is even better if your insurance carrier allows you to look at the claims online. This will also save your company $$ if you decide to have an outside company perform a claims review.
  5. Your company has cut back the Risk Management and/or safety staff to the point of dysfunction. This is one cause of a failure spiral that I see very often in this economy. Companies are looking to cut back any non-essential positions. I have seen this even affect government agencies and schools. This one goes hand-in-hand with #1 on the list. Ranking Risk Management and safety as non-essential will save $ in the short run but will cost your company dearly in the long run. What happens if your safety program suffers and then the economy improves in the coming months (or years)? You will most certainly have a higher E-Mod when paying Workers Comp premiums in better times. For instance, if your E-Mod goes above 1.0, most companies will not hire your company as a subcontractor as you are considered a bad risk overall. Go here for how your E-Mod is like a credit score, but worse.
  6. Not reviewing your Premium Audit statement and bill. This is one of the main subjects covered in this blog. If you look over your premium audit bill and have questions or have the “gut feeling” that something is wrong, it is time to ask a series of questions.

    Picture Of Woman Failure Spiral Holding Bills

One of the old mottoes of this blog was to “Stop just writing checks.”This still applies today. In this tough economy, one cannot just pay a bill without at least reviewing it. If you feel you are in over your head, you may want to seek out a non-agent consultant to help you with this matter.

  1. Sustaining an E-Mod increase of more than 10%. Experience Modification Factors will usually increase and decrease over time. That is a natural part of the workers compensation insurance process. If your E-Mod increases more than 10%, there may be a trend that could increase your E-Mod over the next two years.

One bad accident will not necessarily increase your E-Mod significantly. A series of what may look like minor accidents can wreck your E-Mod. One of the tactics to prevent this from happening is in the blog post before this one. Reviewing your loss runs monthly will uncover the reserves that have been increased on certain claims.

  1. Not seeking out various bids on your Workers Comp program and alternate types of insuring your employees. There are many types of insurance alternatives besides the regular first-dollar insurance program. There are programs such as:

These are but a few of the different insurance coverages under Workers Compensation. Many alternatives are legal and may provide your company with insurance at a lower cost.

  1. Not following the Six Keys to Workers Comp Savings that is in this blog very often. Check out the keys I am referring to here. The keys are my recommended actions once a clam occurs from the second it happens. I have performed studies over the years on large groups of claims. The keys are what I have found will usually cost employers 1600% more on their claims if not followed closely.
  2. Not going with your “gut feelings.”No one company or person knows your business better than you do overall. If you feel your Workers Compensation insurance situation is somehow not right, there is likely something wrong. Most employers that contact us do not necessarily have a specific problem. The company owner or risk manager just feels there is something amiss in their Workers Comp program.

Did your company have any of the Top Ten Failure Spiral lists?  If your company has more than two, the alarm bells need to sound before more of the list is added to the likelihood of a failure spiral.


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Experience Mod Predictions Accurate?

Experience Mod Predictions – Accuracy Depends on Who/Whom You Ask Most Experience Mod predictions can be a tedious process that has cofounded most people working

James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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