Archives for August 2013

Two Books That Every Insurance Employee Should Read

August 29, 2013 By JL Risk Management Consultants

Two Books That Will Help Any Person In The Insurance Industry

The two books that any insurance employee should read contains serious dialogue with Drucker and lighter fare by Heller. Many times over the years, I have been asked what book that I would recommend for people working in insurance companies or TPA’s. Many employers have asked the same question.

The first book that I would recommend is for anyone working in a corporate environment. The book is recommended for many MBA curricula. Peter Drucker’s book simply called Principles Of Management is one that every new hire should read as soon as they land the job. A great article on Peter Drucker is here. There are hundreds of copies of this book on sale on Ebay on the cheap.

I have had to read the book three times in my collegiate career. Interestingly, it was like watching an old Hollywood movie again, I found different things in the book each time I read it. Even if you are not or will never be an insurance company worker, the book still applies in almost every business situation.

Apple was one of the main followers of his book. Treating employees as assets still rings true today. I recommend to at least look at the article I linked to in the second paragraph. Drucker was not kind to HR departments. You may want to prep yourself if you have HR responsibilities.

Young Woman Reading Two Books At Library

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The second book is Catch-22. It is one of the most confusing books to read on the first pass. The movie was even more head-spinning. Joseph Heller is/was a master at showing how two conflicting interests can paralyze or diminish the output of an employee. Ebay once again has the book for $4.

Insurance workers seem to constantly have two differing/conflicting forces competing in their decisions. Every decision has Catch-22 involved in some way or another. All insurance carriers do push for as much production as possible. The time constraints are well known especially in the Workers Comp industry. For instance:

Adjusters have employers, TPA/Carriers, claimants all competing for their attention. They are in a Catch-22 situation as the employer and TPA/carriers want the file settled for the lowest amount possible while the employee/claimant wants to be paid as much as possible.
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Underwriters wan to help obtain or renew the insured without giving away the farm
Agents want to provide service for their clients while being constantly pushed for more volume
Premium auditors are pushed to cover as many audits in the week as possible which can sometimes make a thorough review next to impossible
Loss Control faces the same time pressures as premium auditors – having to cover many clients in a short amount of time while providing great safety recommendations

There are many other in-the-trenches insurance positions that I have not mentioned overall. The following is a synopsis of Catch-22. Does it sound familiar or am I just dangerously sane?

Wikipedia – Goszei

Catch-22 is like no other novel. It is one of the funniest books ever written, a keystone work in American literature, and even added a new term to the dictionary. At the heart of Catch-22 resides the incomparable, malingering bombardier, Yossarian, a hero endlessly inventive in his schemes to save his skin from the horrible chances of war.

His efforts are perfectly understandable because as he furiously scrambles, thousands of people he hasn’t even met are trying to kill him. His problem is Colonel Cathcart, who keeps raising the number of missions the men must fly to complete their service. Yet if Yossarian makes any attempts to excuse himself from the perilous missions that he is committed to flying, he is trapped by the Great Loyalty Oath Crusade, the hilariously sinister bureaucratic rule from which the book takes its title: a man is considered insane if he willingly continues to fly dangerous combat missions, but if he makes the necessary formal request to be relieved of such missions, the very act of making the request proves that he is sane and therefore ineligible to be relieved.

Catch-22 is a microcosm of the twentieth-century world as it might look to some one dangerously sane — a masterpiece of our time.

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Two Strongest Phrases In Workers Comp Based On Manners

August 28, 2013 By JL Risk Management Consultants

The Two Strongest Phrases Have Manners Behind Them

The two strongest phrases in Workers Comp causes more successful interactions than almost any other words. In the age of texts, tweets, emails, Facebook posts, etc., there is always a great time to be old school. In any insurance job, from agents to underwriters, to especially claims adjusters, one is going to have brushes with the general public that may be less than gracious. Staying professional in these cases seems to pay off in large dividends.

Clipart of Two Strongest Phrases in Workers Comp

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The strongest phrase (not counting please and thank you) will always be – “How may I help you today?” This is not a disarming statement. It is more of a “getting to the point” statement. Offering assistance will always be the best way to stem any type of emotional response from a claimant, policy holder, etc.

The other part of the phrase is to follow through with anything promised on a timely basis. That is a subject for a post on another day.

The other side of the table, so to speak, can always use the phrase, I need your help. In almost any business situation including insurance-based conversations, people will naturally attempt to help. That is the basic underpinning of the help blogs (such as this one) or any type of advice website. People want to help.

Sites such as Tom’s Hardware, a massive IT help site, were built on being the platform between the person needing help and the person with knowledge to help them. The website is a very simple concept that provides answers to almost any computer, smart phone, or software problem.

I have been asked by policyholders, claimants, claimant attorneys, vendors, and many other parties in the insurance process to assist with a problem. My answer is usually the same – Call or email the person that is handling your audit, policy, claim, etc. and politely ask for their help upfront.

Patience is another virtue that has been lost to some degree on the “instant info” society of today. Giving adequate time to the person that is handling your problem is just as important as asking for their help.

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Settlement Authority – Should Adjuster Ask Insured?

August 26, 2013 By JL Risk Management Consultants

Settlement Authority Should Be In TPA Contracts or Policies

When should the adjuster settlement authority be approved by the insured? One of the most repeated comments we hear when reviewing claims loss runs is an adjuster settled or agreed to accept a file without the insured agreeing to the settlement. We often hear that an adjuster increased the reserves to a very high level without consulting the employer.

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Almost all insurance and TPA policies for Workers Comp coverage will have a clause in it that reads something akin to:

We have the right to reserve and settle files as we deem necessary.

That is not necessarily the exact language. However, if you pull out any policy, be it auto, liability, Workers Comp, etc. the clause is included somewhere in the text. The settlement part of the clause usually refers to some third party. In this case, it is the injured worker.

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The best way to avoid any loss run surprises IS AT CONTRACT SIGNING TIME. Many larger employers, especially in a TPA environment, will ask that if the file reserves reach, for example, $100,000, the reserve increase and all subsequent ones to the file are only entered into the TPA’s system with written approval from the insured.

A similar limit can also be instituted for any settlements, of say, over $50,000. This notice is very critical for TPA’s working with a self-insured.

Some carriers will also make sure the adjuster receives employer permission to settle or make a large file reserve increase. However, the service is usually an expensive cost add-on in quite a few WC policies.

If the carrier or TPA agrees to insured pre-authorization, the reserve or settlement limit should not be set too low. I have seen authority levels at $10,000. The adjuster tends to spend so much time on making sure they have the proper authority with such low levels that they are handcuffed in their ability to handle the file.

Most claims adjusters also have to have the proper company internal authority. Turning the adjuster into an authority-seeker takes them away from their main job tasks.

One of the reasons to have the adjuster ask for settlement and reserve authority is to avoid violating reinsurance contracts. Most reinsurers want to hear from someone when a file reaches, for instance, 50% of the retained level – when the reinsurer has to start paying out funds.

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This is one area that is not well-tended. One way to trigger a massive reinsurance audit is to have a file blow the $250,000 retention level without the reinsurer every knowing about the file. This happens more than one might think even in the age of advanced IT.

The level of insured authority will vary from state to state depending on how expensive files are in the states of coverage. Emails are great for documentation. Having the adjuster call for settlement or reserve authority is basically wasting their time.

Online access to all claims, or at least receiving a monthly loss report will avoid any surprises down the road. Online access is very well worth the extra charge if the TPA or carrier does not provide the service for free.

©J&L Risk Management Inc Copyright Notice

Six Ways To Leverage Your Workers Comp Premiums For Savings

August 22, 2013 By JL Risk Management Consultants

Six Ways To Leverage What Premiums Are Paid Out

The six ways to leverage your Workers Comp premiums are listed below. Workers Compensation is almost always considered an expense. What if an employer decided to analyze WC as an investment?

Picture Of Hand Presenting Six Ways Investment Concept

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The definition of leverage in this case is borrowing or using other funds to increase the rate of return on an investment. How does one leverage Workers Comp premiums? The following ideas on leverage are based on Workers Comp as an investment. They will not work when viewed as an expense.

1. Self-Insurance – by not paying the insurance company’s fees and overhead, the employer can retain this capital to invest elsewhere. This is a great way to reduce capital outlays if an employer does not experience a spate of bad accidents. The risk and reward are both high.

2. PEO’s (Professional Employment Organization) An employer can leverage their premium outlays by the pay-go concept. Workers Comp is only paid as payroll is incurred. There are no huge outlays upfront. PEO’s are one of my favorite risk-shifting techniques.

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3. Large deductibles – basically modified self insurance. The main difference from self insurance is the carrier will still report Mods to the rating bureaus. The claims handling fees can be much more expensive than with pure self insurance.

4. Examine past policies and audits – recovering already expended funds can be looked at as “found money.” Employers are able to reinvest these funds into the company. One of the lower risk high returns of Workers Comp.

5. Safety Enhancement – while some employers consider adding in or enhancing a safety program as too expensive, we have seen a 4 to 1 return on investment when a new or improved safety program has been initiated. Keeping employees safe and out of the claims system reaps rewards for all involved.

6. Captives – the “cutting edge” method of leveraging premiums. Offshore captives allow for certain tax benefits. Employers are able to use funds that would have been invested in premiums in other parts of their business. There are many options for employers using captive arrangements.

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National Academy Of Social Insurance – Employer Cost WC +7.1% 2011

August 21, 2013 By JL Risk Management Consultants

National Academy Of Social Insurance (NASI)

The NASI takes on a monstrous task every year of attempting to make sense of Workers Comp data on a national basis.

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NASI’s recent report and press release basically had a misleading headline that Workers Comp costs increased due to an economic recovery. That is not really included as an outstanding component of their underlying study.The NASI report indicated the increase was due to increases of:

4.5% in medical costs
2.6% in cash benefits paid

The NASI drew data for 2011 from many sources – mainly

Bureau of Labor Statistics (BLS)
NCCI – 28 states
WCIRB – California
Best’s Ratings

The economic growth theory was checked against NCCI’s State of The Line and WCIRB’s recent reports on % premium growth. Please note the PDF files will take a few moments to download.

NCCI’s State of The Line, which everyone involved in WC should read, mentions nothing about an economic recovery as the reason for an increase in employer costs. A very similar figure to NASI’s report can be found by adding the medical severity cost to the indemnity increase. Both of those figures totaled to 7.5%.

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The WCIRB also did not mention an improving economy as the reason for the increase in the employer costs of Workers Comp for 2011 in California. The extrapolated figure for CA from the WCIRB’s numbers was approximately 5%.

The BLS figures were not examined as their history of multiple revisions would not help. A.M. Best was not researched for data.

After reviewing the NCCI and WCIRB data, the reason for the increase in employer costs had very little, if any, due to an economic rebound. Instead, the increase in medical costs in 2011 seemed to be the main reason for the increases.

The one very tough task the NASI undertook was converting Total Incurred (Paid + Reserve) to paid-only figures. This would have been a very difficult task.

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PPO or MPN Network Where Paying More Is Goal

August 21, 2013 By JL Risk Management Consultants

PPO or MPN Network vs Supply and Demand

A PPO or MPN network where paying more remains the goal? This article is related to yesterday’s post on Obamacare and medical treatment rationing.

Picture Of Nurse Taking Patient BP MPN Network And Pulse

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A phone call from one of our long-term readers basically said that I was crazy to think that Workers Comp payors would ever pay MORE for Workers Comp treatment than the fee-scheduled amount.

As I mentioned yesterday, the basic economic model says that if the supply of something stays the same, but the demand increases prices will increase. The model has been in existence for over 300+ years. The model has been proven as accurate again and again over that span of time.

However, the basic economic model (by Adams) did not count on any governmental interference in the marketplace. The basic idea of rationing comes into effect when the government tries to keep prices in check by some type of price-adjusting plan.

The effect of price ceilings – which is the basic effect of Obamacare – is basically rationing. This is a great explanation using gasoline prices on how the government holding prices down would create a shortage. Some of us are old enough to remember the gas lines of the 1970’s. The PDF file may take some time to load. It is worth the read.

If healthcare prices are to be tamped down from the actual market, then the natural result will be rationing. The PDF indicates that one of the ways to work around shortages is a grey or black market where the same service will have a much higher price.

Wikimedia Commons – Obama

The going rate for medical network reductions is 15%. What if to have your injured workers seen timely you were willing to pay an extra 15%? Page 2 of the PDF points out that the seller, (medical provider) will get to choose whomever they will provide the service to overall. They would likely be the ones that are willing to pay the most.

The PPO effect of volume causing a discount in price would be thrown out the window as now the medical providers do not need the volume. Why would they take a 15% hit if the medical providers are going to not need any additional volume?

The 30% turn in additional medical costs would be staggering as 60% of Workers Compensation claim dollars are now being spent on medical.

This may not all come to fruition. Medical treatment rationing may never become a reality. However, if you are a risk manager, business owner, or medical provider, this is something that has to be part of your 5 – 7 year plan.

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Could Obamacare Cause Workers Comp Medical Treatment Rationing?

August 20, 2013 By JL Risk Management Consultants

Medical Treatment Rationing Possibility

Would Obamacare cause Workers Comp medical treatment rationing? Over the past few years, I had commented very often on the interfacing of Obamacare with Workers Compensation.

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The number one effect that seems to go unmentioned is the fact that medical care may (keyword may) be rationed overall.

My opinion is not based on any political agenda. It is based on the economic models of Adam Smith developed in the 1700’s – basic supply and demand. One of the hallmarks of the recent economic models (all based on Smith’s) is that if demand is increased for a good or service while the supply stays constant, the price will increase. However, if there is any type of governmental interference, then the whole market goes completely out of whack.

Governmental quotas, price supports, etc. have always thrown the market out of kilter. Would Obamacare be seen as the same type of governmental interference in the market? Supposedly, the numbers of “covered Americans” would approach 100%.

The basic Smith economic models says that when there is an increase in demand – more people seeking healthcare – while there are no more physicians or other healthcare providers being added, then where does that leave the injured Workers Comp patient?

Nurse Preparing Medical Treatment Rationing Syringe Injection

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What happens if instead of seeing the physician monthly all of a sudden all Workers Comp patients could only been seen bi-monthly? If a carrier/employer/self insured is paying temporary total benefits, this could be a very vexing problem.

If I was an adjuster, that would drive me totally bonkers. The part of my caseload that was drawing benefits would now be competing with the 100% -covered Americans. Would a boutique network established with for instance, an orthopedist, let my injured workers be seen more often?
The boutique WC network would be a carve-out of a network while an insurance carrier or TPA would pay MORE to have their injured workers seen on a timelier basis.

Of course, none of this may come to fruition. Many articles have been published where Obamacare may not actually cover 100% of Americans. Regardless, there will still be a larger number of people competing for those medical care slots.

©J&L Risk Management Inc Copyright Notice

Offshore Captives Are Examined Again By IRS – Audit Guide

August 15, 2013 By JL Risk Management Consultants

IRS Takes Another Look at Offshore Captives

A few years ago, I warned that the IRS was beginning to examine captive more closely – mainly offshore captives. At approximately, the same time, the IRS decided that offshore captive arrangements were just fine. There was no need to make any new rules at that time.

Picture Of Internal Revenue Service Offshore Captives Place

Wikimedia Commons – Joshua Doubek

I was astounded that offshore captives were left virtually untouched in reference to taxes. I had always thought there was a very large pool of funds for the US Government to just leave alone and not devise a method of taxation.

According to a recent Business Insurance article, the IRS is beginning to examine the very small captives under the 831(b) tax election. One of the hallmarks of any captives is they must have some insurance purpose with elements of risk management.

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The IRS has now said that without the elements of insurance and risk management, the captives are basically tax shelters. According to Business Insurance article, terrorism insurance is being viewed by the IRS as often abusive tax shelters.

I decided to see what the IRS says about captives. The first entry when searching on the IRS website for captives is The Foreign Insurance Excise Tax Auditors Manual. I found this to be interestingly the first search result. Chapter 6 is the part of the audit manual that covers captives.

Wikimedia Commons – US Federal Government

Below is a great summary for the IRS captive auditor when auditing captives. The scenarios give a very stark view of how the IRS views many types of captives. This does speak to the 831(b) tax election for captives.

One can easily derive what types of captives would cause an unnecessary tax burden from the IRS. As the Federal Government searches for funds, we will all surely see more cases and rules in the headlines.

Chart of Cases and Rulings for Offshore Captives Issues

The chart below summarizes the revenue rulings and court cases discussed in this chapter.

Scenario	Result	Reference
1. All premiums paid directly from the parent to a captive.	Income Tax-No insurance expense Excise Tax-Potential adj. if captive reinsures with a taxable foreign reinsurer.	Rev. Rul. 2001-31 (Facts & circumstances of case to be considered as guided by case law)
2. All premiums paid from parent to unrelated agent then ceded to captive.	Income Tax-No insurance expense Excise Tax-Potential adj. if captive reinsures with a taxable foreign reinsurer.	Rev. Rul. 2001-31 (Facts & circumstances of case to be considered as guided by case law) Carnation Co.
3. Premiums paid from parent to captive along with brother/sister premiums.	Income Tax- No insurance for parent but may be insurance for relateds. Excise- Potential adj. if captive reinsures.	Humana Harper Group
4. Premiums paid from parent to captive along with unrelated third party premiums.	Income Tax- Possible insurance if percentage of third party premium is significant. Excise Tax-Tax due on foreign premiums if determined to be insurance.	Sears Roebuck AMERCO Ocean Drilling Harper Group
5. Captive is owned by multiple owners.	Income Tax- Insurance Excise Tax- Tax due on foreign premiums.	Rev. Rul. 78-338 (No economic family theory position)
6. Captive owned by multiple owners with separate accounts for each owner.	Income Tax- No Insurance Excise Tax- Potential adj. if captive reinsures.	Black Hills Corp.

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WCIRB ‘s New Mod Formula Hefty Effects Small California Employers

August 14, 2013 By JL Risk Management Consultants

WCIRB ‘s New Mod Formula – Small Employers Must Enact Safety Programs Now

WCRIB’s new mod formula will heavy affect small employers with a less than stellar safety record.

Last Friday, I briefly covered California’s WCIRB and the change in the X-Mod Calculation effective 1/1/2013. I thought I would cover the formula to show smaller employers in CA that the new X-Mods will no longer have a smaller employer discount.

Hand Holding Calculator With Mod Formula Icon

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This may be getting into the numbers-geek area. Hang in there and read it through once or twice. You will see that small employers need to invoke or improve their safety program along with monitoring their loss runs very heavily this year and forward.

The WCIRB, in my opinion, found an anomaly that, instead of leveling the playing field between larger and smaller employers, actually gave too much of an advantage to smaller employers. One could say the safer smaller employers and all larger employers were subsidizing the smaller unsafe employers.

The old formula for calculating X-Mods was:

[(Ap x Cp) + (Ep x (1 – Cp))] + [(Ae x Ce) + (Ee x (1 –Ce))]
Modification = ——————————————————————————
E
Ap = Actual Primary Losses
Cp = Credibility Primary Value
Ep = Expected Primary Losses
Ae = Actual Excess Losses
Ce = Credibility Excess Value
Ee = Expected Excess Losses
E = Expected Losses

The Primary Loss is from $0 to $7,000 Total Incurred
The Excess Loss is any part of the loss greater than $7,000 Total Incurre

Actually the new X-Mod formula is no different. One has to look further into Cp side of the equation. The Cp is bolded in the above equation.

This is the beginning of the new Credibility Table – Effective 1/13/2013

Expected Losses Credibility Primary Credibility Excess

Below — 14,722 1.00 0.00
14,723 — 16,505 1.00 0.01
16,506 — 18,433 1.00 0.02
18,434 — 20,515 1.00 0.03
20,516 — 22,760 1.00 0.04

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This is the beginning of the old Credibility Table – Effective before 1/13/2013

Expected Losses Credibility Primary Credibility Excess

Below — 6,456 0.38 0.00
6,457 — 6,733 0.39 0.00
6,734 — 7,019 0.40 0.00
7,020 — 7,316 0.41 0.00
……
38,438 — 40,147 1.00 0.08

What does this all mean???

The WCIRB has eliminated giving credibility to and lessening the impact of smaller losses. The X-Mod formula will now be:

Ap + (Ae x Ce) + (Ee x (1 –Ce))
Modification = —————————————————————————
E

There was some type of discount up to 40,000 in primary losses. That discount is no longer in effect. The bottom line is there is no longer a discount for smaller unsafe employers. The larger similar employers (more payroll) will have higher Expected Losses – not so for smaller ones.

Regardless of whether or not this may seem as fair to smaller employers in CA, you must adjust your safety measures and loss run reviews ASAP or you may find that your Mod has jumped appreciably in one year.

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Most Expensive Classification Code in Texas Is USL&H Code

August 13, 2013 By JL Risk Management Consultants

The Most Expensive Classification Code in Texas Involves USL&H

The Most Expensive Classification Code in Texas. I was working on a project for a client that had a large % of their operations in Texas. The Texas Relativity schedules for 2013 (usually known as Classification Codes) indicated that 6874F was the most expensive code. The rate was 16.81 per $100 of payroll.

Clip art Map Of Texas Classification Code Most Expensive

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The 16.81 relativity rate of Texas does not mean this is the charged rate for that state. As I have mentioned often, the advisory rates are usually lower than the actual premium rate charged by insurance carriers.

The class code 6874F has the “F” appended to it. The notation means the classification is considered a USL&H Code. USL&H is the acronym for United States Longshoreman and Harbor Workers. The class code 6874 is Ship Hull Painting.

If one Googles the class code, many of the insurance carriers will not underwrite that class code. The code often appears on the prohibited class code list.

Business People In Conference Classification Code Paying Attention

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The amount of risk involved would likely be the reason for not underwriting employers with that code. We have found the number of carriers that will underwrite any type of USL&H exposure is limited at best.

Classification code 6872F – Ship Hull Repair is also one of the most expensive class codes. In fact, the advisory rate in New Jersey is actually somewhat higher than 6874F. Janitorial services are actually the highest New Jersey advisory loss cost.

The relativities (loss costs) are set by the rating bureau’s actuaries on a periodic basis – usually yearly. There is great variation from state to state on the advisory loss costs. I used to try to say that a certain class code is the most expensive across-the-board. After many emails from the blog readers, I came to realize there is such a great variation on advisory loss costs from state to state.

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Californias WCIRB New X-Mod Formula Penalizes Unsafe Employers

August 9, 2013 By JL Risk Management Consultants

Californias WCIRB X-Mod Formula Heavily Penalizes Small Unsafe Companies

This month Californias WCIRB produced a new small employer X-Mod formula.

Yesterday, I attended the WCIRB Conference in Burbank, CA. The WCIRB makes one work in their workshops. They always put on great workshops.

Businessman Waiting For Californias WCIRB Businesswoman Carrying Case

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One of the things I noticed that jumped off the page was the rating formula to calculate the X-Mods had changed considerably. The other main rating bureau in the US – NCCI – changed their formula over three years to reflect a higher split point value. The NCCI basically altered the formula to move more of the rating value from severity-based to recurrence-based.

I had wondered how and if the WCIRB would also change their rating formula to move more towards recurrence -based penalties from severity-based X-Mod Calculations.

Severity-based basically means a discounting factor is included that will not penalize employers that have one severe injury with very high payouts and reserves (Total Incurred). The WCIRB removed any discounting of the Primary Loss. The primary loss level is $7,000. The excess loss is any part of the loss over the $7,000 threshold.

Hand Pointing California's WCIRB Calculating Icon

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The discounting table (favoring small payroll employers) would discount the primary loss part of a claim. Smaller payroll employers could not easily absorb the effect of one or two major claims. The WCIRB was basically leveling the playing field between small and large employers.

As with the NCCI’s change in split-points, the WCIRB is making sure that safe employers are not subsidizing unsafe employers. By eliminating the primary loss discounting table, all employers will be penalized more for repetitive injuries. Unsafe smaller employers will feel the effects in their next X-Mod calculation.

The Californias WCIRB’s new formula will cause small unsafe employers to pay more for Workers Compensation insurance. I will cover the formula change next time.

California’s WCIRB – Rather Active Lately With Formula Changes

August 7, 2013 By JL Risk Management Consultants

California’s WCIRB Changing X-Mod Formulas

I am actually traveling on my way to a one-day WCIRB conference in Burbank/LA tomorrow.

Wikimedia – Beatrice Murch

I noticed that the WCIRB had a two different press releases today.I wanted to publish this info as soon as possible as there are a few major changes to the WCIRB rules in the press releases. I will rewrite the post as I travel. I have a four hour, yes four hour delay in Denver. OK, so why was an airport built in a convergent zone = fog all the time?Please notice there was a 3.4% increase to the overall rates. What happened to the reform?

Proposed Advisory Pure Premium Rates (to be submitted on or around August 19)

The proposed January 1, 2014 advisory pure premium rates that will be included in the WCIRB filing average approximately $2.62 per $100 of payroll, which is 3.4% above the industry average filed pure premium rate of $2.53 per $100 of payroll as of July 1, 2013.

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These proposed advisory pure premium rates reflect the WCIRB’s most current evaluation of Senate Bill No. 863 (published October 12, 2012); however, these proposed advisory pure premium rates do not reflect any provision for the impact of the new physician medical fee schedule which is based on the Resource Based Relative Value Scale (RBRVS) and is under consideration by the Division of Workers’ Compensation (DWC). If the DWC adopts the new schedule, the WCIRB anticipates modifying its proposed advisory pure premium rates based on its evaluation of the cost impact of the new schedule on policy year 2014 medical costs.

Proposed Regulatory Changes (to be submitted on or around August 9)

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The WCIRB’s August 9, 2013 regulatory filing will include proposed amendments to the California Workers’ Compensation Uniform Statistical Reporting Plan-1995 (USRP), the Miscellaneous Regulations for the Recording and Reporting of Data-1995 (Miscellaneous Regs) and the CaliforniaWorkers’ Compensation Experience Rating Plan-1995 (ERP) effective January 1, 2014. The amendments to the USRP include (1) changes to the Standard Classification System, (2) changes to data reporting requirements to conform to national data reporting specifications, and (3) an amendment to provide for the use of collective bargaining agreements to validate an employee’s hourly wage rate for purposes of assignment to a high wage dual classification for audits on policies with an expiration date on or after January 1, 2014. Additionally, a number of amendments will be proposed to the USRP, Miscellaneous Regs and the ERP to facilitate a bifurcated filing process and for clarity and consistency.

The WCIRB will also propose a number of regulatory changes to be effective on January 1, 2015 including amendments to the USRP pertaining to policy reporting requirements and significant amendments to the ERP intended to constrain the impact of a single claim incurred during the experience period to 25 percentage points.

Both filings and all related documents will be available in the Publications and Filings section of the WCIRB website and the WCIRB will issue a WCIRB Wire Story when each filing has been submitted to the CDI.

Economic Recovery Happens And Learning Curve Kills (Literally)

August 7, 2013 By JL Risk Management Consultants

Economic Recovery Begets The Learning Curve Dark Side

The economic recovery may happen soon – or then again possibly not for a long time. One of the most ignored equations or proved theories is the Learning Curve. In my actuarial degree, this was one of the glossed over management equations that should have been held up to the light, in my humble opinion.

Digraph of Economic Recovery Learning Curve

Wikimedia Commons – Alanf777

I posted on the learning curve at length in the past. You may want to use the search box in the right margin to search for my posts on the learning curve. I thought it would be a well-placed reminder.

One of the banes of Risk Mangers and Safety Officers is when employees use a machine or performs a process for the first time. The likelihood of injury spikes off the charts for that first time. These injures (some fatal) often occur in the same manner as riding a bicycle. I still have skinned knee scars from the first time I rode a motorcycle.

Picture Of Weather forecast Economic Recovery Hurricane Hugo

Wikipedia Commons – NOAA / Satellite and Information Service

The safety and risk related learning curve is not very easy to find. Every resource on it refers to how fast an assembly line will speed up over time with a set of new workers. The Boston Consulting Group came up with the learning curve in an academic form. Ford Motor Company had applied the learning curve to Model T production.

I used to call it the Hurricane Hugo phenomenon. Many workers (some very inexperienced) came into the Charleston and Low Country part of South Carolina in 1989. Construction companies hired employees by the busload. The need for very rapid reconstruction of many island homes was at critical mass.

The first reports of injury from construction related businesses in Charleston spiked for approximately three months. Most of the first reports indicated the injuries occurred with new construction employees at an alarming rate. Chainsaw and lumber saw injuries – most very severe- were very common. Check out degloving hand injuries to see one of the more common saw injuries.

I usually do not use Wikipedia as a source. The learning curve that resembles the reduction of injuries per person-hours is best shown here. These curves are actually unit cost per level of production, but with a little imagination, one can see the same effect.

What can a safety or risk manager do to combat an almost uncontrolled phenomenon? One method may be to remember that even a very experienced employee may still have the learning curve effect if they have been out of work for quite a long time.

Workers Compensation Experience Rating System Big Falsehood

August 6, 2013 By JL Risk Management Consultants

The Big Falsehoods Of Workers Compensation Experience Rating Systems

The Big Falsehoods of Workers Compensation experience rating system involve advisory rate accuracy. I recently received an email from a regional insurance company reporting that a certain state had an 8% reduction in the advisory rates also known as loss costs. This is one of the inadvertent falsehoods in Workers Comp.

Graphic Of Star Big Falsehoods Workers Compensation Experience Rating System

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A certain state reducing their advisory rates has very little to do with the final premium any employers will pay in that state. Insurance carriers can immediately change their loss cost multiplier (LCM) to offset any rate reductions. For instance, I know of one carrier in California where the LCM is 211% of the loss cost or advisory rate. This is an approved LCM that is on file at this time.

Some carriers change their LCM’s frequently. Almost all state’s Workers Compensation Departments just rubber-stamp the increases or decreases.

Hand Drawing Big Falsehoods Bar Graph Decrease

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Carriers can actually file an LCM for each classification code in a certain state. Most carriers file only one LCM per state for all class codes. If a carrier does not wish to incur the aforementioned 8% rate reduction across the board, they can easily file a new LCM with an 8% increase.

Rate decreases are not necessarily a worthless or negative development. Most carriers do not immediately file an LCM change in response to a loss cost decrease by the state. However, they can file an increased LCM if they wish.

The takeaway is the policy and the rates that are charged to your company are the true and final rate decrease or increase. The final audited premium is the most important number for your company. Anything else is just background noise that pertains to the workers compensation experience rating system.

Workers Comp Audit Dispute Question From Twitter Tweeter

August 1, 2013 By JL Risk Management Consultants

Audit Dispute Question From A Twitter Follower

Our Workers Comp Twitter handle received an audit dispute question from a Twitter Tweeter.

Can an insurance carrier perform a mid-term audit and then come back in for another audit after the policy expires? That seems to take up a large amount of our time to have to assemble all of the data twice per year. Will the carrier (name removed) be able to do this every year? What are the rules on Workers Comp audits?

Wikimedia – David Ferreira

The email had a few expletives and the carrier’s name that I removed to avoid receiving another threat of a lawsuit due to this blog. Unless our customer base has changed, we seem to be receiving questions concerning multiple premium audits per year more than in the past.

It is noted that employment agencies seem to have more audits per year than most other lines of business. Those audits can be very complicated as they may cover multiple states and long lists of classification codes.

The best place to start on payroll or premium audit rules is the policy for that year itself. In every policy, there is going to be a small section on premium audits. I have often advised every company, risk manager, human resources manager, business owner that I have met with policy questions to review their policies in depth. There are many interesting subtleties in every policy.

The premium audit section will usually say something similar to:

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Carrier has right to audit multiple times per year during policy term and up to three years after policy expiration.
Employer must turn over any/all records that have been requested – not just payroll records
Audit must be convenient to employer and not interrupt business practices
Refusing audit appointment will result in a heavy penalty – not in all policies
Employer will receive audit notice letter well in advance of audit date

The bottom line is the WC policy is a contract between the employer and insurance carrier including any policy amendments during the year. Do I agree with these? I would say not necessarily, but it is the insurance contract that conforms to the rules of every state of WC coverage that dictates the rules.

The most upset employers we hear from are the ones where the carrier decided to audit them more than two times per year. I would have to agree with these employers. It is understandable possibly for the first year. After that time, what is to be accomplished by three audits per policy year?

The rule from one of the state rating bureaus (CA’s WCIRB) on premium audits is:

Piggy Bank Audit Dispute Question With Dollars

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(1) Each policy producing a final premium of $10,000 or more shall be subject to a physical audit at least once a year. On policies subject to monthly, quarterly, or semiannual interim audits, …

The last audit of the policy shall be a physical audit of the complete policy period.

I used the WCIRB’s rule as they seem to be more concise. The keyword is the policy. One of the areas of the most concern is changing premium by a non-audit based endorsement. Any type of interim changes to your WC policies should be met with a certain level of skepticism and close review.