Archives for October 2013

Scariest Claims of All – IBNR Can Be Frightening – Happy Halloween

October 31, 2013 By JL Risk Management Consultants

IBNR Can Be Frightening To All Parties

IBNR (Incurred But Not Reported) can be one of the most frightening aspects of the Workers Compensation system as a whole. I often hear the term bandied about in WC “techie talk” conversations. All parties in the WC system need to be aware of these claims.

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I used to ignore the term as just being another term that confuses people. I had thought it was not important enough to mention very often when this blog was started in 2007.

The definition of IBNR claims is basically claims that have occurred which have never been reported to an employer or carrier. How does this affect each entity in the WC process?

Employers

Injuries such as carpal tunnel; a worker’s back that has been strained several times; a trucker that has to haul loads on a very dangerous route, can all be thought of as a claim “that is waiting to happen.” The even scarier ones are where the employee decides to “work through” the injury. The accident has occurred but the employee just does not report it to their employer. Employers usually find out about these claims when there is a layoff or the person no longer works for that employer.

Carriers/TPA’s

Many formulas (regression, triangulation, etc.) have tried to assist in assessing how many claims a carrier or TPA does not have that are “not on the books” such as the prior example where an employee has not reported the claim to their employer. The other conundrum for carriers/TPA’s is when the employer decides to pay small claims and not report them to their carrier. This violates one of the Five Keys To Saving on Workers Comp Claims that I wrote many years ago. I coined the term “claims festering.” This is a claim that has occurred and was reported to the employer, but not reported to the carrier.

Rating Bureaus, State Regulators

House On Top Of Roll Money IBNR And Man Sitting On Chair

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These two groups have been left to rectify and quantify the IBNR claims. There is a very large amount of reference data in existence. However, trying to assess something that does not yet actually “show in the numbers” is a tough task at best.

IBENR

This is a term that leaves actuaries, insurance carriers, rating bureaus, and regulators scratching their heads. Incurred But Not Enough Reported (IBENR) will add adjusters to the mix. A claim may have been reported, but not yet reserved properly. IBENR really can be affected at all levels of the WC insurance process. I actually accidentally found this term when I googled IBNR.

The bottom line is to watch out for IBNR – better known as the claims goblins.

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Australian Woman Loses Workers Comp Case Sex Injury While Traveling

October 30, 2013 By JL Risk Management Consultants

Australian Woman Loses Workers Comp Claim For Sex Injury

An Australian woman loses sex-based Workers Comp case. The Daily Telegraph reports that the woman who initially won her case for Workers Compensation benefits for a sexual activity injury has now been denied benefits by Australia’s highest court. A lamp fell off the wall and injured her while she was in a hotel with her boyfriend. She claimed benefits as she was considered covered while traveling on governmental business.

Picture Of Australian Woman Loses Workers Comp With Guy

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All of the previous Australian courts had ruled she should receive benefits as she was under a 24-hour coverage while traveling for the government. This shows that at least one court in Australia has retained at least a bit of common sense. The court said her amorous activity was no different than eating, sleeping, showering, etc. The normal functions of life are not covered under WC even while traveling.

Australian benefits are called Compo. This article and similar ones have went viral on the internet. The interesting fact is that all of the courts previously had said that the woman was definitely on the job.

Injuries to traveling employees can be a complicated matter. Each state in the US has very specific laws on these types of employees.

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Pay ACA Penalty File Workers Comp Claim For Medical Treatment

October 29, 2013 By JL Risk Management Consultants

ACA Penalty May Not Deter Workers Comp Claims

What if a worker decided to pay the ACA penalty and file a WC claims for medical treatment? The Affordable Care Act (ACA) may cause an unintended spike in Workers Compensation claims.

Wikimedia Commons – Careilly5801

One of the concerns over the years in claims departments is an employee substituting Workers Comp for health insurance. The ACA may also cause medical treatment rationing.Now that almost two million health policyholders that were previously insured have been dropped by their health insurance carrier, could Workers Comp become a safety-net type of accident insurance? Claims for many illnesses would be immediately denied by Workers Comp carriers .

The “Monday Morning” claimant is one of the huge red flags when a claim is filed for benefits. A very limited amount of ailments could be filed by reporting Workers Comp claims. Any home accident could be reported as a claim upon returning to work the next day.

Picture Nurse Preparing Syringe for Injection Focus on Syringe ACA Penalty Medical Treatment

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An adequate claims investigation will probably uncover the fact that the accident was not related to work. One of the best places to look is in the history of the injury as recorded by the original treating physician in his/her notes. One very obvious area is the original date of treatment. The date may not necessarily match the date of the injury.

Communication between the employer and physician will be tantamount to avoid having to pay for non-work related treatment. One of the Five Keys To Saving on Workers Comp Claims is having a designated original treating physician. Some states do not allow the choice of treating physician by the employer. Other states such as California allow for medical treatment panels or MPN’s.

A rash of Workers Comp claims may not occur due to the ACA. However, only two or three claims can wreck what was previously a good Workers Compensation program.

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Estimated Premium Audits For Non Compliance Costly Proposition

October 23, 2013 By JL Risk Management Consultants

Estimated Premium Audits Not Sound Judgement By Employer

Estimated Premium Audits for non compliance costs many employers dearly. Premium audit bills and notices generate most of the calls and emails we receive on a consistent basis. The first question that is asked usually concerns allowing the premium auditor to examine their books. The issue of privacy comes up often with the numerous reports on the NSA.

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The best way to pay what your company rightfully owes (and not a dollar more) is great preparation and organization using a basic spreadsheet app.

The best way to do this is to have everything in the initial premium audit letter available to the auditor. Spreadsheets that summarize the payroll records can be helpful. Being organized is the key.

The rules for audits are usually in your policy. Most states allow the auditor to TRIPLE your estimated audit. The key here is “estimated.” What constitutes estimated an estimated premium audit amount? The rules allow much of your final estimated premium audit bill to be up to the premium auditor. This is the person you have ignored for a number of week or months.

If your company is in the situation, you should contact the auditor and schedule a date. Make sure you document when you called the audit and the subject of your conversation.

Picture Businessman Holding Two Documents Estimated Premium Audits By Employer

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We have seen estimated audit bills where the premiums were five to eight times the normal amount. As I mentioned in the last paragraph, your company is leaving much to the premium auditor by not agreeing to let him/her do their job. The rating bureau rules allow them to examine any of your company’s financial records.

All workers’ compensation policies have a section on this process. Take out your original policy. You will find that section towards the end of the policy documents.

The only way to actually reduce an estimated premium audit bill is to allow the audit that was going to occur in the first place, except now your company has a big, tall red flag on the information you will be providing to the auditor.

If, after the premium audit, you feel there is something wrong, you may dispute the audit figures. We have never assisted any employer in how to present the figures to a premium auditor.

There is a very large group of articles on this blog in reference to premium audits that you can read for free. You may print them out as needed.

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Rating Bureaus – Claims Reporting Confusion Question

October 16, 2013 By JL Risk Management Consultants

Rating Bureaus – How Do They Receive Claims Info – Reader’s Question

A readers question on how claims are reported to the Rating Bureaus. Loss runs are the Holy Grail for controlling your Workers Comp costs. A great blog readers question email came in last week. The question – paraphrased was –

Vector Graphic Of Woman Rating Bureaus With Question Mark

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We have our loss run, but the numbers on our Rate Bureau report do not match the numbers from last year. Is there a secret formula to figuring all of this out? How do we match the numbers?

The first area to cover is the loss runs. When were they dated? What is the valuation date for the loss runs? The end of your policy year loss run will seldom match your Rate Bureau report.

The loss run should be dated as close to six months after policy expiration as possible. There are many articles in this blog on loss run report timing. Use the search box and search for loss run. Many articles will show on the search results.

Claims adjusters change the reserves on the files very often. Most claims departments ask their adjusters to at a minimum review the reserves at 60, 180, and 360 days after the claim is initially opened. Tracking loss reserves is one of the reasons I am an advocate for full online claims access by employers. Ask your TPA, carrier, or agent to see if online claims access is possible with your current carrier. It is worth the extra expense.

Picture Stress Woman Rating Bureaus Looking On Paper

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The main amount to search for on the loss runs is the Total Incurred. The total incurred figure is what is reported to the Rate Bureau six months after policy expiration. Total incurred = Paid + Reserves . Some carriers and TPA’s have added to the confusion by renaming or switching the names of these important variables.

The reason for the six month delay is this gives the claims an 18 month time period to develop instead of just 12 months. This is the rule for almost all rate bureaus.

Some of the Rating Bureau Experience Modification sheets can be confusing to read over and compare to your loss runs. NCCI has many videos that explain how Mods are calculated overall.

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Accident Curve – Upcoming Workers Comp Risk Factor

October 9, 2013 By JL Risk Management Consultants

The Accident Curve Comes From The Learning Curve

There has been a large amount of recent traffic and buzz on the articles in the blog that covered the Learning Curve or the Accident Curve. There was an old adage in Risk Management that said “90% of all accidents happen the first time a person uses a tool, machine, etc.”

Slippery When Wet Accident Curve Car Sign

If and when the economy recovers there will be an increase in accidents overall. I once performed my own research while working with a WC carrier many years ago during the awful Hurricane Hugo. One surprising statistic was the rate of rebuilding construction accidents in the Charleston, SC area.

I had decided to research if such an accident curve exists or at least a similar type statistic. The Solomon Curve did not directly relate to Workers Compensation. The curve does represent a good accident curve even though it involves speed vs. accident rate.

Human error accounts for 90% of all traffic accidents according to this article. One has to wonder exactly what was the other 10%?

The venerable NCCI does have a great chart they include in most of their presentations. The chart is on page 42 titled Countrywide Workers Compensation Loss Time Claim Frequency….. Looking at the 2010 figure, one can see a very sharp increase in the 2010 claim frequency.

Picture Senior Woman Using Whiteboard in Business Meeting Accident Curve Risk Factor

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Looking at the Bureau of Labor Statistics (BLS) data for Unemployment, the unemployment rate did drop from 10.0% to 9.3% over that year which may account for the matching time period on the NCCI chart. A .7% drop in unemployment could have contributed to the rise in accident rates.

I will publish a new article when I can find more relevant statistics – if they do exist.

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Construction Dangers Top 4 From OSHA – 35% Due To Falls

October 8, 2013 By JL Risk Management Consultants

Construction Dangers – 35% Due To Falls

A report on construction dangers was produced this week by OSHA. Construction is one of the most expensive groups of classification codes. This has been the case for many years. In the early 2000’s some California insurance carriers were charging $170 for every $100 of payroll for roofers.

Picture Of Construction Dangers Area Signage

Wikimedia Commons – MarkBuckawicki

This situation was very likely due to the inherent risk involved with a construction boom in the state.

Roofers and multi-level construction always pay extremely high premium rates. OSHA tallies very accurate figures on death claims. I had read this article earlier in the year. We were called into help on four claims earlier in the year where an employee was severely injured due to a fall – almost all exclusively from a ladder.

The following is from OSHA on fatalities. The 17.6% figure is significant when trying to underwrite the risk. OSHA was actually able to define four areas where 56% of the construction death occurred in 2011. They had named the four areas of extreme risk as the “Fatal Four.”

Picture Low Angle View of Window Washers Hanging Construction Dangers Outside

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According to the BLS, there were 4,188 worker deaths in the US in 2011. The “Fatal Four” were:

Falls – 259 out of 738 total deaths in construction in CY 2011 (35%)
Electrocutions – 69 (9%)
Struck by Object – 73 (10%)
Caught-in/between – 18 (2%)

There were 419 worker death caused by the “Fatal Four” in 2011. The full breakdown on construction worker deaths can be found here. The updated numbers actually lower the construction work fatality rate to almost 13% as there were actually 4,693 worker deaths in 2011.

The 2012 preliminary data on fatalities was published recently. A series of charts on from the BLS indicates that 16 percent of all worker fatalities were in the construction industry – see chart 15.

The 2012 numbers will likely be revised numerous times before producing a final accurate count.

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10 Most Cited OSHA Violations in 2012 – Three From Construction

October 8, 2013 By JL Risk Management Consultants

10 Most Cited OSHA Violations

One of the mini-articles that stood out from the various stats was the OSHA violations that resulted in a citation. The OSHA and BLS websites are very well stocked with almost any type of employment injury statistics imaginable.

An associated article on this subject was the rate of construction fatalities. One can see why OSHA heavily fines for any type of construction safety deficit.

Wikimedia Commons – U.S. Government

Three out of the Top 10 were construction related. (Fall Protection, Scaffolding, and Ladders). This does relate directly to the construction fatality article from earlier this week. Fall prevention seems to be the main concern with OSHA in the construction area.

The links to OSHA’s Safety and Health Topics page for each standard was left in place.

Top 10 most frequently cited OSHA standards violated in FY2012

The following were the top 10 most frequently cited standards by Federal OSHA in the fiscal year 2012 (October 1, 2011, through September 30, 2012):

Fall protection, construction related OSHA Safety and Health Topics page]
Hazard communication standard, general industry [related OSHA Safety and Health Topics page]
Scaffolding, general requirements, construction [related OSHA Safety and Health Topics page]
Respiratory protection, general industry [related OSHA Safety and Health Topics page]
Control of hazardous energy (lockout/tagout), general industry[related OSHA Safety and Health Topics page]
Powered industrial trucks, general industry related OSHA Safety and Health Topics page]
Electrical, wiring methods, components and equipment, general industry [related OSHA Safety and Health Topics page]
Ladders, construction [related OSHA Safety and Health Topics page]
Machines, general requirements, general industry [related OSHA Safety and Health Topics page]
Electrical systems design, general requirements, general industry [related OSHA Safety and Health Topics page]

One Silent But Very Viable Area Of the WC System

October 3, 2013 By JL Risk Management Consultants

A Viable Area That No One In Workers Comp Discusses

A very viable area of the WC system has existed for over 3o years and will continue to exist in the future. I often do phone consultations for investment groups that are looking to invest in the Workers Comp “space.” Over the last few years, one area of medical treatment seems to be unaffected by any economic upturn or downturn in any of the markets or claim counts.

Picture Of Watering Can Viable Area And Seedling

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This much-overlooked area is durable medical equipment (DME). As I am a nationally based consultant, there may possibly be a state or locality where my following analysis does not apply overall.

DME’s have the advantages of:

Incredibly high markup value from manufacturer to end consumer
Offshore manufacturing where costs are much lower
Rare application of a state fee schedule
Almost impossible for an adjuster to deny if the treating Dr. recommends them
A very few networks to keep competitive price pressures in check
Locality being a large influence as shipping costs are prohibitive

There are very few providers that deal with DME’s only. The DME’s are usually a part of a network provider’s overall product offering. Standalone DME companies are taking on a large risk of just one product line. However, their ROI is amazing.

One of the possible upcoming competitive areas may be smaller-sized DME’s. Shipping a cane or other smaller items are not centered on being a local provider. This all depends on the prices of shipping and fuel.

2020 Update – More states started including durable medical equipment in their fee schedules. The medical fee schedules should not become a deterrent for DMEs. DMEs will be a viable area of workers comp for years to come. They are still a great future investment.

Federal Government Shutdown’s Effect on Workers Compensation

October 3, 2013 By JL Risk Management Consultants

Federal Government Shutdown May Have Little Effect

Does the Federal Government shutdown have any effect on WC? The governmental shutdown was highlighted in a recent article in The Insurance Journal. I do agree with the author that the shutdown pertains to the federal level and Workers Comp, for the most part, is administered on the state level.

Picture Of Capitol Federal Government Building

Wikipedia Commons – Vcelloho

The ability of the Workers Comp markets to function without federal oversight or intervention may show that most programs are better served on the state level. The WC markets and systems would be in shambles if they were ever federalized when shutdowns do occur over the long term.

FEMA will even continue to operate the National Flood Insurance Program beyond any normal delays. A FEMA spokesperson confirmed there is little effect on the Property and Casualty markets.

Blog On Scrabble Federal Government With Pen And Paper

Wikimedia Commons – Sophie Janotta

One area the article alludes to is the federal debt ceiling. The financial markets could possibly feel experience a very shaky period if there is no agreement on the debt ceiling. Insurance carriers have experienced better than average returns on their investments over the last year. Any market or investment downturn would result in the carriers possibly raising rates to offset their short-term investment losses.

The bottom line is the P/C insurance industry including Workers Comp operates very well without federal oversight. Earlier in this blog, I had pointed out the push for federal licensing of agents, adjusters, and risk managers. The more areas that are federalized, the more the shutdowns will affect the insurance space in the future.

One future effect of the Affordable Care Act is there may be rationing of healthcare. Over time, the challenge of providing quick and applicable treatment options to injured workers may be a very tricky affair if the physicians’ offices are already maxed out with patients.

This type of treatment shortage may possibly be countered with more restrictive WC treatment networks where the injured workers would have preference over any other type of insurance.

Law Of Large Numbers – How It Ruins Small WC Funds

October 2, 2013 By JL Risk Management Consultants

Law Of Large Numbers Catches Up To All Small Insurance Funds

The recent Affordable Care Act (ACA) going live is a reminder of how risk needs to be spread over a large numbers of participants to be viable.

Affordable Care Act Large Numbers Text Graphic

Wikimedia Commons – Careilly5801

The Law of Large Numbers is one of the concerns that the ACA is not really taking into account. The same thing has happened with many smaller Workers Comp funds nationwide.The Law of Large Numbers is an interesting yet simple way to show how risk needs to be spread over a number of insureds such as in automobile insurance. Workers Compensation requires the same type of larger pool of entrants so that the companies that are experiencing a bad claims year are offset by many safer companies.

There have been many adjustments over the years to guarantee that safe companies are not subsidizing the unsafe ones. The recent move by NCCI to double the primary loss portion of claims was put into place for just that reason. The WCIRB has turned their attention to smaller unsafe companies by removing any small company credits from their X-Mod equation.

Many self-insured funds and pools have felt the bite of The Law of Large Numbers. The pools were initiated with a small group of employers looking to add on others. Unfortunately, the employers had a large enough portion of their pool with bad claims years. The self-insured pool failed as there were too few safe employers in the group.

Picture Of Hand Holding Marker Pen Large Numbers With Dollars Growth

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Many participants in the self-insured pools have felt the sting many years after the funds were shut down due to assessments-after-the-fact. These types of self insurance pools are sometimes covered by any type of insolvency fund as exists with normal WC carriers.

We all shall see how the ACA (Obamacare) makes itself viable. However, one of the main groups that will carry the risk is the younger and healthier segment paying in, but only using a small part of the benefits. Twenty five percent is the projected rate of non-participation. However, the IRS fine is a premium payment of sorts for those 25%.

Carrier or self-insured insolvencies do not seem to be a hot news items as they once were less than 10 years ago. If you are interested in seeing which insurance companies or self-insured pools have become insolvent, there is usually a list provided by the state’s Industrial or Workers Comp Commission.

One great example is the North Carolina list of self-insured insolvencies that you can find here. NCSISA is one of the state associations that actually provide coverage for self-insured bankruptcies resulting in the inability to pay WC claims.