Archives for December 2013

Liability Adjusting Is Part of Workers Compensation Claims

December 31, 2013 By JL Risk Management Consultants

Liability Adjusting Enables Great Workers Comp Adjusting

One of the more complex liability adjusting components of Workers Comp claims is subrogation.

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Subrogation rears its ugly head (or the lack thereof) on a large percentage of Workers Compensation files. The percentage referred to is the lack of knowledge by WC adjusters on identifying and pursuing subrogation. Subrogation is basically placing the liability of the risk on a third party.

There are many subrogation articles in this blog. The reason is that many carriers and TPA’s just do not fully train their adjusters on the nuances of liability adjusting other than WC. Carriers and especially TPA’s can become very single-minded in the handling of WC claims. This is not an indictment of any single carrier of TPA. The problem is more systemic in nature.

A very good subrogation attorney published an article recently in the Insurance Journal. One of the internal links provided a great summary of subrogation laws. When one steps outside the comfort of WC liability, the process can become much more complicated.

One of the better subrogation websites included a national map of the various subrogation laws in every state dealing with whether the state is a:

Law graphics Liability Adjusting With Gavel

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Contributory negligence state (bars recovery with only 1% of fault by the plaintiff) or
Comparative negligence state (recovery by plaintiff is reduced or prohibited based on the percentage of fault attributed to the plaintiff), and
Pure comparative or modified comparative state.

Kudos to the author Attorney Gary Wickert as it is one of those articles you should keep handy. An accident may occur in other states than just the one where the WC file will be handled. The list is not exhaustive, but well worth the read.

The reason for this article is sometimes the WC adjuster can write one letter and receive a subrogation recovery. The key is to make sure the adjuster handling the liability file (auto, premises, general liability, etc.) is put on timely notice. A letter by certified return receipt mail has been used as legal proof of a timely subrogation notice. It is the best $5 an adjuster can spend to preserve the right to recover.

Liability adjusting on WC files is a training issue that needs to be addressed to recover funds that carriers and TPAs sometimes leave on the table.

©J&L Risk Management Inc Copyright Notice

WC Premium Increases Secret – Insurers Ignore Rating Bureaus

December 19, 2013 By JL Risk Management Consultants

WC Premium Increases Source Not Rating Bureaus

The secret to WC premium increases has to do with investment risk.

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The questions that I am asked the most in my line of work are twofold:

Do you know of a good stock to invest in – a hot stock tip as I am a Chartered Financial Consultant? I usually say none as the markets are artificially inflated right now – Greenspan’s irrational exuberance comment still applies today – one of my favorites.
The second one is – are my Workers Comp premiums going to increase – usually asked right after a premium audit.

The second one is harder to assess than the first even though they are interrelated to a large degree. The secret is that insurers base their premiums (hard vs. soft market) on what investment earnings they can obtain by investing a portion of your company’s hard-earned premium dollars.

The carriers can file rate deviations also known as Loss Cost Multipliers (LCM’s) at any point in time with the rate bureaus. That is not true for assigned carriers that handle the assigned risk pool claims. There are carriers presently that will deviate from the recommended rates up to 220%. The carriers cannot deviate from reality – investment earnings.

Banks are the most conservative investors closely followed by insurance carriers. Even though the market is rocketing along, there are not that many small company conservative stocks that are doing well over the long term (10+ year horizon).

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The Dow Jones index does not represent the full market or the proper portion of the market. The Dow has changed the companies in the index to have more appealing and profitable companies – the flavor of the week, so to speak.

If you use Yahoo Finance (freebies) and search for Russell 2000 and Russell 3000, you will see how the REAL market is doing overall. This will give you an indication of how your WC premium will shape up over the next few years.

I question any Risk Manager’s decision that does use these or similar indices in their decisions. The two indexes are basically a peek into the real world results for upcoming premium changes. As we all know, insurance premiums, including WC, are based on a lagging system of 2 – 3 years.

If you ever look at a 10K (found on the free Edgar System) of an insurance carrier, you may be shocked at how much funds they have in investments. What are the carriers that had invested in risky investments doing today? They are no longer in business.

You now know the secret. I will send you the bill next week – kidding.

©J&L Risk Management Inc Copyright Notice

Judicial Hellholes List – For Workers Comp In WV and IL

December 18, 2013 By JL Risk Management Consultants

Judicial Hellholes Across America – Workers Comp Version

The American Tort Reform Foundation (ATRF) recently released its annual Judicial Hellholes List. One has to wonder if Workers Comp is mentioned in the annual study.

Picture of gavel Judicial Hellholes with law book

Wikimedia – howtostartablogonline.net

Actually, WC appears an unlucky 13 times. If you have triskaidekaphobia, you may want to avoid reading the rest of this article. The 13 mentions will be combined for readability.

The first time WC appears in the study is the West Virginia designation as a legal hellhole. The study says WV repeatedly circumvents its established Workers Comp system. West Virginia’s WC system has appeared in this study for years.

The basis for the WV concern is the courts repeatedly allowing the tried-and-true “no-fault” WC system to fall flat on its face. Injured employees are allowed to circumnavigate the sole remedy and sue their employers at will. Would that not cause premiums to soar? Premiums have not risen that much in WV.

The ATRF gives a dishonorable mention to Illinois appellate courts for expanding workers’ compensation liability beyond its intended scope and providing excessive compensation. The Foundation refers to Illinois as being full of activist judges that rule the way they want regardless of the law. This is one of the reasons Illinois WC costs have skyrocketed recently.

Attorney Judicial Hellholes Talking To People In Court

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The City of Philadelphia is seen as a hellhole due to highly predatory WC plaintiff attorneys.

The bottom line is that West Virginia, Illinois, and the City of Philadelphia were the three judicial hellholes for Workers Comp in this study.

The result will always be huge increases in premiums that must be passed along to the consumer. For all types of legal matters, California won out as being the worst. However, CA did not make the WC list.

I will update the Judicial Hellholes Workers Comp version as I remember to research their website.

©J&L Risk Management Inc Copyright Notice

Bad Santa Grinch – Did Workers Comp Make Me One?

December 17, 2013 By JL Risk Management Consultants

Bad Santa Grinch – Yes I Was Mean And Green Every Year

Wikimedia Commons – Al Ravenna

The bad Santa Grinch Workers Comp made.One of the most disturbing trends in my WC career occurred every Christmas. I started my career in claims.

Every year just before the Yuletide I was told at least once – “My family, kids, etc. will not be having Christmas because of you.”

That statement disturbed me for the first few years. A claimant would usually not return to work, have their claim denied, etc. After a few years I became jaded to the statement. When I became a claims supervisor I thought – well, I will not have to hear than again – Au Contraire,

Wikimedia – Dr. Seuss

I would usually have to handle an even more upset person telling me that if I did not overrule the adjuster and send out their check, the adjuster and I both were ruining their Christmas. At least I had another Grinch to feel bad with me.

When I reached the managerial level, I thought there is no way that I will ever have to handle the ubiquitous mad injured employee saying that I was the Bad Santa Grinch. Once again, the person made their way up the line from adjuster to supervisor and then to me. They did not actually call me Bad Santa Grinch by then – the term was much more graphic.

As I started my WC consultant company, I thought – well, no more years of hearing that I was Bad Santa Grinch for not mailing the benefits check. I did not hear that for a few years until I decided to assist with a file runoff of self insured claims.

My Holiday was complete that season as an injured employee told me that unless I mailed out his RX reimbursement check, there would be no Christmas at his house. I was so used to hearing that I was Bad Santa Grinch that it almost warmed my heart.

If anyone would like to make me get into the Holiday spirit, please feel free to call or email me and let me know that I am the Bad Santa Grinch.

**Please note that no checks were due the claimants mentioned in the story. I was not holding any check just to be mean.

©J&L Risk Management Inc Copyright Notice

Six Self Insurance Program Mistakes And How To Avoid Them

December 11, 2013 By JL Risk Management Consultants

Self Insurance Program Mistakes Can Be Costly

Below are six self insurance program mistakes and how to avoid them. Over the last several weeks, I have received numerous emails from Workers Comp self-insureds. Most of them were reminders to write articles about self-insurance programs.

Graphic of Self Insurance Program Concept

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The six mistakes some self-insureds make are:

1. Thinking that your company is out of the Workers Comp system.

2. Still acting like a non-self-insured.

3. Thinking large deductible policies do not have E-Mods

4. Not properly preparing your RFP’s for TPA’s

5. Not considering other types of WC coverage

6. Not having an LDF calculated each year.

Picture of Self Insurance Program Hand Showing Money Growing On a Tree

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1. This is probably the most costly mistake of all with self-insurance. Regular insurance policies have a buffer area better known as the E-Mod. If your company has a large number of claims in one policy year, the E-Mod system will spread out the risk over time – usually three to four years.

If your company is self-insured, you are responsible for the immediate direct payment of the indemnity and medical benefits. There is no buffer area to spread the risk over in case of a very bad year as with regular WC insurance.

Safety is tantamount when your company is self-insured. Your company has a very close fiduciary relationship with your TPA as they are spending directly out of your company’s budget or bank account.

Your company still has an E-Mod. LDF’s are a self-insured’s E-Mods of sorts. See mistake #6 in tomorrow’s article for a further discussion of LDF’s.

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2. Employers sometimes set up a self insurance program and then go right back to operating their WC program as if they were a regular insured. There are many actions that must be undertaken such as, for example, changes in the safety program, more loss run reviews, and choosing certain medical networks.

The work has just begun when changing to a self insurance program. The new endeavor may save a large amount of company funds. The management of the program will be the main determinant of its success. One area where we often see deficiencies is in the Risk Management staffing. Your company has more funds on the line. Safety and risk management are critical to your success. The risk management staff will also be the conduit for communicating with upper management on the self insurance program.

3. Large deductible programs are quasi-self insurance programs. One of the more astounding lessons I learned very early on in my career was that large deductible programs have an E-Mod calculated every year. The other major lesson was that a large number of large deductible insureds have been told they will have no E-Mod calculated like a regular insurance program and will operate outside the E-Mod system.

If your program is a large deductible, you can check your E-Mod online with your rating bureau or request a copy of your E-Mod by mail.

4. One of the unfortunate ways to start a self insurance program is with a bad Request For Proposal to acquire Third Party Administrator services for your company. As I pointed out in yesterday’s article, the TPA will be spending directly out of your company’s bank account.

One might think of a TPA as a bank of sorts. A TPA should be viewed as internal employees. You are giving the TPA a blank check to write every business day.

Sketchpad Erasure Self Insurance And White Eraser

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Most TPAs’ services are generally generic. The value-added services are the area where employers spend the most $$$. The best place for estimating the cost of these services such as rehabilitation nurses, bill review, and medical networks, is by structuring your TPA RFP to your best possible advantage. It is time to look at the trees and then look at the forest.

We see so many self-insureds construct a good TPA RFP and then sign off on an agreement that includes terms that are to the TPA’s advantage. RFP’s can end up being a very large money waster for a self-insured.

5. When a company starts to grow, the self-insurance fever takes them over very quickly. Self-insurance is the cheapest route for many employers. There are many other types of insurance that may suffice for a growing company for Workers Comp coverage.

This is especially true if your self insurance program has been hit with a spate of lost time accidents. Self-insureds that are experiencing shrinkage due to the successive recessions may find the budget not large enough to spend out direct funds without the E-Mod buffer. There is nothing wrong with going back to a regular insurance policy when conditions warrant such a move.

6. There is a five-minute conversation that I can have with a self-insured to see if they are properly managing their WC interests. The very first question I ask is ” Have you had your LDF (Loss Development Factor) calculated for your upcoming budget year?” If the answer is no, then I equate their self insurance program to driving in an unfamiliar place without directions.

Angry Man Self Insurance Program Scolding Woman Assitant

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The LDF is a self-insureds E-mod of sorts. Actually, I have always considered LDF’s to be superior to E-Mods as a longer Experience Period is examined. I have calculated numerous LDF’s over the years for clients. I always like to do a synthetic E-Mod also as a way to look at the short-run budget. The LDF is more of a longer-term budgetary enhancement.

There are many LDF software packages on the market. The one area to avoid is GIGO (Garbage In Garbage Out). The input numbers have to be applicable to have a good LDF estimation. Three different people can easily come up with varying LDF’s given the same data for examination.

There are many more mistakes that an employer can easily make with self-insurance. These six seem to have the largest impact on a self insureds company’s budget.

©J&L Risk Management Inc Copyright Notice

Workers Comp Study Ask For Adjuster or Risk Manager Opinion?

December 10, 2013 By JL Risk Management Consultants

A Great Workers Comp Study With No Claims or Risk Input

A recent Workers Comp study on Zero Cost Claims makes me wonder if the researchers decided to ask an adjuster or risk manager their opinion before they published the article. I found the study in a recent Insurance Journal article.

Wikimedia – DarTar

Reading through the study, one can quickly see that no Workers Compensation personnel were consulted. The database used was from a Thomson Reuters database on self insureds. As we all know, the self-insurance community is a different animal from the rest of the WC world.

If an employer actually took the time to report the claim as WC, then the employee would have been referred for treatment under WC. Almost all employers that I have ever seen paying WC claims under health would not have bothered filing any type of WC forms or recording the injury as work-related. One cannot read the article without wondering if the authors were trying to say the employers were shifting WC costs to their health insurance.

The researchers were thorough in their analyses. There is no doubt in their numbers. The first thing I usually do is go directly to the bottom of a study to see if there were any study limitations and what references were used to draw their conclusions.

The study did not consider :

Workers with individual health coverage, or without any coverage

Denied claims which would overestimate the impact of zero-cost WC medical claims.

Preexisting health conditions such as diabetes could aggravate the negative effects of workplace injuries on the health status of injured workers

Data came from large employers who are clients of Thomson Reuters, and these employers are more likely to be self-insured for health or WC. Therefore, their findings may not be generalizable to all employers.

One of the main references used in the study was from a source article and study that I questioned in this blog two years ago.

Diagram of Workers Comp Study Zero Cost Claims

Wikimedia Commons – Toby Hudson

One area that would have been mentioned if they had interviewed just one risk manager or workers compensation claims personnel is that employers file many reportable-only claims where the employee does not seek treatment. I am unsure of how this would have directly affected the study, but they should have covered that fact in detail.

Is the study worth reading? I do think it is worth your time. If you decide to read it, please feel free to draw your own conclusions.

WC Loss Run Reserve – Public Employers Upcoming Deadline

December 5, 2013 By JL Risk Management Consultants

WC Loss Run Reserve Levels Crucial For Public Employers

Certain organizations need to concentrate on WC Loss Run reserve levels now. Yesterday, I pointed out that employers with a renewal date of 1/1/14 are wasting time performing loss run reviews. That is not 100% true as at least your company is beginning the loss run schedule for your 7/1/14 Unit Stat date.

Graphic of WC Loss Run Reserve Business connection

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Most governmental and quasi-governmental organizations renew on 7/1/14. If this is true for your company or organization, you must act now to keep your E-Mod as low as possible. You have until 12/31/13 as this is when your reserves will peg to your E-Mod for your 7/1/14 renewal.

The quickest way to find out your reserve levels is by having online access. Loss runs can be downloaded at will in most systems. If not, you will need to contact your agent or insurance carrier to obtain a loss run. Obtaining your loss runs may take some time to accomplish as there can be a delay of up to two weeks.

If you have had multiple WC carriers in the last five years, you will need to obtain a loss run from each of the WC carriers. Knowing which claims on which to question the reserve levels can be a daunting task. One can cost their company or governmental organization by actually calling the claims department’s attention to a file that needs an increase in reserves.

The best way to contact your claims staff is by email. As I have said in numerous posts on this blog, claim departments do not rush through reserve decreases. This process takes time as the supervisor, claims manager, and VP may all have to sign off on a reserve decrease. Larger files usually take weeks to pass from desk to desk.

Picture of WC Loss Run Reserve Hands Presenting Email

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Only contact the WC claims departments on certain claims. Calling up the claims department and complaining that all reserves are too high will likely result in no reserve decreases and may alienate the working relationship that you have had in the past.

If you feel overwhelmed by the reserve reduction review task, then it may be best to wait until the

middle of 2014 to start your reserve and loss run review. The best time to start is just after your company renews as you will have six months to accomplish this sometimes difficult task.

Most claims offices operate with skeleton crews just before Christmas to after the New Year. You may find your request to have a reserve lowered for your 1/1/2014 Unit Stat Date will not be accomplished until after the New Year.

There is a formula on this blog of when to do reserve level reviews.

Best Way To Waste Time On Workers Comp in December

December 4, 2013 By JL Risk Management Consultants

The Easiest Way To Waste Time On Workers Comp Before The New Year

I have discovered the best way to waste time on Workers Comp in December. Workers Compensation reserves do not directly apply to a policy that renews within 30 days. We receive many emails and phone calls in December with inquiries on reserve levels. Many CFO’s, owners, risk managers, agents (etc.) want to clean up the loss runs before the end of the year.

Students Waste Time On Workers Comp computer

Wikimedia Commons – Michael Surran

If the upcoming renewal on January 1st is the reason you wish to do a loss run and reserve review, you are wasting your time. The best way to spend your time if you have a 1/1/2014 renewal date is by starting a loss run review schedule for 7/1/2014. This is when your reserve reviews peg to your Experience Mod (E-Mod) for your 1/1/2015 renewal date.

The loss run dated 7/1/2013 should be used for your 1/1/2014 renewal. The best way to look at the missed opportunity is by being prepared for your 7/1/2014 Unit Statistical Date.

There are numerous articles on this blog that pertain to planning a loss run review program. Using the search box in the top right part of the blog will be the easiest way to find the articles on loss run or reserve reviews. If you wish to click directly over to the articles, they are listed below with the proper links.

The main goal is to make sure that your company starts to review your loss runs long before the date your E-Mod affects your insurance program. As always, a great safety program will keep your company from having to worry about loss runs.

If there are no accidents, the loss runs will have no claims listed on them. The lack of claims on your loss runs means your company is keeping out of the E-Mod system as much as possible.