Workers Compensation Hard Market Preparation and Solutions
Employers need to know how to prepare for a Workers Compensation hard market.
China’s upcoming cash crunch may possibly never occur except there is an upcoming default by a major bank.
I am not a financial doomsday prepper. However, in the world of Workers Comp, if the money markets are tightened, then carriers will have to begin cherry picking out their best risk clients.
The cherry-[picked employers may not necessarily be the ones with extremely bad E-Mods (X-Mods). Many industries such as trucking and construction have headed into the Assigned Risk Pool even though many trucking and construction companies had very low Mods. Two types of hard markets exist. The silent workers compensation hard market can easily cause whole industries to not be underwritten. Insurance carriers exist to make money. The rest of this article covers how to battle the silent hard market.
If the insurance underwriters think a market is never going to be profitable, they will not even accept employers with a .80 Mod. That situation happened in the mid-1990’s and again right after 9/11. Alternatives exist instead of just going into a risk pool where rates are sometimes 400% more than the regular market. This can ruin an employer’s budget quickly. Many alternatives to a regular policy exist today. Alternatives are (click on the term for definition):
- PEO’s
- Captives
- RRG’s
- Self Insured Groups
- Self Insurance
Alternative Market Concerns
An employer needs to basically seek out alternative markets for WC coverage. The reward for such a search can be very significant over a risk pool. However, and mark my words on this one, if your company signs up with a bad alternative line of insurance, you may not have coverage and/or you may be running afoul of the insurance laws in your respective states of operation.
We receive calls, emails, and letters where a company may be in a very tight spot when using alternative insurers. For instance, how many employers ask – Who is going to be handling the claims for us? Over the last five years, we have received in piles of files where a PEO,, Captive, or Self Insurer has failed and need the claims to be run off and settled.
We also receive many inquiries from employers that have incurred a failed carrier. Alternative insurers are not the only coverage providers that fail. See page 7 of the 2013 NCIGA report to see how many bankrupt carriers there are for just one state’s Insurance Guarantee Association.
In the industry, we call this situation- file mercenaries as it is up to us or a company similar to us to get rid of files ASAP. The only drawback is that we are often spending cash out of an employer’s budget for coverage they already had previously purchased from a now defunct company. One of the hallmarks of a defunct alternative insurer or self-insurer is very poor claims handling.
The bottom line is- do not turn blindly to the alternative insurance market. You need to know much more about your WC coverage than signing up for a policy in the regular insurance market. Many reputable PEO’s, Captives, RRG’s and Self Insurance groups exist in today’s marketplace.
One the most prevalent ways for a hard market to occur is possibly a Chinese money market crisis. Yesterday, the preparation needed for a silent hard market was covered in detail. This leaves the hard market that everyone usually mentions in WC circles.The best way to prepare for an employer to prepare for a hard market is by making the company attractive enough to be underwritten by a group of insurers. This does not mean one insurer as the more that competes for your business – the better. The #1 way to be underwritten by companies that are more affordable is to have a low E-Mod – plain and simple.
Many governmental contractors now require that a company have a Mod of 1.0 or less. Federal contractors were a little more lenient in the past on E-Mods that were over 1.0. Those days have long passed. Almost any contractor wants to see the actual E-Mod sheets from the respective rating bureau.
The WC system is a time-lagged system. The effective efforts made today will show up in your Mod in two to five years. That cannot be changed whatsoever. One of the best safety lists for WC is here. The list is actually the Schedule Credits. The modifications here are basically an arbitrary amount that is assigned to your company. Check the list for any safety recommendations. These will probably look very familiar.
If you read over your Workers Comp policy and final audit, Scheduled Modification is almost always on the sheets.
As mentioned very often in this blog, the Mod originates from the Total Incurred figures (Paid + Reserves) the claims staff assigns to the file. The Total Incurred is pegged to your upcoming Mod on the Unit Stat date.
A loss run review before the Unit Stat date will also help in reducing your Mod. Very few hard markets have begun overnight. Starting on your Mod now with some type of reduction program will keep your company better prepared for a hard market.
Online claims access is almost essential to any Mod reduction program. A paper loss run is acceptable in some cases. However, by the time you receive the loss run, your claims situation may have appreciably changed since you ordered the loss run. If you can see a review of the claims notes and reserve increases online, then your company can make timely inquiries into your reserves.
Your agent/broker and insurer need to understand exactly what you do in your business. The broker is going to shop around your policy. The more your broker knows about your business, the better they can explore different insurance markets.
A list of job descriptions that should be used when an injured employee returns to work can also be used to better inform and educate your broker, insurer, and insurer audit department on your daily business processes.
The old adage – Information is power is the best way to reduce your WC costs. Obtaining the proper information and funneling the proper information to outside parties will help in almost any WC situation.
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