Archives for September 2014

Will Texas Opt Out Of Its Opt Out Program By Joining NCCI

September 25, 2014 By JL Risk Management Consultants

By Joining NCCI Texas Opt Out Could Fade

Did Texas opt out of Its non-subscriber system? Texas has decided to join the Experience Rating System supplied by NCCI. According to a fellow WC blogger, Texas may also look to remove the opt-out provisions in the law for the construction industry. That is a major step in starting to remove the Texas opt out provision for employers.

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One has to wonder if NCCI had an impact on or at least suggested the move to a full non-opt-out system in Texas. The Law of Large Numbers may not be a concern as The Lone Star State is such a large state. Then again, if a certain market segment opted out, then the law may be applicable.

One of the most surprising figures out of Texas is 50% of all construction workers in the state are undocumented immigrants. Specialties like concrete and drywall probably have more than 50 percent, undocumented workers, according to the article.

This may cause the construction companies that opt out to have a distinct price advantage over fully-insured companies when submitting bids on contracts. This situation is not limited to just the construction industries. Any Texas company could use a price advantage.

One has to also ask – if TX decides to end its opt-out program for the construction industry, will Oklahoma follow suit in its opt-out program? This would have seemed far-fetched until the state decided to join NCCI’s rating system instead of their own.

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Texas Officially Joins NCCI System – Good Move Overall

September 24, 2014 By JL Risk Management Consultants

Texas Officially Joins The NCCI System

Texas officially joined the NCCI system today as the Department of Insurance files a petition to adopt NCCI’s Experience Rating Plan Manual.

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Earlier in the year, The Texas Department of Insurance signed order 3455 adopting NCCI’s Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan), including Texas exceptions. This manual becomes effective for units with policy effective dates January 1, 2015 and subsequent, and is optional for prior policy effective dates.

The state of Texas will also have many exceptions to the NCCI manual. The state may, over time, decide to remove more of the exceptions.

Adopting the manual does not mean Texas cannot reject any part of the NCCI manual. They do not have to necessarily accept the rates promulgated by NCCI. The next few years should be interesting as Texas was very independent in its WC operations.

One area to note is that polices prior to January 1, 2015 may also be affected by the adoption of the NCCI rules.

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One has to wonder if NCCI will push Texas to not keep the opt-out system which is in place presently in Texas.
See tomorrow’s article on one major step that Texas has taken in the area of construction. Texas has at least started the conversation on not allowing construction firms to opt-out of WC coverage.

Most of the companies that we have consulted with that decided to opt out of WC coverage for their employees have ended in disastrous results once they have a series of claims or a few severe accidents.

West Virginia was very successful in adopting the NCCI manuals and ratemaking process. There have been many reductions in the rates charged to policyholders since the switch to NCCI.

Texas policyholders should see rate reductions in the future. However, the opt-out system may be shown to be a violation of the Law of Large Numbers. This may affect any type of rate reductions.

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NCPRIMA Presentation Work Comp Advice For Public Risk Managers

September 18, 2014 By JL Risk Management Consultants

The Full NCPRIMA Presentation With Slides Included

Last week, I presented at the NCPRIMA Annual Conference. The slides for the full NCPRIMA presentation can be found here. We received a few requests for a transcript of the presentation. The rest of this post follows the slides. The presentation was aimed at public Risk Managers. There are quite a few points that also apply to private industry.

Vector Graphic Woman NCPRIMA Presentation With Slide

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Analyze Trends Not Paperclips – basically paying attention to one big claim, or variable may not be the best way to analyze Workers Comp risk.

Counting paperclips is an old adage that means to not “sweat the small stuff”. The easiest method to examine WC risk is by sticking with trends.

– Identifying trends that impact cost – Hundreds of analyzable trends exist in WC. The key is to identifying the trends that are affecting your WC program the most. The most popular trends in our claims data are:

• Insurance carrier/Third Party Administrator (TPA)

• Adjuster

• Type of claim

• Accident type

• Body part

Two charts of the same data are included in slide 3 and 5. They are basically the same data. We had a Virginia public employer ask us to assist with what they thought was over-reserving by an adjuster.

We examined the data and found the adjuster on their files actually had performed well. If one enlarges the charts, there is an obvious trend.

Graphic Of Analysis NCPRIMA Presentation Chart

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The department 991 had more larger claims. The conclusion we drew that if the $$$ is ignored and the trend is analyzed, the public entity needed to focus on the safety of Department 991, not the adjuster.

Develop a Mechanism for Tracking and Analyzing Trends

– Turn the chart sideways – as in our prior example, something as simple as rotating a chart is a simple yet very effective way to look at the numbers.

We have had more than one statistical intern – that knew nothing about WC claims – refer to claims as anomalies or outliers. They considered claims as aberrations or a system failure. Interns are great for unbiased opinions.

– Excel® is a great choice – The 2013 version has many statistical packages (and it is free to most public employers).

– Most software is free – There are many other free statistical packages that analyze data. The internet is full of them.

– SourceForge.net (caveat) – a great place to find free statistical packages. The caveat is some of the software may not work. Most of it has been checked for malware or viruses.

LDFs and E-MODS

– LDFs and E-MODS Defined – click on the links for the definitions

• Individualizes claims experience – one of the basic underpinnings of E-Mods – click here for more info.

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• Should know last three years – a public risk manager should be able to quote the last three years’ E-Mod or LDF. These are similar to your personal credit score. Not knowing them is going to make your job much more difficult

• LDF’s – basis for budgeting – if you have not had an LDF calculated for the self insured part of your program, you should obtain one soon. LDF’s can make basic budgeting much more easy for the public risk manager.

• Large deductibles still reported – much to the surprise of many Risk Managers and company owners, large deductible policies do not remove your organization from the E-Mod system. Your E-Mod is still reported and calculated in almost all instances.

– Impact of LDFs and E-Mods on Cost – there is a direct relationship between these two numbers and your budgeting. These are basically the scores of your safety and risk programs.

Access = $$$ The Value in Monitoring

–Online claims access – Full – this is one of the best ways to control and monitor your WC program with your TPA or carrier. Having immediate access to your WC claims will save your program $.

– 20% added value – In my humble opinion, having full claims access is worth 20% the value of what your entity pays a TPA or carrier. When your TPA or carrier quotes your organization for WC, make sure you have reviewed their online claims system.

– Status reports – these are golden for Risk Managers. They are basically the Executive Summaries for each one of your claims. These are great time savers if they are provided online.

– Emailing adjuster – calling the adjuster will usually result in he/she saying that they will have to pull the file and get back with you. This is one the major concerns that adjusters bring up in conversations about their insureds. Emailing an adjuster allows time for a response and provides written documentation on both ends

Graphic Of Bank Building NCPRIMA Presentation With Dollar Sign

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Subrogation – defined follow the link.

– Identifying and Assisting in Recovery – This is where we see the most money being wasted in public or private funds. Often, recoverable $$ is left on the table. A simple letter or identification of a third party can recover funds spent in WC.

Opportunities

• First Report of Injury- give the adjuster as much information upfront on everyone involved in a WC accident may flag the system for subrogation from the start.

• Accident investigation forms -these are priceless for informing the adjuster of an accident scenario. The more info that can be shared the better.

• Communication to adjuster – as the first two bullets in this section have pointed out, communication with the adjuster very important is cases of possible subrogation.

– Maintaining a Subrogation Diary – this link will describe a subrogation diary. As a Risk Manager, it is up to you to keep monitoring any recoverables.

• Outlook® Calendar – easiest one to use

• 60, 180, 365, adjuster change – communicating with the adjuster at these times in the claims can assist in recovering your subrogation funds.

Hand Pointing NCPRIMA Presentation Business Icon

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Adjusters have been trained very well in Workers Compensation, However, as a former all lines adjuster, recovering subrogation funds switches the file from WC to liability. Liability adjusting is a different world than WC.

WC claims have many changes such as the adjuster or TPA assigned if assuming tail claims. The diary enhances the tracking of subrogation $ as the claim progresses through changes.

The blog with much more information is at blogs.cutcompcosts.com – presentation with

links to articles that I referenced

One area that I could not over is the Six Keys To WC Savings. Go to the blog and type in Six Keys to find that discussion.

• Six Keys To Cutting WC Costs

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Business Tax Consideration for Workers Compensation Premiums?

September 17, 2014 By JL Risk Management Consultants

Workers Compensation Premiums As A Business Tax

Should Workers Compensation Premiums be considered as a tax? Premiums and taxes are similar in some respects. Workers Compensation premiums and taxes are also very different when compared to each other.

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One of the ways that premiums and business taxes differ greatly is that premiums are regressive. As more payroll is covered in an employer’s account, the unit cost of providing those benefits reduces more than proportionally.

The business tax system is progressive. As business or personal income increases the per-unit rate of taxes increases up to a prescribed amount.

The more a corporation or individual earns results in a progressively higher tax rate. WC premium rates are not structured in that manner. The larger employers tend to pay less per unit for WC premiums.

The WC system is structured as regressive due to larger employers tend to hire safety personnel. A large amount of payroll can absorb a large or many claims much easier than smaller employers.

For instance, a $200,000 claim with an employer that has five employees cannot absorb the risk like a major corporation with 450 employees. Such is the nature of risk.

The bottom line is Workers Compensation should be looked at as more of an investment in the company and its workers. Even though an employer may not see a return on investment, the possibility of a catastrophic loss can be avoided. I have often referred to Workers comp premiums as a zero-based investment.

A zero-based investment does not carry any part of the investment forward. All balances at the beginning and the end of the policy year begin at zero.

The following tax table shows how tax is progressive as a taxpayer attains each level of earnings.

For example, the Tax Tables for Corporations is as follows:

Taxable income over     Not over      Tax rate

$         0        $    50,000        15%
     50,000             75,000        25%
     75,000            100,000        34%
    100,000            335,000        39%
    335,000         10,000,000        34%
 10,000,000         15,000,000        35%
 15,000,000         18,333,333        38%
 18,333,333         ..........        35%

 This is the Table Table for Married Individuals

Filing Separately - 2014:

      Taxable income:                   Tax:
  Over     But not over         Tax       +%   On amount over            

$      0     $  9,075        $    0.00   10       $      0
   9,075       36,900           907.50   15          9,075
  36,900       74,425         5,081.25   25         36,900
  74,425      113,425        14,462.50   28         74,425
 113,425      202,550        25,382.50   33        113,425
 202,550      228,800        54,793.75   35        202,550
 228,800      .......        63,981.25  39.6       228,800

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Workplace Transportation Incidents Account For 40% Of Fatalities – BLS

September 11, 2014 By JL Risk Management Consultants

Workplace Transportation Incidents Account

Workplace transportation incidents = 40% of fatalities according to the BLS. The Bureau of Labor Statistics recently released various studies on Workplace Fatalities. An article was published earlier this year on The 25 Most Dangerous Jobs The numbers below are preliminary. The statistics are usually changed slightly as the numbers are verified by BLS.Some of the eye-opening statistics gleaned from the data are:

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40% of workplace fatalities are transportation-related as defined by BLS.
Information service providers was the safest sector with a fatality rate of .8% of all fatalities
9% of fatalities were due to on-the-job homicide.
93% of all fatalities were male.
25% were in the age group of 45 – 54.
89% occurred in the private sector.

The workplace transportation incident -related fatalities required a little more research as the transportation-related incidents also included:

Roadway,
Non-roadway
Air,
Water,
Rail
Fatal occupational injuries resulting from being struck by a vehicle.

A partial breakdown of the transportation group which totaled 1,740 incidents was:

991 that were roadway incidents involving motorized land vehicle
223 resulting from non–roadway incidents involving motorized land vehicle
284 pedestrian incidents

The numbers will be updated once BLS finalizes their statistics.

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Disputed Premium Audit Bill – Does Our Company Have To Pay Any Of It?

September 10, 2014 By JL Risk Management Consultants

Disputed Premium Audit Bill – How Much To Pay?

One question that we receive the most often is the sufficient amount to pay when there is a disputed premium audit bill. Premium audits and the associated bills always generate a large number of questions.

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The answer in the simplest terms is that an employer must pay any undisputed premiums as soon as practical. The key words are undisputed and practical.

The amount of the dispute needs to be as accurate as possible. Determining the correct undisputed amount can be a critical point. If your company pays too much, you lose your leverage in the dispute with the insurance carrier.

If you pay too little, your company is violating one of the basic rules of WC rating bureau (NCCI, WCIRB). The old saying about paying what you owe in full, but not one penny more would apply to this situation.

The practical time to make the payment is not necessarily when you see a bill due date. We have often seen clients receive the bill in the mail with the due date of the premium audit bill payment within just a few days.

If you receive a bill with a due date in just a few days, calling the billing department may keep your current policy from being cancelled if you are with the same insurance carrier on the renewal policy.

The best way to proceed is by making arrangements with the carrier as soon as you receive the bill if you feel that you owe it in full and cannot make the bill payment immediately.

Graphic of Gavel and Dollars Disputed Premium Audit Bill Emblem from Web

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Most insurance carriers have a very specified premium audit dispute process. The easiest place to locate the rules for disputing the premium is actually in the Workers Comp policy.

Some carriers ask for a form to be filled out while others request a premium dispute letter written on company letterhead by one of the company officers.

We usually recommend not using the forms provided by the carriers. Some of them seem to be very limiting on what can be disputed from the audit. Phone calls just will not work with disputes very well. The disputes need to be in writing and timely. Certified return receipt is the best method for sending audit disputes in to the carrier.

Another important factor to remember is there are very specific time limits on the disputes. Letting a premium audit bill sit for weeks can sometimes end up with an employer paying more than they should have even though there was a valid dispute.

NCPRIMA Presentation on Cost Cutting – PowerPoint Slides

September 10, 2014 By JL Risk Management Consultants

NCPRIMA Presentation

My NCPRIMA presentation today at the Conference included these slides. I am going to link the info in the slides to articles for better reference later this week.

Please note the presentation was on the first nine slides.

PowerPoint Slides

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Some of the slide information – please feel free to use slides in your presentations – reference the url – thanks.

Analyze Trends Not Paperclips – the nitty gritty does not work here

– Identifying trends that impact cost

• Insurance carrier/TPA

• Adjuster

• Type of claim

• Accident type

• Body part

Access = $$$ The Value in Monitoring – A Few Minutes A Day Is Require

–Online claims access – Full – always ask carrier or TPA for full access to everything including reserve increases

– 20% added value – when looking at bids for self insureds or premiums, full online access can be a major component when renewing

– Status reports – many carriers and TPA’s provide a two line status report. This is the best way to monitor the claim without spending hours trying to figure out the status –

– Emailing adjuster – do not call adjusters, time waster, email saves time and is great documentation for employer and adjuster. Save all emails for at least 10 years.

Defense Base Act – Coverage For Overseas Subcontractors

September 3, 2014 By JL Risk Management Consultants

Overseas Subcontractors And The Defense Base Act

For Overseas Subcontractors, The Defense Base Act (DBA) is a very important part of the Workers Compensation system. The Defense Base Act provides compensation for disability or death to persons employed at the military, air, and naval bases outside the United States.

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The Act was passed in 1941. The DBA is very short compared to much of the Federal Laws, Rules, and Regulations. I had always assumed the DBA also covered any subcontractor employees. That was not correct. Then again, I am not a DBA expert.

Part 1(c) of the DBA covers subcontracted employees. A memo in 2003 – Explaining the Defense Base Act DBA – explains this in detail.

Coverage under the Defense Base Act

The Defense Base Act covers the following employment activities:

Working for private employers on U.S. military bases or on any lands used by the U.S. for military purposes
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outside of the United States, including those in U.S. Territories and possessions;
Working on public work contracts with any U.S. government agency, including construction and service contracts in connection with national defense or with war activities outside the United States;
Working on contracts approved and funded by the U.S. under the Foreign Assistance Act, generally providing for cash sale of military equipment, materials, and services to its allies, if the contract is performed outside of the United States;
Working for American employers providing welfare or similar services outside of the United States for the benefit of the Armed Forces, e.g. the USO.

If any one of the above criteria is met, all employees engaged in such employment, regardless of nationality, are covered under the Act.

The 2003 Memo points out the requirement of the subcontractors to cover their employees with WC. Section 4(a) of the Act requires every employer to be liable for, and to secure the payment of, disability, medical, and death benefits to its employees in the event of injury or death. If a subcontractor fails to secure the payment of compensation, the contractor will be liable for and be required to secure the payment of such benefits.

The memo then covers a very important point with non-covered employees that are injured while working for the subcontractor.

The injured employee may elect to sue the employer for tort damages on account of such injury or death.

An unusual clause in the DBA is the uninsured defendant may not plead as a defense that the injury was caused by the negligence of a fellow servant, or that the employee assumed the risk of his employment, or that the injury was due to the contributory negligence of the employee.