Archives for September 2018

What Is A Guaranteed Cost Program In Workers Compensation?

September 20, 2018 By JL Risk Management Consultants

Article Reader Asks Good Basic Question on Guaranteed Cost Program

What is a guaranteed cost program? Is that the type of policy I have in place now? A great question on a basic subject was emailed in by one of our new newsletter subscribers.

Pic of old workers compensation guaranteed cost program policy

Wikimedia Public License

A Guaranteed Cost program means that you will pay a flat fee of sorts for a given policy period. The policy is not adjusted for losses as in a loss sensitive program. Most small and medium-sized businesses will usually find a guaranteed cost program as the most desirable insurance policy to cover their workers compensation losses.

The basic guaranteed cost program premium is calculated from a rate multiplied per 100 dollars of the employer’s payroll. The final workers compensation bill for the policy period occurs after the premium audit for that policy year.

Once the policy is issued with the rates per $100 of payroll, those rates usually cannot change during the policy as with a loss sensitive program.

Loss sensitive program variables can be adjusted during a policy year depending on the amount of losses incurred during the policy year.

Guaranteed cost programs transfer the risk of the insured and administrative costs directly to the carrier once the policy is issued. The total transfer of risk guarantees the cost at a certain level.

As businesses grow, the need to retain part of their losses for a lower premium can lead to an employer to use deductible programs such as a large deductible. The large deductible policy level will usually be $250,000 per claim.

The large deductible policies require the employer to “guarantee” more of the cost and not the insurance carrier.

The employer should always not just accept the cheapest policy for coverage. Comparing at least three quotes per year may generate surprising results.

As your company is a small but growing company, a guaranteed cost program will likely be the best method to control your workers compensation costs. Your company cannot likely bear the brunt of financing a large claim other than guaranteed cost.

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Switching Workers Comp Carriers Early Can Be Expensive

September 19, 2018 By JL Risk Management Consultants

Switching Workers Comp Carriers Too Early Very Costly

Switching workers comp carriers can be a trying task at renewal. During the year, that option can be very costly due to the Short Rate Penalty. The various state insurance departments decided to eliminate or at least heavily discourage employers from jumping from policy to policy to find a better deal.

Bringing in another carrier may save some premium. However, the employer has to weigh out the cost/benefit of making such a major move. The charts below – one from Rhode Island/California shows the devastating effect of these midterm changes.

Switching Workers Comp carriers in the first month in California or Rhode Island:

California and Rhode Island have very different workers’ compensation systems. The chart for the short rate penalty is exactly the same for the two states.

Looking at the chart, one can see that the canceling the first day of the policy costs 5% of the total policy. Yes, there are many calculations to the process of the carrier assigning the short rate penalty. The main thing the chart shows is that moving to a new carrier will incur a large penalty for a small number of days covered by the carrier.

Switching workers comp policies after a premium audit dispute cost employers dearly in some cases. The percentages level out after six months into the policy. By then, the carriers figure they have collected enough premium to spread it over the risk, especially the IBNR (Incurred But Not Reported) claims.

I have seen very little carrier leeway with the percentages charged for the short rate penalty. Sometimes, it may be better to ride out the policy and then non-renew with the carrier.

As mentioned earlier, a cost-benefit analysis would be the best way to see if switching workers comp carriers mid-policy will be worth the money and hassle.

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Personal Sensitivity Claims Complicated Workers Compensation Matter

September 6, 2018 By JL Risk Management Consultants

Personal Sensitivity Claims – Frustrating For Employees and Adjusters

A large number of personal sensitivity claims have created a large chasm between workers compensation adjusters and employees who report this type of claim.

picture of personal sensitivity claims rash

Wikimedia Commons License – Skoch3

General sensitivity claims can be defined as where the employee reports a claim that may have been caused by exposures that the general public faces and are not specific to the job.

The maddest employees with the smallest workers comp claims come into play when adjusters assess a claim – usually medical only claims – as not being specific to the risks of the employee’s job.

The best example:

Part of an employee’s job involves washing down a workspace. The cleaner used is nothing more than Dawn soap and warm water.
The employee reports a claim that the Dawn soap irritated their hands and caused a rash on their arms.
The employee seeks medical treatment for the irritation and rash
The medical only adjuster receives the first report of injury.
The medical only or lost time adjuster denies the claim as personal sensitivity
The employee becomes very upset that the claim is not paid under Workers Compensation even though they may have health benefits.
These claims have been litigated in certain states.

Is it a better risk management technique to accept this claim and pay it rather than have a disgruntled claimant on their hands?

Man Hand Writing personal sensitivity claims Risk Management Word

by StockUnlimited

If the company that processes the claim is a Third Party Administrator (TPA), then the employer should have a large say as to whether they claim is paid instead of creating a disgruntled employee situation. Remember, an adjuster that works in a TPA environment is spending the money out of a self insured’s account.

I remember having an agreement with certain self insureds that personal sensitivity claims are to be paid and not denied. Some of those very small claims have turned into much worse claims that could not be denied later in the claim.

This type of claim has been ruled on in many jurisdictions. I cannot make a blanket statement as to which states allow or do not allow the claim.

This situation is one that should be run by the defense attorneys that the adjuster usually works with on their claims. Personal sensitivity claims may seem too insignificant to speak with a defense counsel. It will be well worth your time to know the answer even if you have not handled personal sensitivity claims.

I wanted to bring this issue to the attention of claims departments, safety managers, risk managers, and our other 7,000 weekly newsletter readers.

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Civil Engineer Asks Great Worker Compensation Class Code Question

September 6, 2018 By JL Risk Management Consultants

Civil Engineer Was On The Right Track With Workers Compensation Codes

A civil engineer was looking over the house that I am presently selling. He had asked me what I do for a living. I had told him that I am a worker’s compensation consultant.

Public Wikimedia License – Blkutter

He posed this question –

I work as a civil engineer. My company is moving all the civil engineers from a remote location into the main plant. Today we were told that they are setting up an offsite trailer for us with a barrier fence between the plant and us.

Why would they put us so far away from the plant and build a fence between the trailer and the plant? Is it some risk factor?

I said – “Well your plant manager did not do that because he does not like the civil engineers. It could be due to the Workers Compensation rating system. ”

Wikimedia Commons – Master Sgt. Roger Parsons

I went on to explain that the civil engineers working inside the actual plant would likely cost the company a large amount of workers compensation premiums as the civil engineers could be grouped into a plant worker’s classification code.

The plant manufacturers large metal pipes so the difference would be huge in the Workers Compensation rate. I pulled out my trusty smartphone and pulled up the North Carolina Rate Bureau advisory lost costs.

Class Code – 8742 (Civil Engineer that does not handle material manufactured) – .26 per $100 – very low rate
Class Code- 3022 – (Pipe Mfg) – 4.81 per $100 – much higher rate

Comparing those two classification codes = 4.81 / .26 = 18.5 or 1850% more expensive if the group was included in the pipe manufacturing Class Code. Ouch!

He said so you are telling me that there is an 1850% difference if we work directly inside the manufacturing plant even though we are not involved in the manufacturing process? I said yes.

One has to remember that these are advisory rates and not the insurance carriers rates due to the Loss Cost Multipliers filed by all workers compensation insurance carriers.

The average civil engineer salary is $83,750. Let us take that a step further.

83, 750 * (.26/100) = $217.75 in yearly premiums for Civil Engineer

83,750 * (4.81/100) = $4,028.38 in yearly premiums working in the plant

And yes, I have made a ton of assumptions, but the idea is the same. The plant manager and likely the CFO were smart not to bring the civil engineers into the plant. I am sure there were many other considerations. Workers Comp rates would have likely been one of the considerations.