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Home » self insurance

Self Insured Claims Data – Your TPA Has Many Helpful Options Online

October 8, 2020 By JL Risk Management Consultants

Self Insured Claims Data – Going Beyond A Loss Run 

J&L examines loads of self insured claims data every month.  Some TPAs offer loads of information that go beyond just reviewing a loss run.  

picture examining self insured claims data report

Wikimedia Commons – Aw58

Much of the self insured claims data can be reviewed using notifications as bells and whistles.   The ones I like that seem to work well can be set up as emails or notifications on the home or main screen.  

If you do not have online access and are self insured, you need to obtain it to set up your own system.   

Let us cover a few of the notifications.   Remember – you need to make the settings at a level you feel comfortable with without becoming the adjuster on the file. 

Payments Over X$

One notification that you should have set up is a basic one for self insured claims data analysis.   When a payment is made over for instance $10,000, you should receive an email immediately.   

Most systems have that in place.  If not an email, then at least have the payments over $10,000 or the largest 10 payments made over the last 60 days right on the home screen.   

Remember, self insureds – the TPA is spending directly out of your bank account, so a large payment should be a notification to you to at least see what the payment entailed and on what file. 

Risk managers – you do not want to justify to a C-level manager why you did not review a large subtraction out of your budget.  

Reserves Over Y$

Rubber band with money self insured claims data and Card

Wikimedia Commons – Drew Friestedt

As with the payments, you need to know when the reserves have increased significantly on a certain file.  This is another one that when a certain amount is added to a file – for instance, and increase $25k in total, an email is sent to you immediately.  

This is an important aspect of self insureds claims data.  Why?  Usually, reserves are fed into your Loss Development Factor and the reserves are being increased to make some type of large payment.  

Litigation, Denial, Subrogation, Fines, Settlement, Hearings, Closing –  Flags

Any major development on the file should have a flag notification sent out or have it on your TPA’s home screen when you logon to see your self insureds claims data.   

The subrogation flag is one of the more interesting ones.  You can know if the TPAs claims adjuster is looking into the subrogation on the file that has third party involvement.  

The list of flags can be enormous.  The states a self insured operates in may dictate which one of these flags are more useful than others. 

Vendor Assignment 

This unique flag lets you know what vendor is being assigned by the TPA.  This cost-saving flag becomes very important when the TPA is using an internal company vendor such as a PBM or Rehab Nurses. 

Do Not Adjust The Files – Risk Manage Them

Computer Screen of self insured claims data Spreadsheet

Wikimedia Commons – Texas State Library and Archives Commission

Having too many flags set or having the reserve or paid values too low turns a Risk Manager into an adjuster.  You are paying your TPA to adjust the files – let them do their job. 

Manage the risk by going beyond your loss run – adjusting the claims can be an exercise in frustration. 

TPA Fees – All Should Be On A Self Insured Claims Data Cost Spreadsheet  

Make sure you know every penny your TPA is charging you for their services including the internal vendor assignment flag from the above heading.   

One can usually request a screen to be set up to show these or downloaded as an Excel (not CSV) Spreadsheet.  You need to know where the internal charges originate.  The TPA fees can be surprising yet informative self insured claims data. 

 

 

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: bells and whistles, CSV, last 60 days, online access, spending directly out, Vendor Assignment

The Workers Comp Self Insurance Risk No One Talks About

September 3, 2020 By JL Risk Management Consultants

Workers Comp Self Insurance Risk – The $250,000 Repetitive Mega Claims

I sometimes forget to mention the self insurance side of Workers Comp Risk Management.   A certain Workers Comp self insurance risk conversation seldom occurs in voluntary insurance vs. self insurance decisions. 

picture of confidential self insured workers comp risk cover sheet

Public Use License – Library of Congress

Voluntary insurance may seem like an unused commodity when a premium is paid by a large company but little or no claims are ever filed.  Self insurance may seem like the best course of action to save on premiums.  

Most of the time, this angle on Workers Comp risk management may be very accurate.  The other side of the proverbial coin that seems to be ignored is when a company must face multiple mega claims. 

A mega claim as defined by the rating bureaus is any claim that has reached an incurred value of $3,000,000.    I consider any mega claim that reaches $250,000.  As I have often mentioned, $250,000 is an almost magic number where many file functions kick in at that level.  

Reinsurance is Not Catch-All Insurance 

Many self insureds have mentioned to me that “We are good, reinsurance kicks in at $250,000”.   This may be true.  With the COVID crisis and the lowering of company budgets – do you really have $250,000 to spend before the next level of insurance?  

If your company or organization has two or three claims that have reached the $250,000 level, the level of self-funding can be very tough in this economy.   Renewing your reinsurance policy may have a sharp premium increase surprise.

Why am I writing this article – because I have that situation right in front of me – where a medium-sized company is funding $750,000 for three claims out-of-pocket when their financials cannot support such a large budget output. 

Using a few risk management claim techniques,  some of the risks can be reduced – however, not all of the risk can be eliminated through loss control. 

Loss Limits and X-Mods 

Digital Machine workers comp self insurance risk paying with credit card

Wikimedia Commons – Hloom Templates

One aspect of voluntary insurance is Loss Limitations.  The loss limits control how much the X-Mods can be affected by one claim.  If you look on your Experience Modification Factor sheets, the # sign denotes that a loss limitation has occurred on a certain claim.  The # sign is usually located in the Total Incurred Column.

The loss limits can be very high – well beyond $250,000.   They function similarly to reinsurance if you think about it for a moment.  They cut your losses at a certain point. 

My point here is that at least there is a ceiling (in most states) how your X-Mod can be affected over the next four years.  That is not the case if you with Loss Development Factors (LDF).   Think of an LDF as a self insurance Mod. 

Voluntary Insurance and the Workers Comp Self Insurance Risk  

Voluntary insurance may seem much more expensive than the self insurance option – then again maybe not if you experience multiple large claims.  

Here is a very important point – the insurance carrier remains on the hook to handle and pay the benefits on multiple mega claims.  Your X-Mod increases, then again, it may be a cheaper option than paying $750,000 straight out of your budget as in the previous example. 

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: course of action, COVID crisis, proverbial coin, unused commodity

Top 10 2018 Self Insured Resolutions For Workers Comp

December 13, 2017 By JL Risk Management Consultants

Top 10 2018 Self Insured Resolutions

The Top 10 2018 Self Insured resolutions are based on the 2017 and 2016 resolutions.    Searching the world resolution in the search box at the top right of the page bring us a long list of resolution articles.    

Mexico City 2018 Self Insured Resolutions

Wikimedia Commons – Eneas De Troya

The 2017 resolutions were:

  1. Obtain and know your LDF (Loss Development Factor)  
  2. Working relationship with adjusters
  3. Use email – not phone calls
  4. Conquer Your TPA expenses
  5. Watch the Learning Curve for Accident Spikes
  6. Use online access when available
  7. Attend A Workers Comp or Safety Conference 
  8. Subscribe to our weekly Newsletter
  9. Obtain Your Loss Runs 
  10. Write an article on Workers Comp . 

A fuller explanation of the terms are in the 2017 article.     The 2018 resolutions are:

  1. There is nothing wrong with not being Self Insured – Many companies and organizations think that once a certain level of success and growth has been attained, self insurance for Workers Compensation should soon follow.   We have often discouraged companies from becoming self insured and even helped self insureds convert to another line of insurance for their coverage.

    Hand Showing 2018 Self Insured resolutions Dollars

    Public Domain By At.morey.tota

  2. Construct a Request For Proposal (RFP) for your Third Party Administrators (TPA’s) – governmental agencies are tasked with this requirement.  There is a reason for that requirement – to obtain the best possible value.  
  3. Unbundle your required services with multiple RFPs for such providers as rehabilitation nurses, bill review, pharmacy, etc.  Even though this is hellish at first, the future dividends are usually great.
  4. Have the ability to ad-hoc  print your loss runs – monitoring the claim payouts is critical.  Remember, the adjuster is spending directly from your budget account.
  5. Having a Working relationship with adjusters  to monitor claims closely.   This is a holdover from 2017.  It was very important for self insureds many years ago.  The working relationship is still important now.  A red flag is that you do not know the names of the adjuster or adjusters handling your files. 
  6.  Keep in mind each state in which you operate has its own set of minimum rules for being self-insured – for companies considering becoming self insured.   One very common minimum is $500,000 of liquid assets in that state.   You may have to be self insured in certain states but have another policy for your non-self insured states.
  7. An alternative to LDF’s – Loss Development Factors is SynthMods(R).   We calculate those for self insureds.  They are basically E-Mods instead of LDF’s.  SynthMods rate your company with the Experience Mods like you were still in a regular workers comp policy.   They are an alternative to LDF’s.  
  8. Understand all your TPA expenses.  That is a holdover from last year’s resolutions.   That is why I suggest in #3 above to unbundle all your TPA’s expenses.  Examine each service provided as a separate total.
  9. Take your self insured program in- house.   This is the most labor intensive recommendation.  However, having an internal claims staff can save a large amount of budget.   A caveat – watch the Law of Large Numbers here.   You need to have a large workers comp budget to do the claims in-house
  10. Go back and read all the resolutions I have written.  Even if the resolutions are not specifically for self insureds, you can glean great information.  The resolution search is  here.
  11. Bonus – Full online access to your claims including reserving and adjuster notes will save many phone calls and emails to the adjusters.  The more you know about your claims, the less budget will be used for your claims.   In other words, the more you pay attention, the more claim payouts will naturally fall over time.

There are many more resolutions which could be added to the list.   Good luck with your 2018 self insured resolutions.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: 2016 resolutions, budget account, claims in-house, hellish, Request for Proposal, SynthMods

Top 10 Self Insured Resolutions For New Year 2017

January 5, 2017 By JL Risk Management Consultants

Top 10 Self Insured Resolutions – 2017 and Beyond

The self insured resolutions for 2017 is an update of the last three years.   I used to write resolutions for the voluntary marketplace only until a friend of mine asked about self insured resolutions.   Many of the recommendations center around your Third Party Administrator (TPA).

Picture of long road 2017 and buildings Top 10 Self Insured Resolutions

123RF

I have tried to write a large number of articles for self insureds over the years.    The following are the Top Ten for 2017 – some will be reiterations of 2016 with a twist or two:

  1. Obtain and know your LDF (Loss Development Factor)  – As in Google Maps, you have to know where you want to start from if you are trying to find directions.   If you do not have an LDF you need one NOW.  Call me or email me if you do not have one.   
  2. Working relationship with adjusters – know their names and let them know what you are doing in the areas of the Six Keys To Workers Comp Savings.   Think of them as remote contracted employees.
  3. Use email – not phone calls
    Pen Self Insured Resolutions on top of paper

    Wikimedia Commons – Pete O’Shea

    – written documentation is paramount.  Your adjusters – see #2 will appreciate limiting inquiry phone calls.  

  4. Conquer Your TPA expenses – review your TPA contract, use #3 heavily if you have questions on what you were charged to handle your claims.
  5. Watch the Learning Curve for Accident Spikes – Safety is so very important here.   If the economy picks up under President Trump (assumption), the first time someone uses a machine, drives a new route, etc. is when a large % of accidents occur in the workplace.  
  6. Use online access when available – Accessing your claims information online is a real-time and headache saver.  Combine this with #3 above to keep your communication time dedication lower. 
  7. Attend A Workers Comp or Safety Conference of some type – there are many mentioned in these articles, use the search box to see about upcoming or past, the things you will learn are astounding such as new vendors or technology upgrades. 

    Mailbox Self Insured Resolutions Outside At House

    Wikimedia Commons – User:Steevven1

  8. Subscribe to our weekly Newsletter – free and to the point, subscribe using the box at the top right, we do not sell or rent out our mailing list, never.    Yes, a self-serving one. 
  9. Obtain Your Loss Runs and memorize them –  know the who, what, when, where, how, and why of all your accidents.  See #6 for the best way to obtain loss runs. 
  10. Write an article on Workers Comp – even if it is just for your internal company news.   I have learned so much in writing articles over the years.  Try it.  You will like it.   Feel free to reference and use the 1600+ articles in this database.   Use the search box for any subject.  I am not the greatest author on the planet, but I had to start somewhere. 

The list could go on and on – these are just off the top of my head. 

Speaking of newsletters, I have to get one out now.  Thanks for reading the Top 10 Self Insured Resolutions for WC.   Comments are cheerfully welcomed.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: cheerfully welcomed, real-time and headache saver, top of my head, voluntary marketplace

Workers Comp Self Insured Resolutions for 2016

January 6, 2016 By JL Risk Management Consultants

Workers Comp Self Insured Resolutions

The Workers Comp self insured resolutions were originally written in 2013.   Yesterday, the overall resolutions for WC were updated for 2016.    You may want to follow the link to the old article for reference.  I am often reminded by our self insured clients to include articles that discuss self insurance advice.

 

Graphic Of 2016 Workers Comp Self Insured with Snowflakes at Background

StockUnlimited

Self insureds for WC should:

  1. Not think they are outside of the regular WC system.  Self insureds often say “We do not have to worry about ______ as we are self insured.”  Nothing could be further from the truth.   They may not have a Mod, but a Loss Development Factor should be calculated every year.  The LDF is very similar to a Mod.   The premium-paying companies are not that much different from a large deductible or a self insured program in this area.   Updated for 2016- This has been an area of improvement for self insureds over the last few years.   However, not obtaining or understanding their Loss Development Factors is still an area for improvement. 
  2. Realize there is a closer fiduciary relationship with their TPA than with an insurance carrier.
    Budget Workers Comp Self Insured planning

    Wikimedia Commons – Daniel Latorre

     There is no “buffer” that a Mod and premium supply.   The TPA is spending directly out of one of your budgeted accounts.  Reading over your TPA contract may produce some surprises.  Updated for 2016- Many of our clients and associates have begun to follow their TPA’s spending very closely.  As previously mentioned, reading over the TPA contract is critical at renewal. 

  3. Understand their TPA expenses.  Many self insureds pay attention to only the yearly cost to handle the claims – usually paid per claim.  Has your company considered the bill review, PPO network, rehabilitationnurse, and other TPA costs?  If not, you may want to obtain an analysis of those charges.
  4. Not think they are adjusting the claim.   Many of the self insured employers usually have a  Risk Management Department.  Managing risk and adjusting a WC claim are very different.  The TPA was hired for their claims expertise.  Monitoring the claim is excellent.  Calling every shot on a claim can be very costly.   Updated for 2016 – This is an area that has possibly worsened over the last three years.  There is a very fine line between Risk Management and claims adjusting in WC.   See #6 as a great way to manage the risk and not adjust claims. 

    Graphic of Hand Protect the Workers Comp Self Insured Resolutions

    StockUnlimited

  5. Periodically review their TPA’s performance on a random selection of claims.  This function goes beyond emailing questions to the adjuster.  Medical Only claims should be included in the selection.   Festering Medical Only claims are usually the ones that appear out of nowhere and are the most difficult to control.
  6. Updated for 2016 – This has become a very critical area for self insureds – Have a prescribed level of reserves, settlements, bill payments, that must be approved by the employer.    This level is usually in your TPA contract. If not, you should add it at renewal/bid time.   Making the TPA’s authority level too low can end up hampering your TPA’s ability to close claims.   In other words if the TPA has to check with the employer for everything, they are not adjusting the claim and the risk is not being well managed by the employer.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance, Workers Comp Resolutions Tagged With: buffer, festering, fiduciary, Mod, tpa expenses

Converting to Self Insurance – Five Important Considerations & Alternatives

July 17, 2014 By JL Risk Management Consultants

Converting to Self Insurance – New Tasks To Accomplish

Converting to self insurance is a very popular option for many companies.

Picture Of Hand Converting to Self Insurance With Plan And Coins

Wikimedia Commons – 401(K) 2012

We receive many inquiries every year from employers that wish to cover to self insurance for their Workers Compensation coverage.  

The inquiries to our offices reached a fever pitch in 2002 – 2005.   Self insurance can save $$ for the right employer in the right situation. There are many considerations to analyze before converting to self-insurance.

 Five of the top considerations are:

  1. Your company or organization will have a new partner with a very close fiduciary relationship.   If you stop and think before you were just paying an insurance premium and letting the carrier handle the claims.  You will have an outside company – Third Party Administrator (TPA) spending directly out of one of your bank accounts.  In other words, the method you use to monitor the claims must change overnight.
  2. With self insurance, you lose the ability to absorb many claims or a few large claims.  Unless your company or organization has a large insurance budget,  this can severely impact your budget.  The buffer of the insurance policy and the E-Mod system is no longer yours.   Reinsurance may help to a certain degree.
  3. You have to calculate your own E-Mod better known as the Loss Development Factor (LDF).   The outlook in the E-Mod system is up to four years in the past.  LDF’s survey a 10-year period.  Your LDF may not match your old E-Mod.   If your organization is self insured and you do not know your LDF or have not had one calculated, your insurance budget is no more than a bad guess.
  4. The state requires certain minimums to be self-insured.   There is a reason for these minimums.  The minimums keep your company afloat if #2 above occurs in your insurance budget.
  5. There may be less expensive and risk-averse alternatives such as:
    • Gray Shield Converting to Self Insurance With dollar Icon

      StockUnlimited

      Large deductible plans- are very popular with companies that want to retain some, but not all of their WC risk.

    • PEOs – becoming very popular with mid-sized employers and companies with high E-Mods.
    • Small deductibles-I have not seen  a very significant amount of savings in these plans
    • Captives – becoming more popular due to flexibility, they do carry a certain amount of unique risk

The #1 concern with an employer converting to self insurance is #2 from above.   Congrats as your company are or have grown in a tough economy.  Patience and risk diversity such as PEO’s are the keys.   Even though your company may be in line to be self insured in the future, now may not be the best time.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: bank accounts, fiduciary, Loss Development Factor

Workers Comp Self Insured Resolutions Five From 2013 updated for 2014

January 7, 2014 By JL Risk Management Consultants

Workers Comp Self Insured Resolutions – Updated for 2014 

Five 2013 Workers Comp self insured resolutions have been updated for 2014.

When talking about Workers Comp premiums, self insureds are often left out in the cold.  Self insureds do not pay premiums for Workers Comp.  

Two person helping hands Workers Comp Self Insured Resolutions to plant on the ground

Wikimedia Commons – Pacific Southwest Region USFWS

This actually exposes the self insured employer to many more risks besides not budgeting enough funds to cover WC costs. Updates for 2014 are in italics.

Self insured employers may want to adopt these resolutions for 2013 2014.    Self insured employers must:

  1. Not think they are outside the regular WC system.  Update – Operate its self insurance program very similar to a company that pays WC premiums.  If a self insured employer is experiencing thin profit margins due to the current economy, there is just no wiggle-room left for adding funds to their WC budget late in the year.   They may not have a Mod, but a Loss Development Factor should be calculated every year.  The LDF is very similar to a Mod.   The premium-paying companies are not that much different from a large deductible or a self insured program in this area.
  2. Medical Icon Workers Comp Self Insured Resolutions Vector Graphic

    (c) stockunlimited

    Realize there is a closer fiduciary relationship with their TPA than with an insurance carrier.  There is no “buffer” that a Mod and premium supply.   The TPA is spending directly out of one of your budgeted accounts.  Reading over your TPA contract may produce some surprises.  Update – as in most WC policies, the TPA will usually have a clause that says – “We can opt to settle or pay a claim at any time if we feel it is necessary” or something similar.  See #6 on how to solve that conundrum. 

  3. Understand their TPA expenses.  Many self insureds pay attention to only the yearly cost to handle theclaims – usually paid per claim.  Has your company considered the bill review, PPO network, rehabilitation nurse, and other TPA costs?  If not, you may want to obtain an analysis of those charges.   Update- with the economy as it is today, TPA expenses can be a budget-buster.  Do you know how much your TPA spent on,  for instance, private investigation services over each of the last three years?   If not, you need to monitor all expenses very carefully.  
  4. Not think they are adjusting the claim.   Many of the self insured employers usually have a  Risk Management Department.  Managing risk and adjusting a WC claim are very different.  The TPA was hired for their claims expertise.  Monitoring the claim is excellent.  Calling every shot on a claim can be a very costly Update – especially if there is a time lag between the adjuster asking for authority to do some task and not receiving it for weeks.  This can be very costly at the time of settlement.   

    Picture Cupped Hands Presenting Dollar Symbol with Stack of Money Workers Comp Self Insured Resolutions Updated for 2014

    (c) stockunlimited

  5. Perform a scheduled reviewed each year Periodically review their TPA’s performance on a random selection of claims.  This function goes beyond emailing questions to the adjuster.  Medical Only claims should be included in the selection.   Festering Medical Only claims are usually the ones that appear out of nowhere.
  6. Bonus – Have a prescribed level of reserves, settlements, bill payments, that must be approved by the employer.    This is usually in your TPA contract. If not, you should add it at renewal/bid time.   Update – an easy way to handcuff the claims staff is setting the levels too low.  This can cost an employer dearly if the adjuster is spending time asking for authority to do everything on a file rather than adjusting and settling the files.  Monitoring is much better than trying to adjust the claim from afar – see #4.  
  7. Update – Bonus #2 – Use email to contact your TPA claims staff. This is an easy way to document any communication by the TPA or employer.  If you do not know your claims staff email addresses, you are running far behind the curve.   

There are many more workers comp self insured resolutions than just these seven. 

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: buffer, fiduciary, wiggle-room

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

StockUnlimited

 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

StockUnlimited

 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. 

 

Stressful Woman Using Laptop

StockUnlimited

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

StockUnlimited

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

StockUnlimited

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

Filed Under: self insurance Tagged With: experiencing shrinkage, non-self insured

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 Foundation Workers Comp Study Research Logo

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.  

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance, zero cost Tagged With: denied, generalizable, health condition, Thomson Reuters, Workers Comp community

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.

©J&L Risk Management Inc Copyright Notice

Filed Under: law of large numbers, Obamacare, self insurance Tagged With: insolvency, NCSISA, segment, Workers Comp funds

Workers Comp Self Insureds – Five New Years Resolutions

January 3, 2013 By JL Risk Management Consultants

Workers Comp Self Insureds – Great Way To Start The Work Comp New Year

Five new years resolutions for Workers Comp Self Insureds are listed below.  .When talking about Workers Comp premiums, self insureds are often left out in the cold.  Self insureds do not pay premiums for Workers Comp.  This actually exposes the self insured employer to many more risks besides not budgeting enough funds to cover WC costs. 

Graphic Of January 1 Workers Comp Self Insureds Calendar Icon

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Self insured employers may want to adopt these resolutions for 2013.    Self insured employers must:

  1. Not think they are outside the regular WC system.  Self insureds often say “We do not have to worry about ______ as we are self insured.”  Nothing could be further from the truth.   They may not have a Mod, but a Loss Development Factor should be calculated every year.  The LDF is very similar to a Mod.   The premium-paying companies are not that much different from a large deductible or a self insured program in this area.
  2. Realize there is a closer fiduciary relationship with their TPA than with an insurance carrier.  There is no “buffer” that a Mod and premium supply.   The TPA is spending directly out of one of your budgeted accounts.  Reading over your TPA contract may produce some surprises.
  3. Understand their TPA expenses.  Many self insureds pay attention to only the yearly cost to handle the claims – usually paid per claim.  Has your company considered the bill review, PPO network, rehabilitation nurse, and other TPA costs?  If not, you may want to obtain an analysis of those charges.

    Man Standing Workers Comp Self Insureds In Between Two Finger

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  4. Not think they are adjusting the claim.   Many of the self insured employers usually have a  Risk Management Department.  Managing risk and adjusting a WC claim are very different.  The TPA was hired for their claims expertise.  Monitoring the claim is excellent.  Calling every shot on a claim can be very costly.
  5. Periodically review their TPA’s performance on a random selection of claims.  This function goes beyond emailing questions to the adjuster.  Medical Only claims should be included in the selection.   Festering Medical Only claims are usually the ones that appear out of nowhere.
  6. Bonus – Have a prescribed level of reserves, settlements, bill payments, that must be approved by the employer.    This is usually in your TPA contract. If not, you should add it at renewal/bid time.   Making the TPA’s authority level too low can end up hampering your TPA’s ability to close claims.

©J&L Risk Management Inc Copyright Notice

Filed Under: bill review, PPO, rehabilitation nurse, self insurance, TPA Tagged With: buffer, fiduciary, performance, prescribed level

Do The Great Premium Deals Really Save Money?

October 24, 2012 By JL Risk Management Consultants

The Great Premium Deals May Not Be Deals After All 

Do the great workers comp premium  deals really save money? With prices rising (at least for the short-term) in California and other states, the “we can save you a ton of dough on premiums” vendors  are now appearing again on the Workers Comp radar screen.  Are they such a good deal or not?   Let us cover a few of them.

Picture Of Two Businessman Great Premium Deals Shake Hands

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Self Insurance – this is the old “we will take ourselves out of the Workers Comp system” method.  There are many hurdles to cross to even qualify.  One of the most important things to remember is that your company has to qualify for each state, not in the aggregate.  You can have a billion dollars of payroll in one state but may not qualify in the others.  The other considerations are:

  • Liquid assets in a certain state – most states want $500,000 at a minimum (per state)
  • Bond – harder to find a performance bond in the market.  These are used in case your company goes bankrupt to pay the claims
  • Licensed Third Party Administrator (TPA) to handle claims or you can hire your own licensed adjuster
  • Approval by Insurance Commissioner – obvious one.  The Commissioners are more picky than in the past due to the economy.
  • Actuary or reserve specialist must assign your company a Loss Development Factor (or LDF) to assess your level of risk.

    Graphic of diagram Great Premium Deals Large Deductible

    123RF

  • Your company must file a pile of forms for each state including audited financial statements
  • Reinsurance is a must and usually required by each state in case your company experiences a spate of very bad claims, or one large one.
  • Your company may have to pay for temporary WC coverage until the Insurance Commissioner approves your application.  This is the one that seems to get employers into a bind. 

Large Deductible – this type of insurance for WC has really started to become more popular, at least in webinars.  Your company will pay a lower premium than regular Workers Compensation insurance in most cases.

  • Your company must be large enough for the carrier to take on part of the risk
  • Your insurance carrier will provide reinsurance in most cases, or broker it to another company

    Graphic Businessman and Woman Shaking Hand Great Premium Deals Save Money

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  • E-Mods are still reported to NCCI and other state rating bureaus 
  • Your company will pay the funds for the first $250,000 of each claim or some type of aggregate of claims payouts.  Once $250,000 has been paid out on a claim or you “bust” your aggregate the insurance carrier will pay the claim or group of claims when it exceeds these numbers
  • The ability to call the shots on most claims will still rest with the carrier.  That statement will usually be included in the contract.
  • Your company is still in the WC system
  • Your company has taken on more risk than using a regular carrier and paying premium, but not as taking on as much risk as being self insured.

Self Insurance and large deductibles are not available to smaller employers.   The three that are available to smaller employers are:

Professional Employer Organizations (PEO’s) – these are for companies that have a:

Vector Graphic of Hands Carrying piggy bank Great Premium Deals Really Save Money

(c) 123rf.com

  • High E-Mod – above 1.1 at a minimum
  • Uninsurable companies – trucking and employment agencies were not able to find coverages over the years.  PEO’s became very popular with these market segments.
  • In Risk Pool or will be renewed in the Risk Pool.  The Risk Pools are basically forced coverage by each state.  The carrier is required to cover certain employers that cannot find coverage and charges very high rates (up to 500%) more than the regular marketplace

You should heavily consider and consult with a Workers Comp expert if you are not in one of the three types of listed companies as noted above.   You could be paying much more than some of the alternative programs or even a regular WC policy.   Great premium deals exist if your company fits into that insurance model.

Captive Insurance Arrangements –  these used to be designed for larger companies.  However, with the advent of protected cell and rent-a-captives even small companies may find these applicable.

Captives require a full analysis by a WC expert before WC coverage in placed in them.  They are not self insurance.  The question to ask is “Where does the funding come for the Captive?”  It comes out of the employer’s budgeted funds, so everything is on the line as in self insurance.

Rent-a-captives require less upfront money.  I have written on them in the past in detail.

Picture Woman Handshake Great Premium Deals Gesture

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These two types of alternative insurance may be more suitable for small business.  However,  your company must go into the transactions as informed as if you were going to be a self insured.  Many companies have been burned in what looked like a great way to have WC coverage, but ended up paying more than expected.

There are other alternative insurance arrangements for Workers Comp.  I wanted to cover the current major supposed great premium deals the marketplace.

©J&L Risk Management Inc Copyright Notice

Filed Under: captive, Large Deductible, PEO, self insurance Tagged With: aggregate, car insurance, premium deals, vendor

Self Insured Pools – Are They Really Worth It?

July 26, 2012 By JL Risk Management Consultants

Self Insured Pools Are Really Worth It ?

Self Insured pools for Workers Compensation can be a great risk management technique. An employer that is not large enough to be self insured may find that pooling their premiums and risk with homogenous entities to be a great budget saving technique.  

Vector Graphic of Hands With Plant Self Insured Pools Concept

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Self insurance pools have seemed to lose popularity over the last few years. I think some of it is due to bad press. Some of the reasons for the bad press was justifiable. There are a few areas to consider when joining self insurance pools.

  • Are the groups homogenous or at least somewhat similar. Predicting risk for a pool where the insureds are not related can be difficult. If you are a restaurant , would you want to be in the same pool with an oil transporter?
  • When do assessments from the pool occur?
  • If your company leaves the pool or if the pool fails, for how long can your company receive assessments into the future? We have clients that are still being assessed five years later.
  • Is the law of large numbers in place? How large is the pool? If you only have a few members and one of the companies has a very bad year, your company may have to pay very large assessments while having a great safety program.
  • How are the Mods or LDF’s calculated? How does the pool differentiate the risk among members?
  • Who is going to handle the claims? Some TPA’s are better than others.
  • Why did the prior members leave the pool?

    Picture Finger Pointing Self Insured Pools Digital Text

    StockUnlimited

  • Are all the legal requirements met for each state? What happens if your company expands into another state or states?
  • As a member, what are your company’s voting powers? What voting powers does the administrator have in meetings? The administrator may have more votes than each individual member
  • What happens if the pool fails or is deemed insolvent by the state?
  • What happens to the claims if the pool fails? Does the pool pay into some type of state insolvency fund? This is very important as a way to avoid being stuck to handle your claims after already paying into the pool.
  • What percentage of the total operations budget is held back to pay claims? Most states consider any type of insurer or pool insolvent at less than 15%.
  • Who is the reinsurer? Can you obtain a copy of the reinsurance contract?

There are many other considerations. I wanted to list a few of them. The questions come from files that have been shipped to us to handle after a pool fails and there was no backup. I basically reversed engineered the questions. 

Picture Hand Holding Credit Card Self Insured Pools Close Up

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Bottom Line – pools are great for self insurance if properly investigated and all angles have been examined before joining the pool. I may be a little jaded to them as we have had to handle many claims where:

  • The pool failed.
  • There was no state backup to handle the claims.
  • The reinsurance contract gave the reinsurer an out.
  • The claims had not been adjusted for over 90 days.

©J&L Risk Management Inc Copyright Notice

Filed Under: LDF, self insurance Tagged With: budget saving, pool fails

Modified Self Insurance – Caveat On Risk

July 25, 2012 By JL Risk Management Consultants

The Modified Self Insurance

Captives, large deductibles, and other types of workers comp modified self insurance are now gaining great importance due to the present economy. All companies are now searching for a way to insure for Workers Comp accidents at a reduced rate. One of J&L’s specialties is providing alternatives to traditional insurance programs.

Man Standing Modified Self Insurance On Pile Of Coins Digital Composite

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Basic self Insurance, captives, large deductibles, self insurance pools, and other types of self insurance have their pros and cons. Regardless of the type of self insurance, your company is directly “on the hook” for the losses.

Reinsurance may be a great stop-loss measure for a single large claim or a string of unanticipated accidents when compared to a loss history. Until the aggregate (large number of claims) is reached or a single accident payout reaches a certain level, your company is on its own when having to pay Workers Comp benefits.

There is a large amount of interest in captives from almost all of our medium to large sized employer clients. I wanted to cover an important point about captives. Captives are the “cutting edge” of self insurance presently. There are many new terms with captives such as:

Picture of Human hand Putting Stethoscope on Piggy Bank Modified Self Insurance Concept

(c) 123rf.com

  • Fronting company
  • Protected cell
  • Parent company
  • Domicile

I wanted to clear up any confusion about who funds the captives. Captives (as with self insurance) are funded somewhat indirectly out-of-pocket by the employer. If your company’s risk tolerance is not to the level of being self insured, a captive may not be for you. There are also upfront costs that can be substantial when establishing a captive or even a rent-a-captive.

 

I do not want to discourage any company from seeking any type of insurance program that may save funds that can be used elsewhere in a budget. However, it is a giant task to commence a self insured or modified self insured program and then decide that is not the desired type of program.

 

I will cover some of the other modified self insurance programs next time.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: cutting edge, specialties, traditional

Workers Comp Dates Upcoming Important Ones For Your Calendar

May 21, 2012 By JL Risk Management Consultants

Very Important Workers Comp Dates 

One of the most important Workers Comp dates is upcoming. Timing is everything with reducing your Workers Comp claims and premiums. There are a few upcoming dates that are very important for Workers Comp polices in the regular market.

 

Picture of Pen On The Top Of Calendar Workers Comp Dates Very Important

(c) 123rf.com

If your company has a January 1 renewal date, your Workers Comp reserves will soon tabulate on June 30th for your 2013 policy. If you have not started your Workers Comp reserve reduction program, the time is running very short.

 

Insurance carriers are not known for quickly reducing reserves on files. One of the main reasons is a larger file may have to navigate its way through the insurance hierarchy to have any changes to the reserves.   A file reserve of $250,000 may have to cross at least six desks and be reported to the reinsurer before the reserves are added into the file.   At 4 days each desk, the total time to have the reserves decreased to a more proper level may take up to one month after the adjuster makes their reserve reductions.  Many meetings take place between the adjuster, their senior adjuster, supervisor, manager, VP, examiner to have file reserves decreased. 

 The Workers Comp claim formula is Total Incurred = Paid + Reserves. You can do little to change what has been paid. I have come across two companies that will actually review the medical bills post-payment. This may be an area that will gain in popularity over the next few months.

 

The reserve part of the formula is negotiable. If you renew on January 1, you should be in the last phase of reserve negotiation, not the very first. One area that you can help your carrier’s Workers Comp adjusting staff is to not call them out of the blue requesting a claims review.

 

The girl Workers Comp Dates was accident

Wikimedia commons – Alexisrael

This can be a recipe for disaster as you may cause increases in files that you are actually trying to have reduced by the deadline date. Your company knows what is occurring with each employee much better than the adjusters. Updating them with timely information is important. You, as the employer, are basically their eyes and ears.

 

The updates will help your company establish a working relationship with your carrier’s Workers Comp claims department. This will let them know about your company’s:

  • Medical treatment network
  • Return to work program
  • Timely first report of injury filing
  • How your company treats injured employees

An insured’s reputation is very important as the adjusting staff will know your reputation for handling your Workers Comp claims. This can save you a large amount of premium in the long run.

 

If you wish to have your reserves analyzed for your upcoming policy, you would need to likely bring in an expert ASAP. If your company does not renew January 1, please email ([email protected]) or call us, and we will provide you with the date that your reserves will apply to your next policy.

 

If your carrier wishes to have a claims review with you just before your renewal date, that is a grand waste of time if you are aiming to reduce your reserves for your next policy.

Self Insureds

Graphic of Pencil on the Calendar Workers Comp Dates upcoming important

(c)123rf.com

For most self-insureds (especially governmental entities), the renewal date for your TPA contracts is July 1st. Some governmental entities have converted the contracts to January 1 renewal dates.

There is much debate concerning the extensions of TPA contracts in place. Should a self-insured employer:

  • Just renew the contract with the same TPA by an extension every year
  • Place the TPA contract out for bidding on a yearly basis
  • Place the contract out for bidding every three years?

The first two are great ways to lose the TPA’s adjusters that are working on your files. If you company or entity is large enough to have a Workers Comp adjuster working solely on your claims 1/3 time, they will very likely want some stability in their job.

Businesswoman Workers Comp Dates Showing Marketing On Board

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The first two options will likely cause the TPA’s adjuster to not really be sure if they will have a job from year to year. This instability is why we recommend to bid out the claims services every three years with no extensions.

If your company or organization just keeps renewing your WC claims handling with the same company year after year, you could easily be overpaying for services or not receiving the proper level of service.

If a TPA thinks they will have your business year after year, you may want to shake things up a bit by placing your TPA work out for bid.   The bid process becomes a learning experience that is well worth the time spent in the process of possibly finding a more economical and better-fitting TPA among the hundreds in the marketplace. 

Voluntary Market (Non self insured)

If your policy renews in June or July, you may want to start organizing your financials for the premium auditor. If you close out your year on July 1, I recommend examining your premium auditor’s letter from last year and gather the same information for this year. This article covers preparing for your Workers Comp premium audit.

As you go through your records for closing out your fiscal year, you will have your hands on the exact data the premium auditor will request.

Making a copy of all the records (paper or electronic) as you come across them will save you double work and will cut down on the stress of closing your year out and the premium audit process.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance, Total Incurred Tagged With: examiner, more economical, waste of time

Self Insurers Can Ruin Their Programs – 12 Hidden Ways

May 8, 2012 By JL Risk Management Consultants

Self Insurers Can Ruin Their Programs Without Realizing It

The first 12 ways self insurers ruin their Workers Comp programs are below.  Workers Compensation self insurance can be more complicated than paying for a regular policy. I have received many emails asking me to comment on how self insureds can save on their Workers Comp payouts.

Picture of Hand Holding Jar Full Of Coins Self Insurers With Plant

123RF

I often hear that being self insured has removed an employer or public entity from the E-Mod system. Nothing could be further from the truth. The following are 12 ways Workers Comp self insureds can harm their programs.

  1. Ignore your reserve figures. Your Third Party Administrator (TPA) analyzes the claim and tallies the total lifetime cost of the file. I often see the reserve figures not taken into account fully when a self insured is budgeting for their WC expenditures. Online loss run access is critical in following your reserves.
  2. Consider a large deductible as being self insured. There are a number of differences between a large deductible and a self-insured. For example, large deductibles still have an E-Mod calculated every year and it is posted to the rating bureaus.
  3. Not having a Loss Development Factor (LDF) calculated every year. See the intro paragraphs – your organization needs to have a figure that reflects your safety measures. The LDF, in my opinion, is superior to an E-Mod. The LDF examines many more years than the E-Mod.
  4. Forgetting the close fiduciary relationship with your TPA. TPA’s are spending directly out of your bank accounts. There is no buffer as there is with an E-Mod system.

    Woman Self Insurers Holding Piggy Bank

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  5. Not reviewing your TPA’s claims performance. Most (but not all) TPA’s perform at an acceptable or better level. Your claims are only as good as the Workers Comp claims staff working on your files. Adjuster turnover should be a large concern.
  6. Not sending out RFP’s often enough. Sending out RFP’s is an arduous task. From what I have seen, it is very well worth it. I often see companies/entities extend an RFP contract for very long periods. If that is occurring, see #5.
Picture of Planting Self Insurers Can Ruin Their Programs

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7. Leaving the ancillary services to the TPA’s discretion. Services such as bill review, rehabilitation nurses, and PPO network fees can easily cost more than the TPA processing fee. These fees should not be bundled into a TPA contract without a cost itemization.

8. Not Monitoring Large Medical Only Claims. This is a major cost factor that flies under the radar. You will usually know more about the current medical condition of an employee. I wrote this post on Medical Only claims last year. If their medical only claim continues for a long period of time and increases in cost, you could have a very costly claim on your hands.

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9. Not requiring the TPA to call you before putting up a large reserve. I usually recommend this not be done by email. If you are setting a July 1 Workers Comp budget and the adjuster increases a reserve by $100,000, where does that fit into your budget?

 

10. Not following the Five Keys to Cutting Your WC Costs, click on the title for coverage of the keys.

11. Not pursuing the recoverables. Subrogation, bill overpayments, etc. are the small things that add up to a large total. This is pure $$ left on the table. The amount of effort to collect on these is often minimal.

12. Fighting claims that should be settled. If emotions rule the day, you may as well get out the checkbook. If the TPA claims staff or defense attorney can justifiably recommend a settlement, then keeping it out of court may be the best decision. The % of claims won by the defense is very small.

I could have listed more as there are so many areas where self insureds can inadvertently harm their program. Reading this article is the first step. Putting it into action is the next one for self insurers.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: checkbook, fiduciary, RFP

Self Insured Edition – 5 Ways Workers Compensation Programs Fail

August 23, 2011 By JL Risk Management Consultants

Self Insured Edition – Workers Compensation Program

Our readership on the 10 Ways To Tell If Your Workers Compensation Program Is In A Failure Spiral spiked very heavily last week. Some of our self insured clients asked if there were any differences for the self insureds than the regular first dollar insurance that I referred to in my last three posts.

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I thought I would begin with how to tell if a self insureds Workers Comp program is failing. Reading over the list of 10 for first dollar insureds may also be beneficial.

The five ways to tell are:

  1. Your company or organization has not had a Loss Development Factor (LDF) calculated with a benchmark comparison to similar companies. How can your Workers Comp program be analyzed without knowing how well you are performing presently? There are many organizations (including ours) that calculate LDF’s for our clients. Most businesses and organizations that pay first dollar insurance have an E-Mod to use for comparison purposes. You should have one calculated ASAP if you do not have one in your possession. One caveat is that unlike the E-Mod, there are various inputs that may need to be altered before calculating the LDF.
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    You do not have a check limit or reserve limit in place for your TPA. This keeps your Workers Comp program from sustaining a major adversity without your knowledge. Without a limit in place, you may not realize you are paying for very large bills or have a huge reserve increase until your receive your loss run. There is no one set number to put in place. An email from the claims adjuster or supervisor can save your company many surprises now and in the future.

  3. Your Request For Proposal (RFP) allows prospective bidders to bundle costs. Many self insureds including our clients are now unbundling costs such as rehabilitation nurses, bill review, and other costs. I have seen public employers bid each function out separately with an RFP for each TPA function or have each TPA function listed separately and allow companies to bid on one or a mix of the various functions. This may seem like a large task. The cost savings will pay for the effort in the long run.

    Hand Man Workers Compensation Program Signing Document

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  4. Not auditing your TPA’s claims processing function per each contract. I was very surprised to learn how many self insureds are not having their Workers Comp claims reviewed by an outside auditor such as us or having a claims audit performed sporadically. How can you guarantee Senior Management that all is well with the TPA that you have chosen and are administrating over the TPA’s claims handling abilities? One of the most critical variables that you need to know is reserve adequacy.
  5. Not recovering any subrogation funds. Check here for an article I wrote on subrogation. If your company or organization is large enough to be self insured, you are almost 100% likely to have claims where another party is fully or partially responsible. We call this at J&L – leaving cash on the table and walking away. You do not have to hire a battery of attorneys to recover the funds. Quite often, a few well placed letters and a few negotiations can result in having money recovered on the files. Unlike first dollar insurance, this is your $ that can go right back into your Workers Comp program.

#5 has reminded me of the largest area of concern that we have with our self insured clients. I will post on that next time.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: first dollar, unbundling

Top Four Self Insured Workers Compensation Success Measurements

June 21, 2011 By JL Risk Management Consultants

Top Four WC Success Measurements Easily Acquired 

The Top Four success measurements for self insureds are easy to find in your Workers Comp materials.

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In my last two posts, I covered how to measure the success (or failure) of a Workers Compensation program. I want to be fair to self insureds as I am often reminded to include the self insurance angle on my posts. The measurements for self insureds are:

  1. Loss Development Factors (LDF’s)
  2. Current reserve levels (including all claims)
  3. TPA Statistics
  4. Bottom line – payments made over the life of the claim
Loss Development Factor (LDF)

The LDF, in my opinion, is one of the least understood of all variables in the Workers Compensation process. The LDF is analogous to the E-Mod. The LDF will usually cover a 10 year time frame. There are many software packages that will calculate LDF’s.

 

One inherent risk with LDF software is knowing which variables need to be adjusted before inputting the loss data. I have seen LDF’s vary greatly even though the same software was used for the calculations. Incurred But Not Reported (IBNR) is one of the main parts of the LDF statistic. IBNR is an estimation of any claims that have occurred but have not been reported.

 

Current Reserve Levels (For All Current Claims)

 

Stethoscope Success Measurements on the table

Wikimedia Commons – Pkd2016

The current reserve levels for a self insured employer is just as important for one that pays a premium for their Workers Compensation coverage. If the reserve levels are inadequate, the LDF will be inaccurate and the self insured will not set aside a large enough budget to pay future Workers Compensation claims and payments. If the reserves are too high, there may be too large of an amount of funds appropriated for Workers Compensation payments that could have been used elsewhere in the organization’s budget.

 

Statistics Provided By The TPA

 

I had already mentioned this subject in my last note. I did want to again bring up the fact that the person or persons that are setting your reserves – the adjusters – have many ranking statistics for how their clients are performing in such areas as delayed first reports of injury, return to work, etc. Most TPA’s will provide you with the information if you request it free of charge.

 

Bottom Line – payments made over the life of the claim

 

The huge difference between a Workers Compensation program with an insurance carrier and a TPA is that certain claims are not counted into the E-Mod system. Open claims are ALL counted when calculating a LDF. All payments made on any claim at any time are counted into your Workers Comp budget.

 

 

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A different tact has to be used when reviewing TPA loss runs versus an insurance carrier’s loss run. One thing to watch is an old claim that is reopened for payment and then closed again. I have seen many of our clients concentrate on only the open claims or getting the claims closed. One piece of advice that we give is that payments made are just as important as the reserves.

 

The TPA and the self insured have a direct fiduciary relationship. I always tell our self insured clients the TPA is spending directly out of your budgeted account. Loss reduction strategies can make or break a self insured program. There are hundreds of posts in this blog on loss reduction strategies.

 

As I have posted often, self insureds have told me that they are out of the Workers Compensation system. Actually, self insureds are more in the system than insured paying premiums to an insurance carrier. Self insureds have no buffer for a huge claim or for a large number of claims.

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Filed Under: self insurance Tagged With: loss data, tpa statistics

Funded Self-Insurance

December 17, 2010 By JL Risk Management Consultants

 Term Of The Day – Funded Self-Insurance

Funded self-insurance is also referred to as accountant’s self insurance. An account or accounts are set up in a company’s budget to pay the Workers Compensation claims. These accounts are “funded” at the beginning of the budget year. Risk management techniques such as using Loss Development Factors can aid in the proper funding of the account over the long term.

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Filed Under: self insurance Tagged With: accountant, long term

Self Insurance – Forgotten Area For Medical Networks

September 16, 2010 By JL Risk Management Consultants

Self Insurance And Medical Networks

Last week, I covered the advantages of Workers Comp self insurance over regular insurance. Today, I wanted to cover an area that is often ignored when setting up a self insurance program. That is the area of medical networks.

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 Are you going to turn over your medical networks to the Third Party Administrator (TPA)? Are you allowed to choose your own physicians or will the TPA require you to use theirs? Will switching your TPA cause you to lose your physicians in place? If you are just beginning your self insurance program, how will your company build its medical network? These are but a few of the questions you must cover when choosing a TPA.

 Most of the time, the TPA’s medical network will cover most of the physicians your company has dealt with in the past. TPA’s usually do not require that an employers injured workers treat with a certain physician. The big savings here is the usual 15% discount not counting the fee schedule.

 It may be prudent to ask for a copy of the medical network in place in your area before signing on with a TPA. Most employers do not ask for the medical network information. It is a very important part of which TPA to use for your Workers Comp claims.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: 15% discount, company build, covered

Self Insurance For Workers Compensation – Has Big Advantages

September 13, 2010 By JL Risk Management Consultants

 Advantages Of Self Insurance – Going Out On Your Own

In my last few posts, I did make Workers Comp self insurance seem to be more of a hassle than it is really worth. My main reason for posting the 11 concerns was to make companies examine their program more carefully before diving into what can be an onerous task. However, self insurance is worth the time, energy, and $$$.

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We have helped a number of governmental organizations and private employers analyze if going at it own your own is right for their Workers Compensation situation.

Usually, the main barrier is that the organization cannot supply the Law of Large Numbers with enough premium or claims to make it a worthwhile venture. Barely qualifying for self insurance can make the changeover a roll of the dice.

Many governmental organizations have switched away from voluntary market insurance or large deductible programs over the last 20 years.  The task can be difficult.  The rewards remain great if patience is one of the Risk Manager’s attributes. 

Instead of making this article long and boring, I will post a list tomorrow of the advantages of self insurance. I will go into detail on each one.

If you are reading this and you are self insured, what advantages do you see over regular market insurance? If you are thinking about becoming self insured, what would be the future advantages that would see for your company? If you prefer first-dollar Workers Comp insurance, what do you see as the advantages of fully transferring the risk to your carrier?

By the way, the preceding sentence is not necessarily true. Why? I am full of questions this evening. You can reply to this post or drop me an email with comments if you wish.

Next Up – The List Of Self Insurance Advantages

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Filed Under: self insurance Tagged With: energy, future advantages, worthwhile

Workers Comp Self Insurance – Five More Things To Consider

September 9, 2010 By JL Risk Management Consultants

Workers Comp Self Insurance Concerns

Below are Five Workers Comp Self Insurance concerns when reviewing your policies and audits.

Earlier this week I posted on what companies should consider before pursuing self insurance as a means to reduce Workers Comp costs. We had a large enough response to the article that I thought I would add five more concerns.

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  1. Your Experience Modification Factor (E-Mod) will not be a 1.0 if you ever leave self insurance. NCCI and all of the other state rating bureaus all have added in rules if your company tries to jump in and out of self insurance as a way to keep your E-Mod low. This simply will not work any longer.
  2. Self Insurance and a large deductible program are two totally different insurance programs. One of the most glaring differences is that with a large deductible program your E-Mod is still reported to NCCI and/or the applicable rating bureaus.
  3. Will your company use your TPA’s services such as bill review, medical and vocational case management, pharmacy, or providers’ network? The TPA’s services may make self insurance not as economical as one might think. I have to be careful here as I received a letter recently threatening a lawsuit for revealing how much a TPA was charging extra for their services.
  4. Have you explored PEO’s, self insurance pools, carve out programs or other types of Workers Comp insurance?

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  5. Have you thoroughly examined your company’s internal processes in handling Workers Comp claims? We have seen where an employer or governmental entity will become self insured to get away from or change their problem areas with the insurance carrier. Actually, the problems may still be there internally and be even more costly under self insurance.
  6. Bonus – Is the management of your company going to buy into the self insurance processes? If not, a change to self insurance may not be the best approach.
There are many other concerns I could post on overall. These six and the prior five are the ones that we see most often when we assist large companies with self insurance statistical analyses
 
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Filed Under: self insurance Tagged With: POE, statistical analyses, vocational case management

Workers Comp Self Insurance Conversion – Five Questions To Ask

September 7, 2010 By JL Risk Management Consultants

Workers Comp Self Insurance Qualifiers

Most of the Workers Comp self insurance qualifiers center around the employer’s ability to have enough money to pay claims.

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One of our most requested services is to see if self insurance is a valid option for a large company. If your company is considering the switch to self insurance, there are five questions to consider before switching to paying out-of-pocket for Workers Comp claims. 

1. Will your company qualify with your respective state Workers Compensation Board or Industrial Commission? With so many companies filing for bankruptcy, the state agencies are much more picky than in the past. There are minimums that must be satisfied before even applying. For instance, many states have a minimum liquid assets requirement of $500,000.
 
2. Will your company have enough of a budget cushion in case your first self insured year is much more costly than forecasted? We have rarely seen this happen, but it is a risk that may possibly need to be funded.
 

3. Is your company prepared to do a RFP (Request For Proposal) to find a TPA (Third Party Administrator) to process your Workers Comp claims? It may not be a wise choice to have your current insurance carrier handle the claims through their TPA unit.

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4. Is your company or governmental unit prepared to assign the task of tracking the funds spent by the TPA? Unlike normal Workers Comp insurance, the task of monitoring the TPA will be a laborious task.
 
5. Is your E-Mod low at this point? Self insurance may possibly be more expensive if your governmental unit or company has a low E-Mod such as a .6 or .7. E-Mods this low may counteract all the overhead that is charged by insurance carriers. This area will require a large amount of financial analysis to compare low E-Mod regular Workers Comp insurance to self insurance.
 
I could add a few more to the list. I may add in another post later this week on this subject.
 
©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: financial analysis, funds spent, laborious task, RPF

California Workers Comp Self Insured Mess

May 1, 2010 By JL Risk Management Consultants

Self Insured Mess Of California

The California Workers Comp self insured situation should be considered a total mess.  I was reading an article at www.wcexec.com on the recent collapse The Contractors Access Program of California (CAP), a self insured group of contractors, is scheduled to be seized by California’s Office of Self Insurance Plans.

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The complicating factor is that members of self insured groups are jointly and severally liable for each other’s claims and for the claims of the group. The 200 plus mostly small employers in this group will be liable for a reserves shortfall through a special assessment of the members for as much as $12M to $60M. Past members are on the hook for the years during which they participated. I find it fascinating that members that are now not participating can be assessed.

Liberty had held the bond, but cancelled it earlier this year. There is a $15.7 million bond in place for the prior years. The bond figure would only cover a small portion when compared to the size of the self insurance group and the liabilities in place.

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Not to throw salt in the wound, but agents that recommended participation in the group can also be liable? It was noted that the agents’ E&O excludes self insurance plan recommendations for their clients. I do not think that blaming agents in necessarily a great thing.

I have received the question very often – why do I mention a state on the west coast when we are on the east coast – what happens elsewhere may not apply to me. As I have said often, what happens in a certain state, especially CA, will be coming to state near you. For example, in our home state of North Carolina, there was a similar situation with a company called GRIT (Government Reinsurance Insurance Trust). They went under and the governmental entities were stuck with their own claims. One of my good friends working for a certain carrier said boxes and boxes of files were brought in by a semi truck to their offices when they agreed to handle them.

Everything in insurance repeats itself over and over, with a slight twist.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: CAP, E&O, GRIT

Two Large Self Insured Groups Fail – Are There More to Come?

January 10, 2009 By JL Risk Management Consultants

Two Large Self Insured Groups Fall On Hard Times

The Preferred Auto Dealers Self Insured Program of California failed due to the large reduction in the number of dealers and the shrinkage of the surviving car dealers.  Due to the recent credit crunch the fund was unable to obtain an uncollateralized surety bond,

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 This confirms what I posted in this blog last week on Workers Comp self insureds.   Many Self Insured Groups (SIG’s) have failed even when the economy was in much better shape than now.  SlG’s  often violate the law of large numbers as it applies to risk.

 If there are not enough members to spread the risk, the SIG is doomed.  The Preferred Auto Dealers Program had 70 members.  In my opinion, what happened was there were enough members, but the size of the members were reduced.   

A more surprising group that will close down operations is the California  Vintners and Independent Producers Self Insurance Program of California – a 30-member self-insured group for the wine-making industry.  I was not aware the winery economy was not doing that well.  A 30 member group would not have been large enough to satisfy the Law of Large Numbers to spread the risk of claims to all members.  

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In most states, the Department of Workers Compensation or Department of Insurance will perform an audit to make sure the files are reserved at appropriate levels.  Unfortunately, as I mentioned last week, the claims from a SIG will be given right back to the employer to handle.  When we have reviewed claims in this type of situation, the claims handling is often sub-par.  

I think we will see many more Workers Comp SIG’s fail as reinsurance will become very expensive, if not totally unavailable.  As the economy contracts,  more employers will have to explore the regular market for coverage.  If the employers are bad risks, they may end up in the Risk Pool and pay much higher Workers Compensation premiums.                      

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Filed Under: Risk Pool, self insurance Tagged With: Auto Dealers Program, department of insurance, Department of Workers Compensation, SIG

Self Insureds And Workers Comp System – Misconceptions

December 18, 2008 By JL Risk Management Consultants

Workers Comp Self Insureds Common Misconceptions

I have heard from many self insureds that I do not post often enough about the trials and tribulations of handling a Workers Comp Self Insured Program. They are/were correct. I am going to post a few blogs on self insurance over the next few days.

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I will begin with the misconceptions that some self insureds or anyone else may have about being self insured for Workers Comp.

  • My company will easily qualify for Self Insurance.
  • Self insurance will always save us $$$ when compared to a regular Workers Comp policy.
  • We are in a risk pool with other insureds, but that still makes us self insured.
  • We receive the same claims service from our TPA as an insured with a regular insurance policy.
  • Captives are self insurance.
  • PEO’s are self insurance.
  • We are in a large deductible program with a high retention level. That makes us the same as a self insured.
  • If our company falters, a state-sponsored fund will pick up all of our claims and pay them.
  • We will have more control over our Workers Comp claims.

Self Insureds Think It Takes Them out of the Workers Comp system.

We often hear at conferences and from clients that a self insured employer is out of the Workers Comp system. Nothing could be further from the truth.

Being self insured actually only makes the method that you pay your Workers Comp premiums change for the most part. Instead of paying insurance company premiums, you are actually paying the premiums directly out of your budget as a direct cost item. Paying premiums actually takes the chance of a string of claims wrecking your insurance budget. Your company will actually have to monitor the TPA that you use more closely than an insurance company. As I just mentioned, your TPA is paying directly out of your budget.

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Just because you are self insured does not mean you have eliminated your company from having an E-Mod or X-Mod. Your company will now have the same thing, it is just called a Loss Development Factor, or LDF. We have calculated many of them for self insureds. LDF’s can forecast your Workers Comp expenditures for up to 10 years. LDF’s can affect your:

  • Choice of TPA’s
  • Letters of credit
  • Financial standing with your lender
  • Ability to stay self insured
  • Self insurance bond
  • Reinsurance
  • Required budget allocated to Workers Comp expenses

Do these look familiar? These are the same things that are affected by an E-Mod/X-Mod.

An outside party has to handle your claims the same as a regular insured. Your TPA will usually be the same insurance company that uses the same adjusters to handle premium-based insureds. Your claims have to be handled in the same method regardless of your insurance status.

We only have to worry about what is paid, not the Total Incurred (Paid + Reserves).

One of the largest errors that self insureds seem to make is to only focus on paid and not enough on the future of a claim. A regular insurance policy for Workers Compensation builds itself around Total Incurred, which is so important.

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The Workers Compensation basic claim formula is Total Incurred = Paid + Outstanding Reserves. Self Insureds seem to use past paid figures to adjust their budgets. The TPA will also not be as concerned with reserving as with regular insureds. Paid is important, but the reserves are even more important.

We often calculate Loss Development Factors (LDF’s) for self insureds. A basic LDF should forecast the claim payouts for 10 years. Trying to forecast that far in the future is very complicated. This is the reason the reserves or Total Incurred should be very accurate for each claim. Setting the reserves on a file is more of an art than statistics.

Being self insured involves budgeting a pool of money for losses, no matter how repetitive or severe. You are basically your own insurance carrier as the money is spent directly out of your company funds. Just as you cannot just turn over the reins to your TPA, your company cannot just assume that the TPA has set your claim reserves as accurately as possible.

The best tool is to ask questions on any file where the reserves look odd. This also includes under-reserved files, not just over-reserved files. Some adjusters will increase the reserves up to the very edge of their authority, even though more reserves should have been added to the file. This enables the adjuster to handle the file without having a laundry list of questions asked about the file by their supervisor.

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The most risky part of not having the Total Incurred figured correctly on a file is if the file is a large file and requires reporting the claim to the reinsurance carrier. If the file has too low reserves and the reinsurer has not been notified, and then the file inflates dramatically overnight, the reinsurer may refuse to pay for the file as the TPA and your company did not inform them in a timely manner.

If your company has to put up a bond in case of default, the bond may increase dramatically if unfunded claims show up on the books and the LDF jumps quickly.

This may put the TPA in a Catch-22 situation as if the files are over-reserved, too much money may be allocated to pay claims and the LDF may be too high. If the TPA under-reserves the file, the LDF may be too low which can cause the claims budget to have to borrow from other budgets to stay afloat.

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How do you review the reserves and know the claims have the proper Total Incurred? The first step is to ask questions, but only ask questions on the right files, not all of them.

My company will easily qualify with the Department(s) of Insurance

We often hear this remark or estimation as companies are looking to self insure. In a few cases, this may be true. Most of the time qualifying can be a daunting task.

There are usually four minimum requirements by a state’s Insurance Commissioner to become self insured. Sometimes a state may require more than these four.

  1. Minimum asset amount – for instance – $500,000 in liquid assets
  2. Self Insurance Bond – in case the company defaults, many alternatives to putting up large amounts of collateral
  3. A qualified/licensed TPA to handle the claims
  4. Reinsurance at a certain amount, usually for a claim retention and an overall group of claims retention (aggregate)

The insurance commission may require even more stringent rules than the previous four examples. There have been so many different self insured employers default on claims paying that I think the states will become even more difficult to self insure in for Workers  Comp claims.

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The most famous case that I have read about over the last two months is Mervyns going under quickly and not being able to pay their Workers Comp claims. The state of California has a guaranty association/fund that allows the claims to be paid by the fund.

The one from above that sometimes confuses employers is #1. The states want to make sure that there are enough hard assets to avoid a small company such as a temporary employer from defaulting.

Employers that have already qualified for Self Insurance and employers that are trying to qualify for the self insurance the first time both face heavier scrutiny that ever due to the economy that we are experiencing.

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May not save $$$ when compared to a regular Workers Comp policy.

Most of the time, I would agree that self insurance will save money for any employer that can qualify for self insurance. However, there are times when self insurance might cause an employer to actually pay more $ than a regular insurance policy.

A very low E-Mod/X-Mod may cause an employer to pay less premiums than self insurance  payouts and expenses. If a company has an E-Mod of .8 or less, there may be no reason to convert to a self insured. This situation would have to be examined very closely. With the additional TPA expenses for a self insured, it may be beneficial to stay as a self insured.

A very bad market for reinsurance will cause a big increase in a self insurance program. This is one of the expenses that can rise very quickly. The reinsurance was provided as part of the premiums in a regular Workers Comp policy.

Your Loss Development Factor (LDF) forecasting a very high claims payout over the next ten years may indicate that self insurance is not the correct route for your company.

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If your company is in an alternative insurance program such as a large deductible, carve out, or PEO – the numbers that are used to compare between these programs, self insurance, and a regular Workers Comp policy may be skewed. Trying to compare numbers in different alternative insurance programs may be risky as the numbers may have to be altered for comparison (apples to apples instead of oranges).

If your company is a large company with many locations, it may be wise to self insure in some states, and use regular Workers Comp policies in other states. When certain large companies are split up state-by-state, the companies may not be large enough to absorb many large claims.

I have added to this list a few times as there are many reasons to not self insure or at least look at the numbers more closely before self insuring. Self insurance can be a great alternative if the correct analysis is performed before taking the plunge.

We are in a Self Insureds  Group.

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This is one of the scary assumptions that exists in the Workers Comp market today.  Please note that I am not talking about the Assigned Risk Pool.   We receive many calls and emails from employers that have been assessed huge premium bills from a risk pool that they were in, be it a privately funded or a government-based Workers Comp risk pool.

These are not as popular as they once were in the 1990’s, but risk pools are starting to make a comeback of sorts.  This usually happens in a hard market situation.   Who can blame companies for trying to stay afloat by searching for every insurance option that is available?

Homogeneous risk pools originate when a private insurer starts a risk pool (with the State Department of Insurance approval).   Companies that are similar in nature (i.e. trucking companies) are pooled together to share in the risk of Workers Compensation accidents.  Sometimes, state governments will create a risk pool to usually function as an insurer or last resort.   The risk pool will produce each member’s E-mod and will assess each of members in the pool.  This sounds like a good arrangement.

There are many unexpected problems or concerns with Workers Comp risk pools:

  • There are not enough employers to satisfy the Law of Large numbers – the risk cannot be spread evenly.
  • Some safer members may be subsidizing the unsafe members of the risk pool

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  • If the risk pool does not spread the risk evenly, there may be huge assessments for the risk pool to survive (KIMI in Kentucky is a great example).  Sometimes these assessments are made after the pool has failed.
  • There is no control of how the claims are handled.
  • If the risk pool fails, the employer may be directly responsible for the future handling of the Workers Comp claims.  
  • If the risk pool incorrectly reports your claims to the State Rating Bureau or NCCI, your E-Mod may be inaccurate for many years.
  • The Departments of Insurance may not have as much authority over your policy or claims. If you have a complaint or concern, they may not be able to assist you.

Your company is not self insured when you are in a risk pool.  Your company’s Workers Comp program is much more like an alternative type of program.   Risk pools are a great way to insure your Workers Comp risks, but self insureds please check them out very closely before joining as a member.

Alternative Risk Programs Not The Same For Self Insureds

Three alternative risk programs that employers and sometimes agents mistake for self insurance are:

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  • PEO’s are self insurance.
  • We are in a large deductible program with a high retention level. That makes us the same as a self insured.
  • Captives are self insurance.

PEO’s (Professional Employment Organizations) are not self insurance in any way, shape, or form. An employer’s employees are actually employed by the PEO.  The employees are rented back to the employer.  The employer pays a group-discounted rate as the PEO conglomerates many employers.  PEO’s are more of a modified temp-to-perm agency.  PEO’s are much more like a regular Workers Compensation insurance arrangement than self insurance.

Large deductible programs may look like self insurance, but they are not in a few areas.  Your company will still receive a published E-Mod.  This is very surprising to some Workers Comp large-deductible employers that think they are out of  Workers Comp premium system.  If your company’s reserves on a certain claim or an aggregate of all your claims exceed a certain figure, you will pay premiums the same as if you were not self insured.

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Captives may or may not be self insurance.  The recent IRS rulings on captives make them more similar to a self insurance program than the previous rulings.  I will likely add to this one as the IRS rulings are made on captives.  The insurance reserves and payments being tax deductible are a very attractive inducement to use captives.  The one area that is not similar to self insurance is the employer has no control over the TPA that the captive uses for claims.  We have sometimes seen very deficient claims service with the TPA that the captive chooses to use to handle their claims.

If our company falters, a state-sponsored fund will pick up all of our Workers Comp claims and pay them.

This may or may not true.  Almost all states have some type of Insurance Guaranty Fund that will assume the handling of the claims.  The claims are paid from a special fund that comes from fees charged by the state to all self insured companies.

There are a few states that do not have a fund for self insureds if they go out of business.  One of the main states where this may happen is Texas.  The Texas Department of Insurance has an opt-out program that allow a company to opt-out of being covered by Workers Comp insurance.  This may be high stakes as there are some very small companies that have opted out.  This type of self insurance allows for unlimited liability for Workers Compensation claims.  A small company could not afford to be hit with very many claims before they bust their insurance budget.  Some insurance carriers have provided for Workers Comp reinsurance for opted-out employers.

Self Insureds Claims Handling by TPA

Unless your company handles the claims in-house (good idea), the TPA handling your claims still reserves the right to settle claims as they see fit.  Wow!  How do they have that authority?   Well, look in your TPA agreement.  The agreement will usually have a clause such as:

We reserve the right to pay and/or settle claims to comply with the prevailing State Workers Compensation laws.   

Look at your agreement.  I cannot guarantee the existence of the clause.  The clause has been in almost any TPA agreement that I have ever seen or reviewed over the past 30 years.  

Yes, as a self insured, you may have more input into the TPA’s decision to pay, reserve, or settle a claim.   The TPA, though, usually has the last say in the matter.  

The Potential Savings Exist – If Your Company Should  Be A Self Insureds

I have covered some of the misconceptions about Self Insurance for Workers Compensation.  Self insurance can save a large amount of insurance premiums if there is a proper plan in place. Well over 95% of the clients we have aided in becoming self insured have experienced great reductions in their insurance budgets for Workers Compensation.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: company falters, file inflates, stringent rules, Total Incurred, Workers Comp expenditures

Tennesseean Article – Self Insurance and Law of Large Numbers

May 13, 2008 By JL Risk Management Consultants

Workers Comp Tennesseean Article – Law of Large Numbers

The Article Below Appeared in the Tennesseean. Check my post for tomorrow to see my opinion on what really happened and what happens when you violate the Law of Large Numbers.

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The head of the Tennessee Restaurant Association stepped down from his position on Monday, following heated allegations of mismanaging a worker’s compensation fund for restaurants.
Ronnie Hart, the group’s chief executive officer and president, sent a proposal for early retirement to board members who were attending the association’s quarterly meeting on Monday. It was later modified and approved, said Randy Rayburn, a member of the association’s board of directors and local restaurateur, who declined to discuss details of the agreement.

Hart originally was scheduled to complete his term on Dec. 31 and will stay on as a consultant, said Michael King, another board member and owner of Monell’s Dining & Catering. The association’s chairman, Jeff Messinger, will create a transition committee that will determine strategic goals and start looking for job candidates, King added.

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“I believe it was appropriate for the Tennessee Restaurant Association to move in a new direction in order to regain the confidence of our members — past, present and future,” Rayburn said.

The state’s Department of Commerce and Insurance sued Hart last year alleging he dipped into the reserves of the workers’ compensation fund without proper approval and his company was paid double the contracted rate for managing the fund.

The state told 500 member restaurants they would have to pay $1.5 million to cover worker insurance liabilities and could be forced to pay as much as an additional $4.8 million. That infuriated some restaurant owners, though Hart said at the time he did nothing wrong while managing the fund.

Rayburn said the litigation against Hart regarding the worker’s compensation trust “cast a shadow upon the restaurant association and its members.”

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: Jeff Messinger, Rayburn

Workers Comp Cost Savings For Your Company From Control

April 22, 2008 By JL Risk Management Consultants

Workers Comp Cost Savings = Employer Control

How does the Workers Comp cost savings comes from  employer control ?  I have covered the ways that almost any employer can apply some of the techniques used by fully self insured employers to control Workers Comp costs. We started with what the very small employers can do up to very large employers.

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Wikimedia Commons – Svilen.milev

There is one area that I intentionally left out until now. Somewhere in the mix between small deductibles and fully self insureds, captive insurance arrangements may be applicable. I recently had a client ask if they could have a captive when they were actually large enough to be fully self insured. The marketer for the captive seemed to have them convinced that a captive was superior to being fully self insured. I could not agree, unless there was some arrangement about captives that I do not understand.

I have posted about captives in the past. The definition of a captive is:

Captive insurance companies are limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. They sometimes also insure risks of the parent company’s customers. A captive is a risk management technique where a large corporation can finance losses by making payments to a wholly owned subsidiary called a captive insurer who then pays the losses.

Putting Money On Piggy Bank Workers Comp Cost Savings Concept

Wikimedia Commons – 401(K) 2012 flickr.com

If the captive only insures its single parent corporation and/or subsidiaries owned by the parent it is called a pure captive. Captives are located in many places offshore from the United States, including Bermuda, Cayman Islands, Vermont, Guernsey, Luxembourg, Barbados, and the British Virgin Islands.

There are many advantages to captives. One of the areas that we have covered over the last few posts is control. Some of the control is turned over to a captive manager and the claims are usually handled by a TPA. One of the concerns that we have heard from captive insureds is the inferior claims handling by the assigned TPA. The other concern we have heard is when the fronting company or captive manager goes out of business. Who handles what then?

Captives are still very new to the Workers Compensation industry. Therefore, we cannot recommend the use of or the avoidance of a captive.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: captive manager, finance losses, Large employers, single parent corporation

Cutting Workers Comp Costs – Self Insured Misnomer

April 21, 2008 By JL Risk Management Consultants

Cutting Workers Comp Costs Even If You Have TPA

Cutting Workers Comp Costs can be easily misunderstood in certain areas by almost everyone.  Over the past fifteen years, we have analyzed many Self Insureds with a TPA that is paid on a flat fee basis.

Graphic Of Scissor Cutting Workers Comp Costs Word

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The Self Insureds have told us that they are out of the Workers Compensation system as they are paying fee out-of-pocket and are only paying for reinsurance and a TPA fee.  Nothing could be further from the truth.

TPA’s are spending $ directly from your insurance budget. A really bad claims year cannot be reduced by the E-Mod system as with regular insureds. The claims have to actually be monitored MORE closely than with a regular Workers Comp insurance arrangement.

Hands Holding Black Board Cutting Workers Comp Costs With Text Budget

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The term LDF (Loss Development Factor) actually becomes the replacement for the Workers Compensation E-Mod system. As I have pointed out in the last three articles, CONTROL is the most important factor in reducing Workers Comp costs. How can a Self Insured with a TPA reduce their insurance budget by keeping control of the claims? The easiest way is to bring the claims fully in-house, thereby eliminating the TPA. This is not a simple task, but it will pay off a large amount of $ in the long run. With the claims department as part of your company, controlling costs are much easier than hiring a TPA, and control of the claims will increase as there are no outside parties involved in the Workers Compensation claims process.

All overhead expenses, salaries, claims processing systems, and other costs must be compared to the TPA costs to see if this is a worthwhile venture. One of the minimum things to consider is if there are enough claims to make a claims load for at least one adjuster.

I skipped over Captives and will discuss that next time.

Next Up – Captives for Workers Comp

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: controlling costs, flat fee basis, monitored, regular insureds

Fully Self-Insured Is Not Same As Large Deductible Program

April 19, 2008 By JL Risk Management Consultants

Workers Comp Like a Fully Self-Insured Part III

Are you fully self-insured in a large deductible program?  Let us look at the mechanics of having a deductible. 

Vector Graphic of Man Fully Self-Insured carrying Dollar at back

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Large Deductible Programs

We have received many emails and calls from employers with Large Deductible programs. The number of clients we have with Large Deductible programs has grown phenomenally over the past few years. Most of them want to become fully self-insured which is a great option. That will be covered in the next post.

Large Deductible programs require/allow an employer to set a deductible of $250,000 or $500,000 with an aggregate number of say $5,000,000. If a single claim goes over the single claim limit or all the claims exceed the total aggregate, then regular Workers Comp insurance would kick in to pay the claims.

The employer pays their claims under the limits out-of-pocket and their claims are handled by a TPA. This is very close to the goal of being fully self insured. The companies must be large enough for a carrier to set up this type of agreement.

A large amount of premiums dollars can be saved by paying claims out-of-pocket. However, there is one surprise that occurs with Large Deductible programs. We are contacted often when this occurs. EVEN THOUGH YOU ARE IN A LARGE DEDUCTIBLE PROGRAM, ALL CLAIMS ARE STILL REPORTED TO THE NCCI OR STATE RATING BUREAU. PLEASE DO NOT THINK YOUR E-MOD IS REDUCED BECAUSE YOU ARE PAYING THE CLAIMS DIRECTLY OUT OF YOUR BUDGET.

I have a NCCI Experience Rating Report for a large trucker right in front of me now. They were told by their agent that the E-Mod can be reduced by being a Large Deductible. That is not true and can heavily affect how the Large Deductible Program is written. This may also be an impediment when an employer tries to become fully self-insured.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: Large Deductible Program, premium dollars

Small Companies Can Operate Like Self-Insured

April 17, 2008 By JL Risk Management Consultants

Drawing Of Piggy Bank Small Companies With Clock On Top Time Saving

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Workers Comp Small Companies Strategy

Small Companies Can Operate Like A Self-Insured (in a way) – From the last post we are going to start with the smallest companies and work our way up to the largest. The theme is saving money by operating like a Workers Comp fully self insured.

  • No Coverage – this is a very controversial topic. I am not saying to avoid paying Workers Comp premiums. In certain states, there is a minimum of employees that are required for the State to require that you have Workers Compensation insurance. Some states will not require a company to have Workers Comp coverage if they have less than three employees. Make sure to email us or call your State’s Department of Insurance before making this decision.

    Stack Of UR Money Small Companies Bundled Picture

    StockUnlimited

  • Ghost Policies – this is another controversial way to cover a small company’s Workers Comp burden. Companies can purchase policies that provide nothing other than a certificate of insurance for Workers Comp coverage. I have come across these with trucking companies. Before buying one of these policies, make sure that all the options are explained to you.
  • Small Deductible – As companies grow, this may be a viable option. The employer can pay all claims out-of-pocket to a certain amount, say $300. This cuts the small claims down significantly. There are many options on this type of coverage, such as all claims being filed with the insurance carrier, but the first $300 being billed back to the employer. One of the complications of doing this is when the employer does not report a serious claim timely. There are many ways to use the small deductible programs.

The first three options above are for the smaller companies to retain some of their risk like a larger company that is fully self insured. When an employer retains some of the risk, they can control their Workers’ Comp costs at least partially.

We will move onto the next three tomorrow.

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: Ghost Policies, larger company, No Coverage, small claims

Self-Insureds – Really Out of Workers Comp System?

February 16, 2008 By JL Risk Management Consultants

Self-Insureds In or Out Of The Workers Comp System?

I often hear when talking about Workers Compensation self-insureds that they do need to worry about the trials and tribulations of the Workers Comp system as it is today. Actually, even if you are self-insured, the Workers Comp system is still there, but the numbers have changed.

Graph of Rating Workers Comp System Self-Insureds With Green Increase Arrow

StockUnlimited

Loss Development Factors (LDF’s) are a twist on the E-Mods that are promulgated for regular insureds. The span of time involved is much longer – 10 years vs. 3 years for an E-Mod. You have to budget for those payouts just as if you had regular insurance. J&L has calculated a number of LDFs over the years. There is software out there that will do LDF’s, but there have to be some intuitive inputs to the programs. An LDF is not set in concrete.

The claims are handled by a Third Party Administrator (TPA). The files are handled the same whether an insured is self-insured or not. One of the areas that we sometimes have concerns over is that if there are self-insured and regular-insured files in an adjuster’s claims load, the self-insured files sometimes seem to have less care. I am not saying that this happens all the time, but we have seen enough in our audits to call it a trend.

Graphic Circuit Board Workers Comp System Design

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If you are self-insured up to a certain amount, say $250,000, the insurance carriers are still required to report your claims numbers to NCCI or the State Rating Board and your company will still receive an E-Mod.

You may look back in our archived posts on the post called the Self-Insured Phenomenon for another article on Self-Insureds.

Next Up – The National Council on Compensation Insurance (NCCI)(c) – who are they and what have they been up to lately?

©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: Loss Development Factors, promulgated, State Rating Board, trials and tribulations

Self-Insurance – Workers’ Comp Phenomenon That Can Ruin Budgets

August 28, 2007 By JL Risk Management Consultants

Self-Insurance Phenomenon Kills Company Budget

Self-insurance was an area I used to not cover as well as it should have been covered that when I had written articles, manuals, or presentations.

Twilight Phenomenon Self-Insurance View

Public Domain wikipedia

I coined the term “Self-Insurance Phenomenon” after hearing these comments and auditing self-insured files for private companies and governmental entities. This is one area that I have become concerned about in the past few years.

A large percentage of our clients that have chosen self-insurance and have TPA’s (Third Party Administrators) handling the claims seem to think that they have found some sort of safety net vs. using traditional insurance policies. The expression “We are with a TPA, so we are not really paying insurance premiums” is one of the phrases that employers have said to our company personnel often. This is a grave mistake, as the TPA is spending directly from the employer’s budget, sometimes without enough oversight.

graphic of heart self-insurance hands

StockUnlimited

TPA’s also charge a fixed amount per year to handle the claims that must be in the calculations to compare TPA vs. Non-TPA insurance decisions. Under audit, we have found very poor claim handling from TPA’s that are not usually found in the general WC claims environment. This is not to say that all TPA’s are bad. Reviewing the claim payouts very often is recommended.

A twist of the same type of thinking is “We have a large deductible, so the insurance carrier only pays after the claims reaches a certain level of $.” The insurance carrier still reports your claims to NCCI under a large deductible. As far as NCCI is concerned, you are not self-insured when you are in a large deductible program.

Another comment we often hear from self-insureds is, “we only pay the TPA $X per claim per year to handle our claims.” As covered in my upcoming manual -there are many charges that a TPA adds in that regular insurance carriers cover in their premiums charged. We have seen the extra charges to be up to 5,000% of $X.

 
©J&L Risk Management Inc Copyright Notice

Filed Under: self insurance Tagged With: employer's budget, governmental entities, WC claims environment

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James J Moore
Raleigh, NC, United States

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:
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• Claims Magazine
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