Profitability for the United States workmans' compensation market in 2008 experienced a downward spiral due to challenging market conditions, the financial crisis and the recession and the impact is expected to linger through 2009 and well into 2010, according to A.M. Best Company. Meanwhile, changing regulatory issues and reforms are continuing to affect workers' compensation, bringing turmoil in terms of pricing, competition, loss costs, frequency, severity and profitability. 1. A.M. Best's workers' compensation composite, consisting of 103 groups and unaffiliated single companies (including state funds), saw net income deteriorate by $1.4 billion, or 62%, to $0.9 billion in 2008. 2. This drop in earnings reflected both the fall in the financial markets and sharply reduced premium volume due to persistent soft pricing, competition, legislative reforms, the recession, rising unemployment and shrinking payrolls. 3. The composite's 2008 net premiums written (NPW) fell to its lowest level since 2000, down approximately 30% from its high of $20.9 billion in 2004. 4. After posting relatively strong underwriting results in 2005 and 2006, the composite recorded underwriting losses of $1.2 billion and $1.5 billion in 2007 and 2008, respectively, with combined ratios of 106.5 and 110.8 for the same periods. 5. NPW in the workers' comp line of business fell for the third consecutive year in 2008, declining about 12.0% – far faster than the 2.0% decrease for the overall U.S. P/C industry. 6. The workers' compensation line reported a calendar-year combined ratio of 104.4 in 2008, up only slightly from 103.6 in 2007, but up sharply from the low of 98.5 reported in 2006. (workersxzcompxzkit) BestWeek subscribers can download a PDF copy of all special reports as well as the associated spreadsheet data. Non-subscribers can access an excerpt of each special report and purchase individual reports and spreadsheet data. For more information: http://www.ambest.com/.
Author Robert Elliott, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers' Compensation costs, including airlines, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. He can be contacted at: Robert_Elliott@ReduceYourWorkersComp.com or 860-553-6604.
We are accepting short articles* (200-600 words) on WC cost containment. Contact us at: Info@ReduceYourWorkersComp.com. *Non-compensable.
VWC IQ Test: http://www.workerscompkit.com/intro/ WC Calculator: www.reduceyourworkerscomp.com/calculator.php Follow Us On Twitter: www.twitter.com/WorkersCompKit NEW Article: Return to Work in Unionized Companies http://reduceyourworkerscomp.com//Return-to-Work-Programs-Unionized-Companies.php
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker about workers' comp issues. ©2008 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com
Companies with more than one operating unit have a bigger challenge than most to get their arms around their workers' comp problems. Given the georgraphical disparity and the cost of travel, plus the silos of different departments within a company, determining where the gaps are presents challenges for risk managers of decentralized companies. The Gap Analysis uses the best practices used in the 2009 RIMS Benchmark Survey as a metric. This year the 2009 RIMS Benchmark Survey included WC operating best practices, so you can compare your units to this official industry survey.
When each operating unit takes the best practice assessment, the results are compiled into a Gap Analysis. This provides a summarized list of how many recommendations for improvement need to be incorporated into your workers' comp training programs. This takes only one hour. Up until now this would have been impossible to accomplish or would have taken months for a consultant to interview many divisions then write a report and present the reports.
Author: Rebecca Shafer, J.D. Rebecca designs and develops workers' compensation cost containment programs, and is the developer or Workers' Comp Kit, an on-line automated tool kit with an assessment, benchmarking and improvement plan. Rebecca can be contacted at: 860-786-8286 and email: RShafer@ReduceYourWorkersComp.com. http://www.reduceyourworkerscomp.com/
WC IQ Test: http://www.workerscompkit.com/intro/ WC Books: http://www.reduceyourworkerscomp.com/workers-comp-books-manuals.php WC Calculator: www.reduceyourworkerscomp.com/calculator.php WC 101: www.ReduceYourWorkersComp.com/workers_comp.php Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker about workers' comp issues.
©2008 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com�
MYTH: Once implemented, your workers’ compensation premiums will immediately go down.
REALITY: The loss costs (as distinguished from the premium) will fall immediately, but the premiums take several years to fall because they are based on a company’s experience modification which is a 3-year rolling average. As one good year “rolls” into your experience, a bad year drops out so it takes three years for the full benefit of a workers’ compensation cost containment program to be reflected in your premiums.
However, the full value of every dollar you save on each claim that is within your deductible, will be a dollar you save immediately. For companies with high deductibles of $250,000 to 2 Million dollars, every claim dollar is saved immediately. Actually, because you save that money off the bottom line, the real value of the savings is much greater.
For example, if you bring an employee back 30 days earlier, and that employee’s pay is $80/day, and the replacement employee is paid $2,000, the total amount the company will save by bringing the employee back in a Transitional Duty position is $67,692.31 assuming a 6.5% profit margin. Try an example for your company TD Calculator.
For more cost-saving tips go to WC Cost Reduction Tips.
Show the REAL cost of workers’ comp with the Real Cost Calculator.
Workers’ Comp Kit® is a web-based online Assessment, Benchmarking and Cost Containment system for employers. It provides all the materials needed to reduce your costs significantly in 85% less time than if you designed a program from scratch.
Do not use this information without independent verification. All state laws are different. Consult with your corporate legal counsel before implementing any cost containment programs.
©2008 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact Info@ReduceYourWorkersComp.com
Companies with guaranteed cost programs should review their experience modification worksheets to make sure claims are coded correctly. While this doesn’t affect companies with loss-rating plans, it does affect those companies with “mod-rated” plans. Think of it as “loss rated” vs. “mod-rated.”
For example, If a medical-only claim is incorrectly coded as a lost time claim, you will pay more than necessary. In some states medical-only claims are discounted 70%. So for every miscoded claim, that’s inflates your experience rating.
If you are in certain industries, for example construction, you may be precluded from even bidding on a project if your experience modification factor is higher than the norm. So, have a professional review this. Check with your agent or broker to find out if your experience modification affects the cost of your insurance. Some brokers do this, others don’t. If your broker falls into the later category, be proactive and hire a professional to do this.
Check our Resources Tab for a company to work with: http://www.reduceyourworkerscomp.com/resources.php
For more cost savings tips go to WC Cost Reduction Tips.
Do not use this information without independent verification. All state laws are different. Consult with your corporate legal counsel before implementing any cost containment programs.
Has the experience mod been checked for accuracy? Some of the most obvious places to look for errors in the experience modification are:
- Experience Rating Period (ERP)- This is where many mistakes occur (especially when policies have been canceled before normal expiration date.) The ERP is 36 consecutive months during which the policies that cover an employer are included in the mod calculation. Typically the ERP begins forty-eight months before the effective date and ends twelve months before a mod becomes effective, but there are exceptions.
- Payrolls – Are the payrolls in the ex mod correct (they are from past audits)?
- Losses – Do all the losses in the ex mod belong to your organization? This insurance is expensive enough; you don't need to pay for someone else's accident. Be sure to check loss runs against the ex mod.
- Preliminary or Contingent — This is a sign of potential trouble. Is the ex mod on the policy labeled as preliminary or contingent?
- Claims – When was the last claim review conducted? Were losses closes before the ex-mod's unit date? Is that reflected in the mod worksheet?
- Large Losses – Are they capped at the state maximum? Do you know your state's maximum loss?
- Last mod calculated – Typically rating bureaus and the NCCI update ex mods as they receive new data. Your policy should contain the last ex mod calculated. Often the paperwork slips thru the cracks and the policy reflects an out-of-date ex mod. Has your producer confirmed that the mod on the policy is the latest?
Hope this is helpful. Many thanks to Norman Goodman at www.zapcomp.com His fees are contingency based so if he doesn't save you money there is no charge.
Norm Goodman here today with more about payroll premium audits … we are discussing what to look for during a payroll premium audit. The audit is the final statement that adjusts premium to actual payroll. Remember, an insurance policy is a contract between your company and the insurance company, and the only way it can be changed is by an “Endorsement.” It may not be changed during the audit.
During the audit ask: Have any changes been made except payroll? This seems like almost too basic to be mentioned, but you would be amazed at the number of audits that add or delete a class code, apply a changed rate to a class code, use a wrong “ex mod” (experience modifier), reduce discounts from those on the policy, or increase a surcharge. It shouldn’t happen, but it does.
Bear in mind that the only adjustment allowed on the audit is payroll; any other change that the auditor might deem necessary, must be done by endorsement — and agreed to by both parties.
When I perform payroll audits, I find all sorts of things that have been changed — but shouldn’t have… So, ask your broker whether anything was changed during the payroll premium audit. It is called a “payroll premium audit” because that’s what they are suppose to be auditing — the payroll!
Hope this was helpful. You’ll find another question to ask your broker in the next entry. Sign up for the RSS feed in top right hand corner of blog to get our blog entries hot off the press. Write me below, so everyone can read my reply or at contact@zapcomp.com
Norm Goodman here on premium audit preparation…
Every employer should prepare for the annual payroll audit; this crucial activity cannot be left to chance. We suggest the following steps be taken to prepare for the audit:
- First, ask your agent or broker to explain the process. Ask him/her what some key questions or inquiries would be. If the answer does not sound right, or the broker does not sound knowledgeable, dig deeper.
- Remember, you should play an active role in setting the premiums. Your greatest chance of paying the absolute lowest premium is determined by how well you prepare for the payroll audit.
- Determine what information to show the payroll auditor. Learn how to counter your insurance carrier’s “aggressive auditing.”
- Always remember that, to the insurance company, premium auditing is a profit center.
- Hire an experienced auditor to help you prepare. He/she can tell advise you about what materials to gather.
- Obtain your own copy of the NCCI’s SCOPES Manual of classifications. Make sure that the definition of the classifications on your policy describe your business.
- Check your experience mod. Have it recalculated by an expert in the field.
We appreciate Zapcomp providing this helpful checklist for how to prepare for a payroll audit. If you have questions about this complex matter, write in the comments box below for Norm. www.zapcomp.com
Norm Goodman here … The first question in our series, “Key Questions to Ask the Broker” during the premium payroll audit is:
Has the broker checked the auditor’s worksheets in detail? If the auditor makes a significant change, or if the audit contains something unusual, you will likely see that fact highlighted in the commentary sections of the worksheets. During this meeting, ASK TO REVIEW THE COMMENTARY SECTIONS.
For example, if overtime credit is omitted, if the audit takes payroll from a different period of time different than policy coverage dates, if a construction credit is missing, or if a new classification is added, this is where you will read about it. Make sure you and the broker carefully review the worksheet’s commentary section.
Participate in the wrap up meeting; you will learn something new. I guarantee it! The best way to manage your account is to know the detail in the process. Of course you have an auditor to DO the grunt work, but you’ll benefit from knowing some of the detail of what is happening during the audit process.
Thanks for reading my contributions to the blog. Hope it is helpful. Write me below or drop me a line at contact@zapcomp.com and I will reply ASAP.
When your workers compensation policy was issued the policy premium was based on estimated payrolls. After the policy expired an insurance auditor reviewed your records to determine the exact payrolls. That audit became the basis of your firm's final premium. While the process is often straightforward, there are pitfalls that employers should recognize; audits are NOT as clear cut as they may seem. Errors are found in as many as 50% of all premium audits. Here are some red flags that you are paying more than necessary:
- During the audit only a few questions are asked.
- The auditor does not volunteer to leave copies of the worksheets.
- A classification that was not on the policy is added to the audit.
- A classification that was on the policy is omitted from the audit.
- Employees are paid a significant amount of overtime.
- The effective date of your policy differs from the effective date of the experience modification.
- Your policy's modifier is labeled as either "contingent" or "preliminary."
- The policy is frequently endorsed with changes to classifications, rates or payrolls.
- The NCCI or your state's rating bureau responded to a question or complaint with an unfavorable decision.
- You have had a merger with another company within the last 3 years.
- Your company has expanded into new states.
Review these Red Flags and see if any have occurred. We will have more information next week about policy premium audits. Sign up for the RSS feed so you do not miss this important information. The RSS feed is a blue icon in the upper right-hand corner of the blog. We appreciate Norm Goodman at www.zapcomp.com for providing this information. He will bring us more helpful tips next week. Find out more about ZapComp in our Resources List http://www.reduceyourworkerscomp.com/resources.php. ZapComp's fees are contingency based — if they don't save you money, you don't pay a dime!
Posted in
Insurance Issues, Rates, Premiums, Lowering Premiums & Experience Mod, Risk Management |
