Buyers Guide: Workers Compensation Insurance Archives

4 Ways to Lower Your Experience Modification Rate and Why it Matters

June 10, 2019 by Michael B. Stack

Losses are just one factor in your overall workers’ compensation costs. The other is premium. Many calculations are involved in setting the premium; it comes down to how much of a risk the carrier thinks it is taking by insuring your company. One of the biggest components of the premium calculation is the experience modification factor, or ex mod — a perception of risk.

The experience modification factor can add up to significant dollars if it is not properly managed. Fortunately, a basic understanding of the ex-mod and a few tips can help you not only stabilize your workers’ compensation costs but lower them.

What the Experience Modification Rate Is and How it Works

When you’re making a major purchase as a consumer, companies typically look at your credit report. They want to see how much of a risk they’re taking with you, compared to others. A good credit rating close to 800 is golden; you easily get approval for purchases at the lowest interest rates. A credit rating below 500s will cause significant complications.

In the same way, the ex-mod is used as an indication of risk regarding workplace injuries. Carriers look at your company’s ‘actual incurred losses’ and compare them to those of other companies in your industry, to determine your expected losses. If your rate of injuries is higher, your ex mod will be higher, and you’ll be charged a higher premium. The reverse is true if your company has fewer injuries and fewer costs.

It boils down to actual vs. expected costs. Ideally, you want your actual losses to be lower than the expected losses: the lower your ex mod, the lower your premium.

An ex mod factor of 1.0 is average, like getting a ‘C’ on a report card. It means that your company is on par with others in your industry in terms of the number of, and costs of claims. Your goal is to be as close to your minimum experience modification factor as possible.

Tips to Change Your Ex-Mod

The best way to lower your ex mod is to reduce the costs of your losses, both frequency, and severity. Using best practices, such as effective return-to-work strategies, will lower ultimately lower the ex-mod and reduce the premium.

Here are several additional strategies that can help lower your ex mod.

Experience Rating Adjustment (ERA). Many states have a rule that allows a 70 percent discount on what is reported as ‘actual incurred losses’ for medical only claims.

Example: For a medical-only claim that costs $10,000, just $3,000 would be reported as ‘actual incurred losses.’

Claim total = $10,000 – 70% reduction – ($7,000) = $3,000

The ERA rule was devised by rating bureaus as a way to encourage reporting of smaller claims. It’s important to note that this only applies to medical only claims. Check with your state rating bureau or insurance broker to see if this rule applies in your state.

Net deductible. About 15 states allow companies to exclude from the ‘actual incurred losses’ any amount paid on a claim that is below the deductible amount, whatever it is. If the deductible is $5,000 and a claim costs $6,000, only $1,000 would be included.
Injury triage. Many injuries can be handled with self-care. There is no reason for minor cuts or bruises to become full-fledged claims. Using telephonic nurse triage can help separate insignificant injuries from those that require medical attention, meaning many can be kept off the books and not included in ‘actual incurred losses.’
Unit statistical date. The unit statistical date is the date your total incurred losses are reported to the state rating bureau for the calculation of your next period’s experience rating. Included in total incurred losses is BOTH what has been paid AND outstanding reserves for open claims. Overinflated outstanding reserves can make a significant difference in your total incurred losses.

Unit Statistical Date Example:

Amount paid to date on an open claim:
- $1,000
Amount reserved on an open claim:
- $50,000 due to an upcoming surgery
Amount reported as Actual Incurred Losses to state rating bureau on Unit Statistical Date:
- $51,000.

Over-inflated reserves:

On revisiting the claim, you find that the worker is progressing better than anticipated, and it is clear he will not need surgery. With input from the medical provider, you can determine what treatments the worker will actually need going forward. Since the surgery is no longer needed, that amount reserves could be reduced, for example, to $15,000. That $15,000 now in reserves plus the $1,000 already spent brings the total for ‘actual incurred losses’ to $16,000 — not $51,000.

The key is to identify such a change before the ex-mod is calculated. Six months prior to the policy renewal date is when the numbers must be reported in order to ensure an accurate ex mod. If the policy renewal date is Jan. 1, the unit statistical date would be July 1 of the previous year.

Conclusion

Lowering the ex-mod lowers the premium. It’s important to note, however, that the impact will not be seen immediately. When calculating the ex-mod, carriers have a three-year ‘look back’ period; meaning if the company had many losses last year but has since improved its frequency and severity rates, it will be several years before the ex-mod is lowered. Organizations that have a long-term strategy to reduce injuries, return injured workers as soon as possible, and ensure accuracy in their actual incurred losses, will see their premiums improve.

Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is the founder & lead trainer of Amaxx Workers’ Comp Training Center.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Lowering Premiums & Experience Mod

Know Your Correct Job Classification Codes To Save Workers’ Comp Costs

May 30, 2019 by Michael B. Stack

While implementing injury management best practices in workers’ compensation is the most effective way to reduce costs and improve injured worker outcomes significantly, the only challenge is tangible results from improvements takes time. Self-insured or high-deductible programs can see tangible results in a matter of months, but an employer in a guaranteed cost program can sometimes wait years to see results in an improved experience mod and lower premium.

The oversimplified basic formula for calculating the total cost of workers’ compensation is:

Payroll x Rate x Experience Modification Factor x Adjustments = Premium

Premium + Claim Costs (in a loss-sensitive plan) = Total Cost of Workers’ Compensation

Double-check to make sure you Job Classification Codes are Accurate

Job codes are a huge component of the premium you pay for workers’ compensation. Therefore, it’s critical codes be applied correctly. The reality of our fast-paced world is businesses change constantly. As a business evolves, the type of worker needed changes to fit the new business model, and as the type of worker changes, so do the job codes. Save your business premium dollars by reviewing your job codes periodically – whether the business has changed or not. Either way, you save money!

Where does an employer find these job codes?

Most states have adopted a job classification system devised by the National Council on Compensation Insurance (NCCI), consisting of 600+ job codes. Since workers’ compensation is a state-driven system, applying the correct codes is not always an easy task. A few states have adopted the NCCI classifications system, but have unique classifications for certain workforce exposures. Other states have adopted their own classification systems. To make this even more complicated, NCCI doesn’t publish its complete list of codes on the Internet. You can buy the list from NCCI, but it is not practical for most businesses to do so.

Why are there so many job codes?

Jobs having low-risk exposure carry a low rate; high-risk jobs carry a higher rate. As an example, the rate for clerical workers is much lower than workers who handle chemicals because the potential workplace injury exposure associated with the two jobs is quite different. No matter what system your state uses, each job code has an associated rate used to calculate your worker’s compensation premium. A business may also have multiple classifications. A chemical manufacturer is further classified by the types of chemicals it produces. Once the business classification is properly identified, classifications drill down to the type of work performed (such as chemical material handler, clerical, sales, etc.).

So, where do you turn?

Your insurance carrier and broker have a list of job codes by state and will work with you to identify the correct codes for your business. As this review may save premium dollars for you, it also benefits the carrier by ensuring the risk they cover is a known risk. For corporations with multiple sites in several states and thousands of employees, reviewing job codes involves several stakeholders and takes time, perhaps many months. At the table should be the insurance risk manager, insurance carrier, and broker. You also want to invite division representatives who are well acquainted with site operations and the actual work performed there. You may want to include a payroll representative who actually assigns job codes to individuals within your payroll system. Once the stakeholders are identified, begin a systematic review of the operations and its jobs. As a possible approach, first identify those job titles that are can be grouped into large classifications, such as clerical and sales, which are most easily assigned to a job code. Then, move into the more specialized areas such as the chemical material handler mentioned above.

Repeat! Repeat!

Enough cannot be said of the importance of reviewing your job codes periodically, particularly if your operation has changed in recent years. A thorough review ensures all codes are correctly applied for all workers and will likely result in a lower workers’ comp premium for the company.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Insurance Issues, Rates, Premiums

Six Tips to Get the Most From Your Insurer

December 19, 2018 by Michael B. Stack

Many insurers are great providers, however, it is naïve to think every insurer has your best interests in mind. Sometimes you need to remind them, and be very specific about your needs.

Here are six tips to get the most from your insurer:

Get Regular Reports

It is essential for companies to request brief, narrative reports from their insurers for all open claims at regular intervals of 30, 60 or 90 days. The frequency of reporting requirements is, of course, dependent on claims volume and availability of internal company staff.

A company with 1,000 lost-time claims annually may want less frequent or less-detailed reports every 90 days, for example, but, a company with only 100 lost-time claims annually may want full narrative reports every 30 days.

The adjuster should provide sufficient detail in describing “action items” planned for each 30-day period that indicates steps to be taken to resolve the claim.

Many companies requested information solely about reserve practices in the past, however, the focus of reporting requirements should be on claims resolution strategies.

Ask About Recovery Potential – Get it in Writing

Additional items often incorporated in your Account Servicing Instructions (ASI) include requirements that “all claims should be evaluated for state second injury fund and subrogation potential.” The company should receive a report identifying recovery potential within 90 days after the claim is received by the carrier. The carrier files liens in all actions brought by its employees against third parties and these liens should not be waived or compromised without the company’s prior written consent.

Benefit Checks Should Come to You First

In those states where permissible, benefits checks should be delivered to the company to distribute to employees. In lieu of this, copies of all checks should be forwarded to the company. Direct deposit can be a convenient way to distribute checks, but you will lose the ability to interact with your injured workers come payday.

All claims should be paid “without prejudice” in those states where possible, and the carrier should file for extensions of this status whenever possible.

Ask Your Carrier to Reference the CIB

Companies should also request their carriers reference the Central Index Bureau, an insurance industry-maintained database, on all claims to determine if a prior claim was filed.

Be Sure your Carrier and Insured Are On the Same Page with Denials

When the company requests a claim be discontinued, the carrier should be flexible enough to agree to take necessary steps to terminate benefits in a timely manner so long as the company’s position is legally supportable. The carrier should take an aggressive posture in denying insupportable claims. Conversely, the insured should be consulted before any claim is denied to avoid human resource and morale problems.

Your Insurer Should Notify You In Advance Regarding Hearings

Furthermore, the company should be notified sufficiently in advance of all hearings and conciliations so its representative may attend the hearings. Also, the litigation manager should be consulted before appeals are filed and should retain the right to determine whether an appeal is warranted.

Michael Stack - Amaxx Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center .

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Insurance Issues, Rates, Premiums

8 Steps For A Staffing Agency to Reduce Workers Comp Costs

November 13, 2018 by Rebecca Shafer, J.D.

Imagine trying to calculate your workers’ compensation premium when you do not know the number of employees you will have at any one time or their job classifications. That’s life for the temporary staffing agencies – in their own peculiar world when it comes to workers’ compensation. Temporary staffing agencies often have a difficult time obtaining and maintaining workers’ compensation insurance.

In most jurisdictions, the temporary staffing agency is responsible for the workers’ compensation insurance as the worker is considered an employee of the temporary staffing agency, not an employee of the client.

While the broker for the temporary staffing agency can meet with an employer to get an estimate of the numbers and types of positions the agency may fill, it is only an estimate, or sometimes a” shot in the dark.”

Misclassification of Employees Is Ongoing Problem

The workers’ comp premium classification code system did not have the temporary staffing agency in mind when the system for calculating workers’ comp premiums was created. Misclassification of employee job codes and under-reporting of payroll is an on-going problem for workers’ compensation insurance companies. The workers’ compensation premium audit is definitely necessary at the end of every policy year to get an accurate premium.

Some workers’ compensation insurance companies who do insure temporary staffing agencies take the process a step further. They created what is referred to as “pay as you go program” where the temporary staffing agencies workers’ comp insurance premiums are adjusted monthly or quarterly based on actual payroll data.

Captives or Assigned Risk Pools

National staffing companies in the temporary staffing agency business set-up their own captives to self-insure their workers’ comp claims with the benefit of re-insurance to cap their total loss exposure. Smaller temporary staffing companies have joined “rent-a-captive” insurance programs in their effort to reduce their workers’ comp cost. Temporary staffing agencies with poor claim records (and some with not so bad of claim history) are forced into assigned risk plans or state pools.

In the past workers’ compensation premiums were such a big burden for temporary staffing agencies, some agencies were forced out of business. (For many temporary staffing agencies, the workers’ comp insurance premium is their second largest expense after payroll.) These were the staffing agencies who did not try to control their workers’ comp losses or who did a poor job screening potential employees.

8 Steps For Staffing Agency to Reduce Workers Comp Costs

All temporary staffing agencies regardless of size can take certain steps to reduce overall workers’ comp cost.

Proper vetting and screening of employees you place with your clients. The screening process includes drug testing, background checks, and prior injury history.
Refusing potential clients involved in hazardous or dangerous work.
Testing and verifying the skill sets of employees before they are placed with an employer as improperly or inadequately trained employees are much more prone to injury.
Verifying the employee has the proper safety equipment and protective gear, or the client has the equipment and gear necessary and will provide it to the employee.
Training the staff of each placement office on proper and timely reporting of workers’ comp claims.
Have a workers’ comp claim coordinator who actively follows up on a regular basis with any employee who is off work.
Have a return-to-work program allowing you to place the employees who do get injured back to work at a different client who can accommodate any work restrictions.
Have an insurance broker who is familiar with the temporary staffing agency business and who can place your company with more than one workers’ compensation insurance company.

Temporary staffing agencies can expect to experience periods of fluctuation making it difficult for them to obtain workers’ compensation insurance. The best way to protect your business profits and to be able to purchase future insurance coverage is to actively manage your workers’ comp insurance program now to reduce the number of claims.

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the co-author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Buying Workers' Comp

The 8 Sections of Your Workers Compensation Insurance Policy

September 19, 2018 by Michael B. Stack

Every employer buying workers compensation coverage knows it is an insurance policy for the costs associated with injured employees, but few employers ever read the actual policy. The primary reason most people do not read the insurance policy is because it is written in “insurance speak” or legalese. The following is an effort to translate a generic workers compensation insurance policy into everyday English so more people can understand it.

A workers compensation insurance policy is actually divided into two parts. The first half covers what most employers think of in workers compensation. The second part is the “Employers Liability Insurance.” Part two is designed to cover instances where workers compensation insurance does not apply and an employee brings a lawsuit against the employer. Part one’s coverage and workers compensation statutes are so broad that it is rare for an employee to be able to bring a claim under Part two. For the purposes of this article, we will only be addressing what is typically found in Part one of the policy coverage

Section A – What the Insurance Covers

Workers compensation insurance will pay for injuries caused by accidents, or for illness/disease caused by being exposed to an unfavorable environment. Accidents and illnesses also include death. This section limits the coverage to the policy period. The injuries or illness has to be caused by conditions associated with the employee’s employment. If the work comp claim brought by the employee is for work-related illness, the employee’s last day of exposure to the conditions causing the illness must occur within the policy period.

Section B – What the Insurance Company Pays

The insurance company agrees to pay for all benefits as defined by the workers’ compensation statutes of the state where the employer does business. The insurance company agrees to make timely payment of these benefits.

Section C – The Right to Defend Claims

The insurance company reserves the right to determine which claims it will pay willingly and which claims it will contest. In exchange for the insurance company making this decision, the insurance company agrees to pay the cost of defending the employer from any claim brought against the employer. This allows the insurer to investigate and settle claims as it deems appropriate. It also includes the insurer’s right to not to defend a claim if it is not covered by the policy.

Section D – Additional Things Paid By Insurance

The insurance company agrees to pay the cost associated with the claim in addition to benefits provided by the work comp laws. This includes such things as:

Attorney fees and expenses.
Surveillance and extraordinary investigative expenses.
Medical management expenses (triage, nurse case managers, etc).
Court cost.
Employer’s expenses incurred at the request of the insurer, excluding loss of earnings.
Appeal bonds.
Any other expenses incurred by the insurer.

Section E – When There Exists Other Insurance

If the employer has a self-insurance retention or large deductible, the insurer will not pay until the employer has met its financial responsibility under the policy. Also, (this rarely happens), if the employer has other workers compensation insurance that will pay for the employee’s injuries, the insurance company will not pay more than its share of the benefits.

Section F – What the Employer Must Pay

The insurance policy makes the employer responsible for payments when the employer:

Intentionally fails to comply with a safety law or regulation.
When the employer has serious and/or willful misconduct.
When the employer knowingly employs someone in violation of the law.
When the employee brings a claim against the employer for discharging, coercing or discriminating against the employee for bringing a work comp claim.

Also, if the insurance company is compelled to make a payment in one of these situations, the employer agrees to reimburse the insurance company for all cost associated with the situation.

Section G – The Right of Recovery

In exchange for the insurer paying the work comp claim, the employer and the employee agree the insurer will have the right to recover the cost of the claim from a third party who is at fault for the injury (think auto accident or equipment malfunction).(WCxKit)

Section H – Legal Stuff

This section includes several miscellaneous conditions including:

Most states consider notice to the employer of a work comp claim to be notice to the insurer.
An employer’s bankruptcy does not relieve the insurance company from paying the work comp claims.
The insurance company agrees it is primarily responsible for any benefits owed under the policy.
The legal jurisdiction is the state where the employer is located.
The insurance company agrees the policy conforms to the applicable law.
The insurance company agrees to pay any special taxes or assessments that arise due to the issuance of the insurance policy.
Anything in the policy that conflicts with the state law is modified to comply with the state law.

Not every workers’ compensation policy will follow this generic outline, but the above outline should assist you in understanding your workers’ compensation insurance policy.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Insurance Issues, Rates, Premiums

3 Workers’ Comp Payroll Deductions Most Often Missed by Employers.

September 17, 2018 by Michael B. Stack

If any of your workers are getting overtime, are those extra dollars included in your workers’ compensation premium calculations? If you answered ‘yes,’ you may be artificially inflating your payroll; i.e., paying higher premiums than is warranted.

Overtime, double time, and severance pay are typically allowed as deductions for workers’ compensation premium calculations. Yet companies large and small often overlook these three points. Knowing what deductions are allowed in your jurisdiction(s) and understanding how to apply them can save payers big dollars — immediately.

Accurate Payroll & Class Codes

Injury management is the area where most workers’ compensation cost-cutting strategies are focused, and with good reason. Reining in workers’ compensation costs through safety efforts, effective return-to-work programs, and best practices in medical management are proven to contain overall costs. But risk management is only part of the equation.

If you’re not reviewing your payroll (remuneration) and class codes for accuracy, you may be missing significant opportunities to quickly and easily reduce workers’ comp costs. Depending on the jurisdiction, there can also be an opportunity for deductions from uniform allowances, to officer excess and gratuities, to employer-provided perks. Ask your premium auditor or audit manager to reveal deductions you are allowed to take and still have an accurate assessment of your risk.

The Big 3

A majority of jurisdictions allow deductions for

Overtime pay
Double time pay
Severance pay

Workers’ compensation premiums are designed to assess risk exposures appropriately. But paying someone double time to work on a Sunday, for example, doesn’t double his risk of injury; nor days paying out a golden parachute to a worker who has left the company. Taking allowable deductions can drastically lower your payroll — and your workers’ compensation premium.*

*Note: Compared to a guaranteed cost structure, employers in a high-deductible program may not be as greatly impacted by payroll deductions due to the significant latitude carriers possess with adjustments and credits/debits in the premium formula.

How to Do it

Getting the most out of allowable deductions is dependent on accurately presenting your payroll. Your workers’ compensation premium is based on your gross payroll (remuneration) including, for example, salaries, commissions, bonuses, vacation, holiday and sick pay.

Overtime and other payments can be excluded. But it’s important to exclude only premium portion greater than the standard rate:

Here’s how to figure your payroll with overtime deductions:

Say your company pays overtime — time-and-a-half — for someone who works on a Saturday and double time for working on Sunday. A worker who makes $10 per hour would get $15 for working on a Saturday and $20 for working on a Sunday. Let’s say he worked 8 hours both days.

To determine accurate payroll, you would deduct the $5-per-hour extra he made on Saturday and the $10-per-hour extra he made on Sunday. To calculate the exclusion:

Saturday 8 Hours x $5 = $40

Sunday 8 Hours x $10 = $80

Total amount excluded from payroll = $120 ($40 for Saturday and $80 for Sunday)

You only need to pay premium on the worker’s regular $10-an-hour rate for the extra hours he worked, not the additional dollars.

Employers need to maintain payroll records that show the regular rate of pay, the overtime earnings, and a summary by type of operation performed, in order to get credit for the overtime excess.

It’s also important to understand that increases in wages are not eligible for exclusion. If you increase a worker’s base wage, that increased amount would need to be included in the payroll.

For severance pay, the calculation is easy. You can exclude these dollars paid to someone who no longer worked at the company to the extent it does not include pay for time worked or accrued vacation.

While these deductions may not seem significant, they can add up quickly and result in major savings.

Conclusion

You want to make sure your employees are properly covered for any work-related injuries they incur. However, you don’t want to pay any more workers’ compensation premium than necessary. Knowing and applying allowed deductions can go a long way to dramatically reducing your workers’ compensation premiums while still paying the appropriate amount.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Lowering Premiums & Experience Mod

6 Common Mistakes Made In A Workers’ Comp Premium Audit

September 6, 2018 by Michael B. Stack

An annual premium audit is a great opportunity to review your workers’ comp class codes and included payroll for accuracy. Employers that understand the process and prepare early should, at the very least, have no surprises from the audit. Unfortunately, far too many organizations view the audit as a necessary evil, don’t take the time to understand it, and are later presented with a bill they did not expect and may not even be able to pay.

The best way to face a premium audit is head on. That means knowing what to expect and preparing ahead of time, along with avoiding the most common errors.

The Audit

Insurance carriers conduct premium audits to verify a company’s payroll for the period during which it provided coverage. It occurs after the policy expires to determine the accuracy of the payrolls for that year to see if the premium must be adjusted. If the payroll exceeds the estimated projected payroll, the carrier will send a bill seeking more money. On the other hand, if the payroll is lower than projected, the employer may get money back.

Insurers conduct audits to ensure the premium paid to them accurately reflects the company’s risk. That includes making sure the business and employees are properly classified. It’s imperative to have the proper documents and information ready for the audit.

Here are common errors employers make — and how to avoid them.

Failing to include deductions. Everything in the payroll is not necessarily subject to the workers’ compensation premium. The allowable exclusions vary among states, but several are universal to all jurisdictions, such as

Overtime (premium portion, or the half part of time and half)
Double time (premium portion, or the double part of double time)
Severance pay

Severance pay for someone who has not worked at the organization incurs no risk and, therefore does not need to be included in the workers’ compensation premium calculation. Overtime and double time pay may be excluded — to a certain extent.

For example, if ‘Joe’ makes $10 per hour, but you give him overtime, or time-and-a-half for working weekends, the extra portion of his pay can be excluded. So, if Joe works 8 hours on Saturday at a rate of $15 per hour, the extra $5 per hour, or $40 (8 hours x $5 per hour) can be excluded. The same exclusion applies for double time.

Depending on the jurisdiction, additional deductions may apply.

Officer excess
Uniform allowances
Tips/gratuities
Employer-provided perks
Bonuses

Neglecting to inform the auditor. You will be charged for your $100,000 in overtime, double time and severance if you do not report them to the auditor!

Omitting the necessary paperwork. Once you’ve informed the auditor of the deductions you’ve found, you need to back it up with the proper paperwork. For example, if a portion of your payroll went for severance pay, you will need the proper documentation. Other documents you may need to have at the ready include:

Payroll records
Payroll tax returns
Certificates of insurance
Invoices for contracts that show a breakdown of labor and materials

Forgetting to consider state differences. In addition to the overtime, double time and severance pay exclusions, jurisdictions often have additional deductions. However, they are not the same in every state. A multi-state employer that assumes exclusions in one state apply to another may be sorely mistaken. You can check your state’s Basic Manual, ask your insurance broker, or ask your premium auditor to direct you to the allowable deductions for a particular jurisdiction.

Improperly classifying employees. Your business operation determines what your ‘governing class’ will be; i.e., the classification code in which the bulk of your employees will fall. Employees such as clerical workers who incur little risk may fall into a different category, but only if they NEVER do other work. For example, if ‘Sally’ is an administrative assistant but once or twice a year she is involved with inventory control on the manufacturing floor, she cannot be classified in the clerical class.

Failing to ask questions. If you’re not sure which classification applies to your company or you don’t know what paperwork is required to back up your deductions, ask. Resources are typically available through state insurance bureaus, NCCI, or your broker or insurer.

Conclusion

Premium audits don’t need to be a gut-wrenching ordeal. Document and prepare for the premium audit on an ongoing basis, so you don’t have to spend hours or days getting ready. Asking the right questions, understanding deductions that apply, and gathering the proper documentation will make the process smooth and painless.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Insurance Issues, Rates, Premiums

5 Ways to Get Started Reducing Workers’ Compensation Risk

August 23, 2018 by Michael B. Stack

A lot of employers strive to be a safer, more productive workplace for their employees. Every business would love to reduce costs and increase profit margins. The cost of workers’ compensation claims can have a significant impact on the company bottom line, particularly if you are self-insured or self-administered.

So how do you get started? Where do you start, or better yet when do you start? The answer is RIGHT NOW, and here is how:

Know Where Your Risk Lies

Observe your workplace. Go through department statistics and see how they all compare to each other regarding losses. Perhaps 75 percent of your injuries occur in the shipping department. Go down there and talk with the supervisor. Find out what their issues are and why they think injuries are happening. Then, work together to solve the problem.

Another helpful thing to look at is your loss run. Talk to your carrier or adjuster and see if they notice any trends in injuries, or which people are getting injured. Maybe the newer hires account for a lot of the injuries. This may show that a focus needs to be directed towards training and safety right from day one of their employment.

Look at your business. What do you do? What are the risks involved? You could have risk in several areas, stretching from workers comp to automotive issues with your fleet and the drivers, to liability risk from customers in your store. Break it all down, and start to track your statistics. Identify issues, and work on thinking of ways you can reduce your injuries or occurrences from happening in the first place.

Plan Your Attack

If you have identified a few areas in which you could improve by reducing injuries or claims reports, what do you do to fix it?

The answer lies in the resources you have all around you. The first step is to talk to your carrier. Chances are they have the loss-prevention specialists ready to help you work with what needs to be fixed, and how to fix it. Ergonomic professionals can be brought in to address your workstations, and suggest possible solutions to reduce exposure.

Utilize your medical clinic contacts to see if occupational physicians can watch employees doing their work to identify potential issues with certain movements or repetitive motion injuries. Or, maybe it’s time to consider having your own in-house occupational clinic for a proactive strategy. Utilize your local council, and have them come in to explain the risks and costs associated with potentially serious injuries, automotive accidents, failure to drug test your employees, etc. Any or all of these will help you get to your goal of reducing your exposure.

Implement Your Solution Plan

Once you have identified what needs to be fixed, and how it should be fixed, now it is time to fix it. Get rid of that old equipment and bring in new equipment that has better safety features. They cost less to maintain and repair, and they are quicker to operate. Most new machines use less energy than the old ones, reducing your utility bills and creating worker ease of operation. Get some padding on the floor for workers to stand on during work at their workstations (also known as “fatigue mats”). This reduces strain on their feet and legs, and reduces body fatigue, potentially making them more productive after long hours at the workplace.

Whatever the fix may be, get it done — out with the old, in with the new.

Measure Your Success Statistics

Once new equipment is installed, and in place, it is time to measure your reductions. Measure your numbers in a two, four, and six-month stretch. Did you see any drop in claim activity? Did claims increase, making your plan backfire? You have to see how you did, and most importantly, you have to give it time. Change is disruptive to employees, but they will get used to it. Give it time, and measure your numbers post-change against the ones you first noticed back when you were figuring out where your risk was coming from.

Get feedback from your workers

After all, you have done, you left out the most important thing: To talk to your staff of workers about the changes. How do they feel it impacted their workday? Were the changes helpful, or did they hurt production? How do they feel at the end of the day? Do they feel less sore or are the new workstations worse than the old ones?

Ask as many questions as you can. This makes your staff feel that their input is important, and taken into account. After all who better to talk to about the changes that were implemented than those who were directly affected day after day?

Summary

It is hard to break old habits and accept change. Even though it is hard work to find out what your risks are, how to attack them, implementing your changes, measuring your success, and getting worker feedback, in the end, it will be worth it. Lean into the task; don’t try to tackle it all at once.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Lowering Premiums & Experience Mod

5 Strategies to Avoid Mega Problems in Large Deductible Policies

March 27, 2017 by Michael B. Stack Leave a Comment

Large deductible insurance policies can be a tremendous advantage for employers. Significant cost savings and increased control over expenses and safety are among the benefits for companies that are aptly suited for this tool. However, they are not appropriate for all employers and can have catastrophic consequences. Increased costs, legal disputes and insolvencies – its own and/or the insurer’s – can result if a company is ill equipped or misunderstands the complexity of these arrangements.

Employers considering large deductible policies need a deep understanding of their own companies and a thorough vetting of the contract before signing up. There are several strategies that employers should undertake before considering a large deductible policy.

The Policy

These arrangements include a set deductible amount for each claim. However, those in the workers’ compensation system differ from those in other insurance lines. The typical such policy has the client paying a claim up to the deductible amount, at which point the insurer takes over the claims payments. In workers’ compensation, the insurer generally pays the entire claim and is then reimbursed by the employer for the agreed upon deductible amount. In a typical large deductible workers’ compensation policy with a $2 million claim and a $100,000 deductible, the insurer would pay the entire claim and then seek reimbursement of $100,000 from the employer.

The laws and rules covering these policies differ among jurisdictions and are often somewhat vague. For example, there is no standard as to what constitutes a ‘large’ or ‘mega’ deductible amount. Some jurisdictions define large deductibles as $100,000 or more and mega deductibles as at least $750,000. Nevada, however, requires any deductible over $25,000 to be reported to the state. Some companies set the mega deductible amount at $10 million. Mega deductible policies generally involve more underwriting and regulatory oversight than large deductible policies.

When used successfully, employers can see premium reductions, tax savings, increased efforts toward safety to prevent claims, and incentives to care for and get injured workers back to work quickly.

Potential problems

Problems can arise when employers do not understand the risks involved, experience unexpected revenue shortfalls, or overestimate their company’s financial strength, especially for the long term. Because of the long tail nature of workers’ compensation claims, reimbursement may extend for years. Companies that cannot pay run into trouble.

Often the policies involve ‘side agreements’ that make them even more complicated and, sometimes, misunderstood by the employer. There are a variety of reasons and requirements in these. Some, for example, basically eliminate the operation of experience modification factors. Others may substitute a unified overall rate for the typical classification system. Some include language about the premium charges that effectively contradict the actual policy terms. Some may actually change the provisions of the policy without being endorsed onto the policy, leading to conflicts.

Still other problems may arise when employers are mistakenly led to believe they are responsible for paying the claims in order to get lower up-front costs and avoid experience modifications for claims within the deductible limits. That may result in errors in claims handling – even unintentionally.

Large deductible policies are not regulated to the extent of self-insurance; however, some employers may use them as such, whether knowingly or unknowingly. Employers that view large deductible policies as a form of self-insurance may mistakenly believe they should or can manage their companies’ own claims. They run the risk of violating state laws regarding such things as choice of healthcare provider or retaliation for making a claim. That can lead to delayed care and more harm to the injured worker, disputes with the insurer, claims handling abuses, civil penalties, and ultimately significantly higher costs.

In one case for example, a small company contracted with a professional employer organization for its human resource services. The PEO purchased a workers’ compensation policy with a $1 million deductible – which lowered its premium and the costs billed to the company. The problem arose when a worker filed a claim and, despite assurances that all was fine, the PEO went out of business and the insurer was declared insolvent. The company turned to the Minnesota guarantee fund for payment. However, due to statute language, the company was ultimately found liable for the $1 million deductible.

Additional problems can occur if employers fail to accurately report all claims in a timely manner. Delayed reporting may leave the insurer under reserved, leading to its insolvency. Failing to report claims may result in enforcement by a state regulatory agency, leading to civil penalties for each violation.

What to do

Employers either considering or just starting to use a large deductible policy have a much better chance of reaping the benefits by following a few simple steps.

Read the fine print. Make sure you truly understand your obligations and those of the insurer.
Check side agreements. Understand all details about any side agreement.
Know your financials. Make sure your company has the financial ability to reimburse the insurer when payment is due. Past claims history and your company’s overall financial strength should be scrutinized before considering a large deductible policy.
Report injuries. Report them accurately and timely. Delayed, under-reporting and non-reporting of injuries can cause myriad problems for the insurer and employer. As mentioned above, the potential for under-reserving by the insurer could have grave consequences. Noncompliance with state reporting requirements can lead to fines against the employer and insurer.
Don’t circumvent policy language. If the policy calls for the insurer to pay the losses, as most of these do, adhere to it. Not doing so can lead to claims handling abuses and extra costs.

Conclusion

Large employers that are well capitalized may be prime candidates for large or mega deductible policies, which can substantially reduce costs. However, it’s important to make sure your company has the financial ability and wherewithal to strictly adhere to such a policy in order to see the benefits.

For additional information on workers’ compensation cost containment best practices, register as a guest for our next live stream training.

Author Michael Stack, Principal, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

Live Stream WC Training: http://workerscompclub.com/livestreamtraining

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Buyers Guide: Workers Compensation Insurance

Buyer Beware – 5 Things To Know About Lowest Work Comp Bidder

September 26, 2016 by Michael B. Stack Leave a Comment

Resist the temptation to sacrifice great service for cheap workers comp insurance. It is certainly good business to watch the bottom line, but you must find a balance between cost and great service. Everyone watches the bottom line – that is just good business. Of course, a “low bid” does not necessarily mean getting bad claim service, and going with the most expensive carrier will not guarantee great service.

Employers do not want to sacrifice service for cost so here are five tips to be mindful of when dealing with the lowest bidder.

1-The lowest bidder may have the least amount of staff

Less staff equals less cost. Less cost means the bidder can offer a lower premium and still make a profit on the claim ratio — premium collected vs claim expense paid out.

Fewer adjusters to handle more claims are good claims adjuster’s biggest enemy — high pending claim count. Get to know your claim adjusters and see what their pending caseload looks like. The higher the caseload, the more likely something will fall through the cracks. You do not want it to be your claims.

2-All the adjusters may be in one location

You want an adjuster who will be on top of all local aspects of your claims. Adjusters in your local jurisdiction know about local doctors, judges, attorneys, vendors, etc. They know the good from the bad. Adjusters in other states may not be as privy to this information, and that can prolong a claim or affect the compensability. If you do business in California, and your adjuster is in Florida, the adjuster can miss local information crucial to the claim.

3-The lowest bidder may want any premium possible

Some carriers need premium dollars so badly; they underbid their competition just to collect premiums. They gamble on not paying off on a severe workers comp claim under their coverage. You might get decent service, but the stereotype is that the lowest bidder from the smallest carrier usually results in mediocre service to the employer. Make them prove this wrong.

4-Does low bidder have a poor reputation?

Ask these questions of your peers, broker and others you trust:

How does this carrier stack up against their competition?
Are they known for denying every case or settling every case?
Do they have poor communication?
Do other employers avoid this carrier at all costs?
Are they familiar to local judges pre-conditioned on how to decide the case?
Does the carrier pair underbidding premiums with poor adjusting?
Does the plaintiff’s attorney know your carrier settles and does not push cases to trial? If so, that means anyone coming into their law office with a disputed workers comp claim will ask for the moon – benefiting the claimant and the attorney, but not you, the employer.

5-Make sure your broker provides broad spectrum of pricing

At renewal of your workers comp insurance policy, ask for a spectrum of premium costs from cheapest to most expensive, from a variety of carriers. Agents affiliated with only a few carriers (or only one) limit an employer’s choices. If you only get two choices, and you choose the cheapest, you may be missing another carrier perhaps slightly more expensive, but with a better reputation for service.

Do your homework. Look around, do some research, ask people in the business. Most carriers have established a reputation. Find out how they do business. You want to be represented by the best of the best. You do not cut corners in your business and you do not want a carrier cutting corners at your expense.

Summary:

Even if a carrier has a lower price than their competition it does not necessarily mean you will get poor claims service; but, history shows a good reputation is not always on the side of the lowest bidder when it comes to handling claims. Do your research. Ask questions. Make sure the carrier you select will work diligently on your behalf. You have enough to worry about as an employer; do not make your insurance needs another item on the list.

Michael Stack - Amaxx Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder of COMPClub, an exclusive member training program on workers compensation cost containment best practices. Through these platforms he is in the trenches on a working together with clients to implement and define best practices, which allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact: mstack@reduceyourworkerscomp.com.

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

Filed Under: Buying Workers' Comp