On the surface, this seems like a prudent move, since improving job safety is in everyone’s best interest.

Unfortunately, the pressure may result in unintended consequences. Fearing they may lose work, some sub-contractors are seeking ways to manipulate their experience mod. At a time when jobs are scarce and the competition is fierce, it’s easy to see why a sub-contractor may do almost anything to avoid going out of business.

These arbitrary experience mod requirements ignore the fact that not all 1.0 mods are equal. For a small contractor, even having one claim over the three years that is included on the mod can send it shooting past the 1.0 mark.

The requirement becomes an even more impossible and ludicrous burden when it’s below 1.0. I spoke to an agent whose client was required to have a .72 mod to bid on a job. The particular contractor’s minimum experience mod was .74. There was no possible way for the sub to meet the demand, no matter how “safe” they were.

These irrational requirements are causing at least some sub-contractors to ask their insurance agents an obvious question, and the one an agent directed to me: “My client’s mod just went up over 1.0; how can we get it back down right now?”

The fear of losing work opportunities is real. Contractors are attempting to reallocate lower-rated payroll to higher rate classifications and retroactively include excluded officers to increase the amount of expected losses on the mod and drop it a few points. I have seen several instances where insurance companies are happy to collect the additional premium and re-file the unit stat data for a revised mod.

If these manipulations become too frequent, they could serve to alter the data that insurance-company and rating-bureau actuaries study to set premium rates and expected loss rates, making it that much more difficult for employers to reach the magical line of demarcation that general contractors are requiring.

If general contractors want to ensure that they are hiring sub-contractors that take safety seriously, a more reliable metric than the experience mod needs to be considered. While it is possible to falsify OSHA records, the penalties for doing so are far more onerous than getting caught monkeying with the experience mod.

The Bureau of Labor Statistics offers a calculator online that can give an employer their injury and illness rates as well as DART rate, as compared to like businesses in their industries and states. These numbers, backed up by OSHA records, would provide general contractors with a much more trustworthy accounting of the relative safety record for subcontractors.

(image from NCCI)

As you can see, 78% of mods will be ±5 points when you apply the $10,000 split point.

This masks the most important facet of this change: The best will get better and the worst will get worse. By making this change, NCCI is making the experience rating formula move more quickly up and down as loss experience changes.

Another important piece: The minimum experience mod that every business can reach will decrease because of the increase in expected primary losses. This means that EVERY business will have greater control over their costs.

If you can show them how to take control, you win.

These changes do not change some simple truths about the experience mod:

1)     The average mod is always 1.0. While a change may negatively impact an individual business, you can rest assured that there is another business whose mod was positively impacted in the same way. There have already been many words written about how the NCCI split point change is going to cause an increase in every experience mod. This simply isn’t true.

2)     The experience mod is the facility through which employers pay for their workers’ compensation claims, often at 100%-200% interest.

Workers’ compensation is the one line of insurance where businesses control what they pay. Business owners do not like to feel out of control. When you can help them exercise that control, you win.

Kevin Ring is the Lead Workers’ Compensation Analyst for the Institute of WorkComp Professionals, the Asheville, NC-based organization that trains insurance agents to help employers reduce Workers’ Compensation expenses. A licensed insurance agent, he leads workshops, analyzes Workers’ Comp programs and is the co-developer of CompImpact, a Workers’ Comp software suite that helps insurance professionals in working with employers. He can be contacted at 828-274-0959 or kevin@iwcpro.com.

In November 2011, the Workers’ Compensation Rating Bureau of California (WCIRB) announced a major revision to the California experience rating form. Gone are the “B” and “W” values that have been part of the calculation. Primary and excess credibility factors replaced them.

The rating bureau indicates that there have been very few mods affected by this change, but the possibilities for you lie in the new format. The WCIRB has done a very nice job making the form much easier to read than in the past, but that doesn’t mean it’s easier to understand for a non-insurance person.

Helping business owners navigate the new credibility factors and how they impact the experience mod is an important skill. When you can create clarity from chaos, you build your image as someone who isn’t just a commodity broker. Business owners desire clarity and crave control. When they understand their experience mod, you give them the ability to control it.

The National Council on Compensation Insurance (NCCI) has announced a major change that will go into effect in 2013.

Over the last two decades, the portion of an employee injury that was considered “primary” and counted 100% in the experience mod calculation was the first $5000. Over that $5000 split, all claims are discounted by the weighting factor.

Beginning in 2013, NCCI will be increasing the split point to $10,000. In 2014, it will increase to $13,500 and in 2015, NCCI estimates it will increase to $15,000. It’s important to note that $15,000 is an estimate. Beginning in 2015, NCCI will index the split point based on the average cost per claim across the states for which they provide rate making services.

So, what is the impact going to be? In our next installment we’ll take a closer look at the anticipated first year mod change, and why the “best will get better, and the worst will get worse.”

Agents not educating the Human Resources Department. Agents who build a positive relationship with HR personnel are doing everyone a favor. Most HR departments are under staffed and in some companies, the person with HR responsibilities was “assigned” the job without training. Unintentionally, it’s easy to hire what is known as a “Workers’ Compensation claim,” someone who has a track record at other jobs of filing claims, particularly those of the “soft tissue” variety.

Agents can be helpful by sharing their pre-employment experience in medical and drug screening, background checks, and knowing not only what to ask in the interview process, but how to ask it, based on the physical requirement of a position. How not to assume that a 6-foot, 240-pound man can easily lift 50-pound boxes off a truck, when a simple medical test may show that there’s a past history of back trouble that limits lifting to only 20-pound boxes. And the knowledge of how to withdraw a job offer may be very helpful to clients.

Agents not helping clients make more money. Write this down. First rule of business: employers are more interested in making money than saving money. Use your own contacts to benefit your clients. For example, an insurance agent in Florida insures 2,000 homeowners and five general contracting companies. A contractor was offering a deal on central air-conditioning, and the agent mailed the offer with a personal note to the agency’s homeowner’s accounts.

Everyone appreciated the gesture, the contractor made some sales, and with so many competitors vying for his business, the agent was able to build what Preston Diamond, president of the Institute of WorkComp Professionals once labeled “an alligator-filled moat around the client.”

Use the Workers’ Compensation skills you’ve been taught to benefit your customers. Be involved in the process from the start and chances are you will both reap the rewards.

Agents who don’t get involved in the premium audit from the beginning. When agents don’t get involved in helping clients with their premium audits until after the fact, there’s a problem when the employer receives an unexpected bill.

But by then it’s like trying to put toothpaste back in the tube. It’s important that agents be more proactive and more involved in the process before the auditor shows up. By doing so, they can educate the employer before the fact on such items as what percentage of the payroll applies to Workers’ Compensation and what doesn’t.

But you can’t leave it up to the employer to draw you into the process before it happens. Times have changed. When the economy was booming, and rates were going up, you might get a call from an employer questioning why a $5,000 bill arrived in the mail. The agent would review the account, explain the situation to the client, and even if the bill still had to be paid, there was good will because at least the agent made the effort.

Today, as Workers’ Comp rates decline and payrolls have thinned out, employers are likely to receive a check in the mail for a Workers’ Compensation rebate check instead of a bill. Since it’s a check, they aren’t asking the agent about it. By not having that conversation, the agent is denied the opportunity to determine if the employer qualifies for additional funds. Be proactive from the outset.

Agents who let insurance companies handle 100% of the claims. When a worker is injured on the job, the employer automatically calls the insurance company. Makes sense since the agent isn’t the one who cuts the checks. But in truth, the agent should be involved when there is an injury to monitor the process. By doing so, the agent can stay updated on all communication between the medical staff and the employer and the adjuster, find out when the injured party can return to work, make sure there is a plan in place for that to happen, and generally keep the flow of communication moving between the doctors, HR department and insurance company.

By not getting involved, the agent is pushing all the responsibility to the insurance company, a third party that the employer has no direct relationship with. What employer would not appreciate an agent’s participation in the process? What employer would not want another set of trained eyes keeping track of claims? It’s an expense to have an employee off the job when it isn’t necessary. Helping to facilitate getting an injured employee back to work as quickly as possible can only benefit a client.

Photo courtesy of Bradleypjohnson

There are ways to help your client keep their experience mod under control and keep their work comp costs down. In fact, there’s six easy ways. And in this initial installment we’ll look at the first two ways you can help better serve your clients.

Agents who blindly copy other agent’s work. Think of it as taking over as manager of a baseball team and doing nothing more then copying the old manager’s lineup. Maybe the guy playing third base should really be playing first base. This happens when an agent gets a new commercial account and does little more than copy the Workers’ Comp employee classifications the previous agent used, never taking the time to note that perhaps the company secretary at an auto body shop shouldn’t be classified the same as the guy yanking a 600-pound engine out of a Toyota Camry.

So right from the start, the agent is failing a client, through nothing more really than sheer laziness. Take time to walk the site to make sure you are familiar with the operation, what they do, and who does it.

Agents who ignore valuation dates. Six months after a Workers’ Comp policy’s expiration date, the insurance company takes a snapshot of the current status of both paid and reserve losses, the Experience Modification Rate, and other pertinent data on all Workers’ Compensation claims. But those numbers may not be correct. Maybe the reserves are too high because they thought an injured employee was going to need $25,000 for surgery, but only required $5,000 of physical therapy. Maybe another employee was deemed by a doctor eligible to return to work, but this was ignored.

Agents should take advantage of their agency management system to keep track of upcoming valuation dates and to speak with the adjuster at least 60-90 days before the date to better understand all the facts and figures. Otherwise, once the date has past it can take up to a year to correct any mistakes, and your client will have to pay the price.

(Image via Flickr courtesy of Beige Alert)

Here are a few areas that should be given attention as we head into the New Year.

The Aging Workforce: Their coming was foretold in 2008, when the first Baby Boomer hit 62 and filed for Social Security. The Institute on Aging at the University of North Carolina has released data showing that 20% of workers will be 55 or older by 2020.

Although older workers tend to get injured less on the job, when they do get hurt we find larger claims and more days off the job. According to a report by The National Council on Compensation Insurance (NCCI) a determining factor in the high claims cost can be traced back to older workers having higher salaries so their compensation for loss-work time is higher.

According to the Bureau of Labor Statistics (BLS), older workers take an average of 15 days off per injury compared to one day off for younger workers. Plus, they require more extensive medical treatment then, say, a teenage worker. Factor in the statistics showing older workers are less likely to return to work after an injury (in some cases over 80% less likely, compared to 12% for a worker in his 20s), and you see a disturbing trend.

The best we can do when it comes to getting an aging workforce back on the floor is to make a concentrated effort to customize the return-to-work program based on the severity of the injury, age, existing medical conditions, etc.  In other words, ease workers back into the fold and make the workplace conducive to them, even it’s simply making sure there is enough bright light in the work area  (the eyes always seem to be the first thing to go ).

Off-Site Workers: In an age of technology, where more and more workers are doing their jobs from their homes, we are seeing a whole new can of Work Comp worms open up.

According to World at Work’s “2011 Survey on Workplace Flexibility,” in 2010, 26.2 million U.S. workers conducted business outside the office. Companies see the advantages of home-based work (i.e. a decrease in absenteeism, reduced stress), but overlook an untapped area of risk.  Two recent cases illustrate what may be a disturbing trend. A New Jersey court granted workers’ compensation survivor benefits to the family of a woman who dies of a blood clot while sitting at her computer doing work. That same month in Oregon, a court ruled in favor of a claim brought by a woman who broke her wrist when she tripped over her dog while carrying supplies from her home to her car.

So how do employers monitor “at-home” risk? Perhaps it is as simple as having someone visit the home and make sure everything is ergonomically in order and void of any clutter or potential hazards. It’s also been suggested that the employer photograph the workspace. A more extreme maneuver would be to invest funds in the workspace and set it up for the worker. This could be a one-time cost versus a much higher cost down the road should the worker somehow suddenly fall out of their chair and break a hip.

As for making sure any injury happens on “work time,” experts suggest having the worker log in on their computer so time at work and time off can be tracked. No employer wants to pay a claim because one of their workers hurt his back while lifting a turkey out of the oven on Thanksgiving.

Rising Medical Costs and Prescription Drugs: Medical costs continue to soar and it can be attributed to several factors which are, in some ways, related. In many states, employers let the employees choose what doctor they want to see when injured, and employees are most likely to choose their family doctor. The problem here is the family physician sees the worker as their client. So if the employee asks for a week off, the doctor will grant it. Why not? Most family physicians have no experience with occupational medicine or the importance of getting employees back to work.

Another area of growing concern is the type of drugs being prescribed to injured workers and their long-term effects. According to a recent article in USA TODAY, the biggest drug problem in America isn’t the heroin being mainlined in a back alley or the cocaine being ingested in some run-down crack house. In actuality, it’s the prescription painkillers sitting in a medicine cabinet in Middle America, to the point that they kill 18,000 people per year. And don’t think this hasn’t raised an eyebrow to workers’ compensation payers, who are on the lookout to ensure that addictive drugs that are over-prescribed by doctors aren’t affecting workers’ comp cases. Evidence has shown that some doctors are prescribing pain medication usually targeted for cancer patients for simple back strains.

According to Gregory L. Johnson, a health care management consultant, “There is an increase in medical costs as a percentage of all claims; there is an increase in pharma as a percentage of all medical costs. And there is an increase in opioids as a percentage of pharma. So it’s driving a lot of overall loss results in workers’ comp.”

Another industry expert contends that employers may find themselves not only paying for the medication but also funding detox programs, drug overdose claims and treatment for long-term side effects. It’s imperative that employers, doctors, claimants and insurance carriers all get on the same page to make sure such abuse does not occur.

The Need for Wellness Plans: Healthier employees lead to lower premiums. If companies can help their workers improve their health without cutting benefits or shifting more premium costs to employees, why aren’t smaller companies using this proven method to lower their health care costs?

Randy Boss, a Risk Architect with Ottawa Kent Insurance in Grand Rapids, MI, helps companies implement successful wellness programs. And he says he can understand how employers feel. “They’re frustrated because most likely they have tried things that didn’t work,” says Boss. “Businesses tend to think short-term and not long-term, and expect to see solid and immediate savings on their healthcare costs.”

Yet, the benefits of having healthy workers transcend reduced health care costs, including Workers’ Compensation and lower absenteeism. Healthy workers are less prone to injury and when injured, they recover quicker than less healthy workers. If workers change and modify their lifestyle and reduce their health risks, medical costs decline.

A University of Michigan study of a Midwest utility company’s workplace wellness program found that over nine years, the utility company spent $7.3 million for the program and reaped $12.1 million in savings. Medical and pharmacy costs, time off and Worker’s Compensation factored into the savings. The study, which took into account a number of costs, including indirect costs of implementing wellness programs, such as recruitment and the cost of changing menus, showed that wellness programs work long-term even though employees aged during the course of the study.

Companies need to make a commitment to helping their employees stay in better shape. Says Randy Boss, “If companies don’t have the ability to fire all their old workers and hire young workers, then they need to concentrate on what they can control…the risk factors. That’s where a health & wellness program comes in. But to be successful you need high participation… preferably over 85%. We’ve been fortunate to have a 94% record without having to pay employees to participate.  We do this by motivating and educating employees so they take the action steps to get the results.”

An effective wellness plan only works if implemented from the top down. “We see participation rates up to 70%-80% with management support and incentives, but only 10%-20% without it,” says Susan Butterworth, director of Oregon Health Sciences University Health Management Services.

New NCCI Rulings: NCCI has recently made significant changes to the split point that will ultimately affect the experience mod.

The split point will be increased from $5,000 to $15,000 over a 3-year transition period. After the transition, the split point will be indexed for claim inflation in subsequent updates. Filing for these changes will likely be made in 3rd quarter this year. This change will take effect in 2013, based on each state’s usual rate filing date. For some, it will be 1/1/13, for others later in the year.

NCCI’s data indicates that close to 80% of experience mods will change plus or minus five points. The modification of the split point will most substantially impact the very best and very worst mods. Each company will be affected differently based on the costs of their employee injuries.

A big positive for all businesses is that every company’s lowest possible mod will drop. This means that employers will have greater control over what they pay for workers’ compensation than they have before. For companies that take command of their workers’ comp program, the opportunities have never been better to reduce their costs, even though rates are increasing in many states.

Conclusion

In summary, we may just be skimming the surface of what’s in store for our industry in 2012. But unless the Mayan calendar had it right and everything comes to a screeching halt on December 21, 2012, you can pretty much bet 2013 will be even more exciting.

The teams had very special circumstances due to the seasonality of the sport, since late season injuries often drag out and players do not return to work until the next season. Also the very low wages that the players received relative to the national average worked against them.

However, by using the IWCP education, the CWCA was able to make a tremendous difference and saved the first team $43,548 and the second $39,109.

The CWCA realized that the low wages were also an advantage. Whereas many employers would not continue to pay wages for an employee on the disabled list, these teams benefited by providing light duty or transitional duty for the employees and took advantage of the 70% credit opportunity that the ERA rule in South Dakota offers.

Situation
High rate and large number of employee injuries – $800,000 premium

Assessment
No return-to-work program. Analyzed claims and showed employer the true cost of the insurance company paying indemnity to injured employees.

Solution
After reviewing the return-to-work options, the trucking company decided to no longer outsource its security guard function, but make it a “transitional duty” job. Injured workers sit in the booth and collect paper work from incoming trucks. Another light duty job involves scanning the bar codes of boxes as they pass on a conveyor belt. By putting a chair on wheels, the employee simply sits and presses a button as the box goes by.

Result
Self insuring the transitional duty on one case alone, the $4,000 in indemnity reduced the premium by $20,000 over a three-year period.