7 Secrets that Cost Your Client a Bundle on their Workers' Comp

Eight steps to create a winning game plan for renewals



1 month, 15 days ago

It is a time like no other for insurance renewals. The COVID-19 pandemic and the resulting economic fallout have upended the decades-long certainty within the workers’ compensation market that let employers reap the benefits of a soft market. Steep declines in premiums as a result of historic unemployment and falling payrolls suppressed investment returns from rock-bottom interest rates, unprecedented presumption laws, and uncertainty surrounding workplace coronavirus-related claims, as well as the pace of economic recovery present unique challenges for carriers. While the industry is considered to be in a financial position to manage the crisis, insurers are preparing themselves for an extended period of recovery that can affect the next several renewal cycles for employers.

Rate making agencies for many states and jurisdictions, including the widely-used National Council of Compensation Insurance (NCCI), have opted not to include COVID-related costs in their upcoming filings because there is not enough reliable data to predict the cost of the pandemic. New York’s average loss cost level is going down one percent effective October 1, NCCI recommends a 5.7% reduction for Florida, and the North Carolina Rate Bureau recommends an average loss cost decrease of 3.9%, effective April 1, 2021. None of these include the potential impact of  COVID-19 claims.

On the other hand, California became the first jurisdiction to announce that it will include COVID-19 related costs in its 2021 pure premium rate filing. The filing puts businesses into six sectors based on risk exposure and has surcharges of one, three, six, 12, 18, and 24 cents per $100 of payroll. While it is expected that most employers will see a modest increase in their rates, the claims will not be included in Experience Modifications calculations.

Although employers may continue to see premium contraction because of falling payrolls and will not see the dramatic rate increases that are occurring in other commercial lines in the immediate future, it’s important to recognize that underwriters will be more cautious and are looking to shore up their risk selection standards and pricing models. Moreover, the pre-pandemic operational exposures and staffing of many businesses have changed significantly and states have implemented rules regarding excluding payroll of furloughed workers, changing employee classifications, and treatment of COVID-19 claims on the Experience Mod. Failure to properly account for all these changes will lead to unnecessary overcharges.

Here are eight steps to best position your company:

1.   Prepare a premium audit

Accurate premium audit data is more important than ever, given the changes in rules and operational exposures. Outside salespeople working remotely, waitstaff becoming delivery drivers, furloughed employees who were paid while not working, repurposed operations, and COVID-19 exclusions from Experience Mod calculations are a few examples of how exposures changed almost overnight. Also, some job changes may have been made as a result of COVID-19 emergency orders, but employees have now returned to work. Generally, estimated or percentage allocation of payroll is not permitted. Maintaining separate payroll breakdowns in identifiable categories, such as not working, different/new duties, qualified medical leave, remote working, and no status change, is critical. If these records are not maintained, the entire payroll of an individual employee must be assigned to the highest-rated classification that represents any part of their work.  The process is going to be complex and prone to errors and omissions.

Moreover, as with everything else COVID, the audit process may be different. Some carriers are conducting “hybrid” audits where documents are submitted electronically and discussed over the phone or virtually. Errors can result from communication issues and misinterpretations and the process may take longer.

It’s best to protect yourself and prepare a premium audit in advance with the help of your insurance broker. We’re here to help. As Certified WorkComp Advisors, we are trained to prepare employers for audits and prevent overcharges.

2 – Be prepared to answer questions about COVID-19

In terms of workers’ comp coverage for COVID-19 claims, much depends on the type of business, whether states have adopted presumptive coverage for certain types of employees who test positive for COVID-19, the infection rates within the community, and the particular circumstances of the case. Carriers review each case on an individual basis and have specific guidance for reporting suspected COVID-19 related claims. Employers are expected to have a system in place to gather the information that helps determine if the illness arose out of the course and scope of employment. Ensure that you document all information related to the filed claim and classify it as “COVID-19” in the description.

Furthermore, carriers are looking for solid evidence that employers have a plan and implement risk control measures in keeping with OSHA and CDC guidelines to control the spread of the virus and protect against costly lawsuits. Underwriters are seeking to minimize the exposure to the unpredictable impact of COVID-19 losses. Transparency about reopening plans and documentation of adherence to safety protocols are paramount to optimize risk profiles going into renewal.

3 – Recognize that workers’ comp is one component in a company’s risk profile

Insurers today have an enterprise-wide focus, making the totality of your risk relevant. What’s critical is the insurance’s company perception of your risk. For example, remote workers affect both workers’ comp and cybersecurity. Shifting waitstaff to delivery drivers affects workers’ comp and auto insurance. Natural disasters affect property, business interruption, and workers’ comp insurance. Every company has been impacted by COVID-19. Carriers will be looking for a realistic assessment of risks and your plans to mitigate the risk.

4 – Share your business continuity plan

Six months into the pandemic, employers should be beyond the reaction stage and be acting with a view to the future. Do you have a strong, comprehensive remote worker policy that addresses work environment obligations and cybersecurity? If working from home is going to become permanent, do some employees live in a different state from the employer’s? Is the repurposing of your operations temporary or permanent?  Are your customer-facing employees at a greater risk of work-place violence prompted by objections to COVID-19 prevention measures?  Where do you envision your company to be in one year, five years? The companies that have the agility to adapt to changing environments will be best positioned to survive and thrive.

5 – Update and stay committed to your Injury and Illness Prevention Program

In times of economic crisis, businesses are looking for every possible avenue to save money. Deferring critical maintenance, cutting back on safety measures, scaling down return to work programs are often budget targets. But this is short-sighted and not sustainable. Such practices lead to more injuries, longer claim periods, and ultimately higher costs. Do not risk a lot to save a little. Position yourself favorably with the carrier by indicating your full commitment to the program.

When cash flow is a serious issue, discuss the possibilities with your broker. Some carriers are offering more flexible payment options and there may be other places where you can safely reduce coverage. Long-term relationships can be beneficial.

6 – Hone in on return to work

When the pandemic hit, many existing claims were delayed as hospitals and medical facilities shifted to COVID-19 care or shut down. Disability clocks had to be extended. It’s time to ensure that they get back on track. Also, return to work can be complicated by fear of the virus. Understanding the employee’s concerns and communicating the company’s safety protocols should be added to the process.

Telemedicine has emerged as an effective medical cost containment strategy. Take the time to assess how it has worked for your employees.

With redefined spaces and reduced demand, a large challenge for many employers is the availability of light-duty jobs. If this is an issue, seek advice on how to address it.

7 – Focus on settlement of open claims

Workers’ comp attorneys report that the financial pain brought on by the sudden downturn has meant injured workers who were reluctant to settle their claims are now open to settlements. This is a good opportunity for employers with legacy claims to close troublesome claims that continually drive up costs.

It’s important to recognize that claims handlers are also dealing with new challenges. Many are working from home, COVID-19 claims are a whole new ballgame, and they have a backlog of open claims where treatment was disrupted or delayed because of stay-at-home orders. Employers need to be proactive with insurers to identify complex claims ripe for settlement.

8 – Understand the effect on the Experience Modifier

While it’s good news that many states are exempting COVID-19 cases from impacting the Experience Mod, it’s possible the Mod can rise with falling payrolls, particularly if the company shrank, but did not change class codes or operations during the pandemic. This is particularly important for contractors that bid on large private or government contracts, where the Mod is expected to be below 1.0. Work with your insurance providers to help explain a spike in the Mod.

Start planning early for renewal. Insurance is an industry that makes decisions based on models of past experiences to project future underwriting and pricing business and hates uncertainty. The goal is to differentiate your business by showing how your approach to risk is solid and exceeds the norm. Businesses that proactively manage risk, control losses, and mitigate exposures will be best prepared for whatever market conditions lie ahead. We are here to help guide you through this process.