Should the construction and contracting industry revisit its use of the experience mod rating (EMR) as criteria for bidding on projects? Ron Cooper, President of the Indiana Compensation Rating Bureau, is encouraging study and discussion of the issue in his state.

This isn’t a problem specific to Indiana. Nationwide, the construction industry has been using the experience mod rating (also known as the mod, e-mod, ex-mod, or EMR) as a qualifier for about 20 years, ICRB President Cooper estimates, because it reflects “third party, objective, and reliable, audited data.” The EMR is commonly used by construction project managers and safety organizations to prequalify contractors for worksite eligibility. Oftentimes the contractor’s mod must be below 1.00, 0.90, or even lower.

But the EMR is designed as a pricing modifier to determine insurance premium, not as a tool to qualify contractors for projects, Cooper says in a white paper published by the ICRB. The paper, now at the center of groundbreaking industry discussions in Indiana, stands to lead the way for national reform in the use of the experience modifier as a qualifier for awarding construction projects.

“We’ve always tried to be proactive,” says Cooper, who began his career at NCCI and has been with the Indiana bureau since 1995. In the past year he’s proven that with this issue, meeting with construction industry representatives in Indiana to talk about the flaws of using the EMR as a qualifying metric. Some of those flaws, as discussed in the paper, include:

• The EMR includes reserves on open claims which change from year to year.
• The EMR experience period is one to four years old, thus, it may not reflect current conditions of a contractor in terms of safety.
• Using the EMR as a qualifying metric encourages employers to not report injuries and pay claims out of their own pockets, a practice which is not cost effective and may be illegal.
• Contractors with no losses can realize an increase in their EMRs simply because of statewide drop in claim frequency (that must be recognized in annual updates of rates and rating values)

If the paper’s executive summary doesn’t raise your eyebrows, the case studies will. The paper shows how one employer’s mod increased from 0.89 to 0.94 over the course of 5 consecutive years despite the business having no losses in any of those experience periods.  Other anecdotal data includes quotes like these from Indiana businesses:

• “…because of one claim, I stand to lose a substantial amount of revenue. In this economy this could be the end of my small business,” says one sub-contractor whose mod changed from 0.83 to 1.07 as the result of one claim.
• “…older workers take longer to heal, and the claims costs are higher…my EMR could be higher than my competitor and disqualify me from bidding simply due to the age of my workforce…that reason seems discriminatory to me.”
• “The insurance company is still going after the third party that caused [a work-related auto accident]. But in the meantime, the cost of the claim shows up on my experience. That puts my EMR over 1.00 and now I don’t qualify to bid on jobs.”

Cooper’s meetings with industry representatives have been at events like the Beyond Safety Conference and Expo, where the audience included contractors and project owners representing large corporations. He has also been in talks with groups such as the Metro Indianapolis Coalition for Construction Safety (MICCS) and the Indiana Construction Association.  These organizations have been “very receptive” to a call for change, Cooper says.

“If a company isn’t certified with MICCS, it’s tougher to get a job in the Indianapolis area,” Cooper says. MICCS prequalifies contractors at various levels, including “Qualfied,” which among other criteria requires a mod of 1.00 or less, and “Certified,” which requires a mod of 0.90 or less. In light of the data Cooper has shared, the organization has increased their sensitivity to and understanding of appeals related to the mod and is looking at revising criteria, perhaps by also taking into account the employer size. (Editor’s note: My own related suggestion is that, if these organizations are going to continue to consider a company’s mod, they should also know its lowest possible mod, or loss-free rating, since it may be mathematically impossible for smaller companies to achieve the same minimum mod that large companies can.)

A quick search of the Internet reveals construction companies touting their “impressive” EMRs from 0.90 down to 0.53, depending on the company. The truth is, the company with a 0.90 may already be at its best possible EMR, and next year that best possible value will probably change. As the paper concludes, “’Safe’ contractors may be unfairly disqualified from bidding on construction jobs.”

“There’s a definite opportunity to revise how the construction industry uses the EMR,” says Cooper. The paper suggests OSHA reports or NIOSH recordable and lost time incident rates might provide some alternatives.

While 2013 changes to the split point and maximum mod formula will generally lead to a decrease in loss-free ratings, those same changes – for certain risk profiles – may lead to increases in the mod that are beyond the employer’s control. Comments here on the WorkCompEdge blog have suggested that some state bureaus are reticent to approve the 2013 changes specifically because of concerns from the construction industry.

Connecticut is one example. “I have been monitoring the split point issue very closely,” says James D’Errico, Manager of Audit Administration with Peoples United Insurance Agency in Hartford, Connecticut. “To date, Connecticut has not committed to the revision. The Connecticut Insurance Department is concerned with the potential impact on contractors with debit mods, coupled with our poor economy, and the fact that in some cases, contractors cannot bid on construction projects with a mod over 1.00.”

My research shows this isn’t the first time that concerns about the construction industry’s use of the EMR have surfaced, but the excellent arguments in the ICRB white paper, coupled with the most significant refinements to experience rating in two decades, may create a perfect storm of opportunity for change.

What are your thoughts and experience about the use of the mod to qualify contractors?

- Kory Wells, WorkCompEdge Blog Editor

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

Related reading

Indiana Compensation Rating Bureau white paper:

• EMR as Qualifier to Bid on Construction Projects (pdf)

For more about the loss-free rating, read:

• How Low Can You Go? Attaining a Perfect Score for Your Mod

• Loss-free Rating: New Footnote on California Worksheet Is an Important Concept for All States

• Stunning Workers’ Comp Survey Results Mean Opportunity for Agents and Brokers

For more about the 2013 split point change, read:

• News Regarding the 2013 Split Point Change (from NCCI and Independent Bureau States)

Over 3,500 employers from across the nation responded to the survey. This graph shows their distribution by state where they reported the highest number of employees.

First, a little demographic data about the survey participants: The employers represented are well distributed across the nation and come from 20 business sectors, with heaviest representation from manufacturers (17 percent), health care and social assistance providers (15 percent), and construction (13 percent). Survey takers identified themselves as human resource personnel (36 percent), finance staff (19 percent), CEOs or presidents (16 percent), and other staff, including safety managers, risk managers, and operations directors. Some 57 percent of those participating reported workers’ compensation premiums under $50,000 annually.

For the first time in this annual survey, we asked respondents some specific questions about experience rating. Of those responding, 5 percent said they were not experience rated, and 28 percent said they didn’t know if they were experience rated. Since very small companies are often not experience rated and some respondents reported the majority of their operations in the few states that don’t experience rate, these numbers don’t seem unreasonable.

But then. For those who reported that their companies were experience rated, we asked:

Do you know the value of your company’s minimum mod (also known as ”loss-free rating”)?

How employers responded to the question: "Do you know the value of your company's minimum mod (also known as 'loss-free rating')?"

A whopping 88 percent either did not know the value of their loss-free rating (31 percent) or indicated they were not familiar with the term (57 percent).

88 percent!

Kory, you may say, maybe these just weren’t the right people to be answering that question. And that’s what I wondered at first, too. But these same people – to be precise, 95 percent of those who reported being experience rated – were able to indicate the value range of their most recent mod.

So these employers knew they were experience rated and they generally knew their mod value. In many cases they even said they were using mod analysis to drive improvements in safety culture and programs, injury management, return to work programs, and more. But they were clueless about their loss-free rating, and that, my friends, means there are many, many opportunities out there for you in prospecting and retention to:

1. Communicate what the loss-free rating or minimum mod is. In case you’re new to experience rating, it’s the value the mod would be if no actual losses occurred in the experience period.
2. Calculate the loss-free rating for the prospect or client. The loss-free rating is shown on the California experience rating worksheet, but in other states you’ll substitute zeroes for actual losses in the applicable mod formula, or (shameless self-promotion alert) let software like ModMaster show you the value.
3. Make the connection between mod points and premium. Multiply the loss-free rating by the estimated manual premium to grab a prospect’s attention or remind a client how low their premium can be.

Sample dialog between a broker and prospect: So you were pretty happy with your mod of X? (Lots of employers are satisfied if their mod is near 1.00.) Are you familiar with the loss-free rating? Do you know how low your mod could have been? Can we sit down together and see how much premium you could have saved if you were at your minimum mod?

Go forth, have those eye-opening conversations, win that business! And as usual, your comments and questions are always welcome.

- Kory Wells, WorkCompEdge Blog Editor

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

For more about the survey, read:

• Survey: Cost Containment Leads Employers’ Workers Compensation Concerns (a pdf also available on the Zywave Corporate News page)

• 2012 P&C Workers’ Compensation & Safety Survey on Broker Briefcase (Available to our partners using ModMaster or Broker Briefcase. To find the survey, access Briefcase directly or through the Next Steps area of ModMaster, then search for 2012 Survey Results: Workers’ Compensation.)

For more about the loss-free rating, read:

• How Low Can You Go? Attaining a Perfect Score for Your Mod

• Loss-free Rating: New Footnote on California Worksheet Is an Important Concept for All States

If you think of your experience rating mod as a game of golf, you want it to be under par – not just average. You also want to know what your company’s perfect score can be – and then implement loss control and prevention measures to attain that perfect score.

Did you know that you can have a perfect score on your workers comp mod?

You can. But here’s the tricky part: the perfect score for your mod is unique to your company. It will be different from the perfect score of the company next door, or your competitor across town. It may change somewhat from year to year. The variability is due to the fact that the mod is based on your unique industry and payroll. But it is a real, attainable number, not just a theoretical best case scenario.

Many employers have the idea that a workers comp mod of 1.0 is, if not perfect, at least the goal that they want to reach. This is like saying a “C” on your grade school report card is good – or that you’ve shot par on the golf course. You may be pretty happy with it, but in truth, a mod of 1.0 is only average. If you want to beat that average, and thus lower your workers’ compensation insurance costs, you’ve got to know the value of your minimum mod – your perfect score – and your controllable mod.

Every mod value can be broken into two pieces: the minimum mod and the controllable mod. The minimum mod is that perfect score: the lowest possible mod if your business had no losses for the experience period (typically three years). The minimum mod is also known as the loss-free rating, especially in California, where the value is included on the experience rating worksheet. The controllable mod is the difference between your actual mod and the minimum. This value is a direct result of the losses your company had during the experience period.

Attaining your perfect score directly impacts your work comp premium costs

The minimum mod and controllable mod are important for two reasons. For larger companies, these values highlight the savings that are possible by controlling losses. For example, a company with a mod of 0.93 may think they are doing quite well, however, if they have a controllable mod of 0.25, there is significant room for improvement. In this example, which had an estimated manual premium of $250,000, this translated to a $62,500 cost savings!

For a small company, the minimum and controllable mod values can be used for setting realistic expectations; for example, a small risk that sets a goal of having a 0.80 mod will not be able to achieve it under any circumstance if the minimum mod is 0.85.

No matter the size of your company, knowing the controllable mod is critical to understanding the possible savings achievable by reducing that controllable mod to 0 through loss control and loss prevention activities.

In 2013, most companies’ loss-free rating will be dropping several points due to a change in the experience rating formula. This may represent even more opportunity to realize savings. Ask your insurance agent to discuss your minimum and controllable mod values – and estimate the premium dollars you can save by attaining that perfect score.

- Kory Wells, WorkCompEdge Blog Editor

Article first published 2/18/2009; updated 3/13/2012

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

First of all, NCCI has a new 24-minute webinar, Understanding NCCI’s Filed Experience Rating Plan Changes – Item E-1402. This webinar includes:

• What has prompted the change to the primary-excess split point.
• What potential impacts to the mod can be expected.
• Most helpfully, several hypothetical examples are discussed. Especially notable in this section is how employer size and the relationship of class severity to discount ratio may affect the mod in conjunction with the new split point.

A majority of states have already approved the split point change to take effect with their 2013 loss cost or rate filing, but what of the independent bureaus?

New York is on track for a split point change to $10,000 effective 10/1/2013.

The New York Compensation Insurance Rating Board (NYCIRB) says in its NYCIRB Annual Report 2011 (pdf):

…the [Actuarial] Committee approved an increase in the split point from the current $5,000 to at least $15,000 in several steps, with the first step to be set at $10,000 effective October 1, 2013. Further research was recommended to determine appropriate split points subsequent to that date.

Wisconsin has the split point change under consideration, but not yet approved.

In September 2011, Circular Letter 1137 from the Wisconsin Compensation Rating Bureau (WCRB) says:

The [Wisconsin Governing] Board adopted the recommendation of the Rating Committee to adopt this proposal [item E-1402] effective with the 10-1-13 rate revision.

However, in December 2011, Circular Letter 1139 (pdf) states that

This item [E-1402] was disapproved by the OCI [Office of the Commissioner of Insurance]. WCRB will respond to the items of concern and request reconsideration of the disapproval.

Other independent states which use similar rating methodology but do not use NCCI for interstate intrastate mods are Michigan, Minnesota, and Texas. If those states have a split point change under consideration or approved, I’ve not yet seen such information. If you’re in those states and have heard any news regarding the split point, I know our readers would love for you to share via a comment!

- Kory Wells, WorkCompEdge Blog Editor

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

Further reading:

New Report Estimates Mod Change Due to 2013 Split Point Value

Discovering the drivers of change in a company's experience mod is an opportunity that helps you communicate expectations and keep the company focused on long term goals of improving safety and thus lowering its mod and workers' comp premiums.

With a company’s experience rating mod factor, what we want to discover is not WHOdunnit, but WHATdunnit: that is, what caused the mod to increase or decrease from one year to the next? We can be almost as slick and successful as Patrick Jane if we know the right things to observe and the right questions to ask.

Of course companies are more likely to be concerned by a mod increase, but they may also celebrate a decrease (and the broker, risk control expert, and/or safety consultant who helped them achieve such a decrease). Understanding the specific reasons that a company’s mod fluctuates from year to year is important because, as the adage goes, in understanding the past we also understand the future.

Here are 5 questions you can consider and answer, using mostly the summary numbers from 2 consecutive years of a company’s mod worksheets from the applicable bureau, to uncover the cause(s) for a mod increase or decrease from one year to the next. For the purposes of this discussion, remember that the mod is, simply put, a ratio of actual to expected losses that occur over a (typically) three-year experience period: for example, 2012 mods are based on loss and payroll data from 2008, 2009 and 2010.

1. How did total expected losses for the experience period change?

Expected losses are the product of payroll (divided by 100) times the expected loss rate for each job classification in a company. Total expected losses may change, therefore, because payroll has changed and/or because the expected loss rates have changed. For the big picture, here’s what important: if expected losses have decreased, then actual losses have hopefully decreased proportionately – otherwise the mod is going to go up. This leads to questions 2 and 3:

2. How did total payroll for the experience period change?

Slight fluctuations in total payroll aren’t likely to be too significant, unless the payroll codes (that is, the job classifications) being used for the company change. But a notable increase or decrease in total payroll should inspire you to ask other important questions. For example, in a company where layoffs have caused payroll to drop significantly, have claims also decreased proportionately? Or, in a rapidly growing (or in this economy, recovering) company that’s seen a mod increase, could a lack of proper hiring or initial safety training be leading to an upsurge in claims? For example, this Business Insurance article says “recent hiring of new, temporary and seasonal workers may be among factors behind a 2% to 5% increase in claims over the past year.”

Note: Total payroll is not shown on the summary of some bureau’s worksheets, but you can sum it up from the policy period totals, or the company likely has this total handy from another source. 

3. How did the average expected loss rate change?

You can also go deeper with question 1 by considering the overall change in the average expected loss rate that applied to the mods you’re comparing. For a fairly simple mod you may be happy with “eyeballing” the expected loss rates on one worksheet as compared to the next year’s. However, it’s not unusual to see one rate go up a bit while another one goes down from year to year. So you can calculate the average expected loss rate by dividing total expected losses by total payroll times 100.  Payroll and actual losses could stay the exact same from one year to the next, but if the average expected loss rate decreases,  that means expected losses also decrease, causing the mod to increase. This is a scenario I often have to help clients understand, and one that’s beyond the company’s control.

 (Shameless self-promotion: the mod comparison reports in ModMaster help you easily see the total payroll and average expected loss rate, and answer all of the questions posed here.)

4. How did actual losses for the experience period change?

An increase in actual losses is, of course, the most obvious reason for a mod increase. However, we occasionally hear from bewildered clients who have seen a mod increase despite a decrease in losses, they report. Sometimes those clients are forgetting that total losses cover the three years of the experience period, so a one-year improvement in claims isn’t all that’s needed to improve the mod. Sometimes there aren’t any new claims since the prior experience period, but a change in reserves on an open claim makes the actual losses go up. A  state’s implementation of ERA can also affect losses, although most states have been settled into ERA for some time. In some cases, actual losses are down, but expected losses are down more, so the mod still goes up. After you look at total losses, you also need to consider:

5. How did the mix of primary and excess actual and expected losses change?

Both actual and expected losses are split into primary and excess components, and primary losses affect the mod more than excess losses do. Although this is over-simplifying the formula, if you see that actual primary losses have increased  from one experience period to the next, even if total losses stayed about the same, this could be the reason a mod has increased. This scenario will be especially common in 2013 when the primary-excess split point increases from $5,000 to $10,000 for many states.

In detective shows like The Mentalist, there’s usually a twist or two, but in the end everything almost always comes down to one culprit. Understanding why a company’s mod changes from one year to the next is admittedly more complex, because all five of these criteria are likely to have some change.  In my experience, though, you can use these questions to often isolate one or two main factors that have contributed most to a change in the mod. (There can be other primary, though less common, reasons for a mod change, such as application of the maximum mod formula, or a change in ballast or weighting factors.)

Is it in your best practices to analyze what factors caused the mod to change from one year to the next?

- Kory Wells, WorkCompEdge Blog Editor

© 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

Starting a new mod in ModMaster? Select "NCCI" for any calculation using the NCCI or similar method, including California mods prior to the 2012 plan change. For California mods effective 1/1/2012 and later, be sure to select "CA," and note that you must use ModMaster 5.0.

In addition to recent formula changes for 2012 in the California experience rating plan, the WCIRB has also adopted a significantly new format for its experience rating worksheet. You’ll think I’m a geek (if you didn’t already) for admitting this, but I’m loving the new format. While of course I’m partial to the myriad ways we slice, dice and present mod data in ModMaster reports, I think the new bureau format takes a huge step forward in usability. Here are four reasons why.

1. Documentation. A sample of the new format is shown on this WCIRB web page. As you’ll see, each section is labeled with a nice bright number, and clicking on the number takes you to an explanation of that section. An updated explanation of the experience rating form and process also follows the employer’s worksheet itself, so you’ve got both hard copy and online resources to help you understand, clarify, or discuss any part of the report.

2. Layout. The WCIRB has abandoned the old format, which had all payroll and expected loss information followed by all actual loss information. Under the new format, the left side of the page is payroll and expected loss information, and the right side of the page is actual loss information. The data is further organized by policy period (in descending order), so it’s very easy to go down the page, look at the totals row for each period, and compare expected primary and excess totals on the left with actual primary and excess totals on the right. Before you even get to the footer information, if you keep seeing totals on the left being considerably less than totals on the right, well – you know there’s probably going to be an issue with the mod. Likewise, you can quickly see if worse experience is near the top of the report (and therefore more recent), or near the end of the report (and therefore likely to be aging out of the mod calculation next year).

An aside for those of you who also analyze NCCI mods: It’s notable that the new WCIRB format is somewhat similar to NCCI’s newest worksheet format, but in my opinion the WCIRB is more usable for “eyeballing” policy period trends because each totals line shows expected and actual totals. The left side of the NCCI report shows subject premium totals rather than expected loss totals by policy period.

3. The new footer. Here we get to the core of the reason the WCIRB made a change to the formula: they wanted it to be easier to talk about. The new formula is now well-labeled in two distinct parts: the credible primary loss and the credible excess loss. We no longer have to track a bunch of little superscripted letters from one box to another to follow the formula (although the little letters are still there, for those of you who may have grown fond of them.) It’s very easy to see how:

• In the credible primary (left) section, expected and actual primary losses are being weighed by the credibility primary factor, and
• In the credible excess (right) section, expected and actual excess losses are being weighed by the – you guessed it – credibility excess factor

As a reminder, both the credibility primary and the credibility excess factors increase with total expected losses. However, credibility excess is zero for lower levels of expected losses, and it increases at a slower rate than credibility primary. This means that both primary and excess losses are more significant (or credible) for larger companies than smaller ones, but excess losses in particular are more credible for larger companies (as measured by expected losses and, underlying that, payroll).

4. The loss-free rating. This was actually introduced in 2011, but it bears mentioning again. In the lower left of the footer, a “loss-free rating” number is shown. This is what we’ve been calling the “minimum mod” in ModMaster for many years. It’s the value the mod would be if NO actual losses had occurred in the experience period. The WCIRB documentation says this is a “hypothetical” rating. Perhaps I’m being too picky about semantics, but to me “hypothetical” suggests it’s an assumed but not achievable number. (If I tell my teenage son he can hypothetically make all A’s, is that as powerful as saying I know he can make all A’s?) It’s great to have this number on the report, but remember, companies are able to achieve perfect safety records and their minimum mod!

Kudos to the WCIRB on the implementation and documentation of these changes. For ModMaster users, note that similar terminology and appropriate calculation support is now available in ModMaster version 5.0, where California has become its own calculation type for mods effective 1/1/2012 and later.

What are your thoughts or questions about the new California worksheet format? Do you like it as much as I do, or are there any downsides I’ve overlooked?

- Kory Wells, WorkCompEdge Blog Editor

The Mod Projection link will only appear on the Next Steps screen for mods with an effective date in 2012.

First of all, how to find the 2013 Mod Projection feature and report

In the new ModMaster 5.0, this feature is found on the sidebar of the “Next Steps” screen. It is only available for mods with an effective date in 2012. Once you click on the link, you’ll see on-screen a side-by-side comparison of the 2012 mod summary values (the mod, expected losses, actual losses, etc.) with the estimated values for the 2013 projection. From there, you can request the “2013 Mod Projection Report” which repeats the on-screen summary and adds a graph and detailed information to help you fully analyze the estimated impact of the new split point value on individual losses.

When you should use this feature

I recommend you take at least a quick look at this screen for every 2012 mod. Remember, according to NCCI data discussed further in this article, 36% of mods will see a shift of only plus or minus 2 points; another 38% will see a mod decrease from 2 to 5 points. Another 4% should expect to see an increase of 2 to 5 points. If your clients represent a typical distribution of industries and risks, 22% of them are likely to see what I see as a significant shift in their mod – that is, a mod that increases or decreases 5 points or more.

Based on the data and the client’s industry, I would then decide whether to print, analyze and discuss the 2013 projection with the client:

• For some clients, a mod change of a few points may not be something you want to discuss at length. But in some industries, such as construction, an increase of only a point or two can be significant if it eliminates a company’s eligibility to bid on work.
• For any client who is estimated to experience a significant increase in the mod, this is an opportunity to prepare them for possible bad news and to help them explore and recommit to the most appropriate loss control practices for their situation.
• For any client who is estimated to experience a significant decrease in the mod, this is an opportunity to share some good news, but remember…

Remember, the 2013 Mod Projection Report is an estimate

I want to emphasize that this feature is providing an ESTIMATE of the 2013 mod IF that mod were based on the exact same set of data that’s in the 2012 mod (which, of course, won’t be the case). What’s different is the split point (changed from $5,000 to $10,000) and the associated change to the discount ratios which NCCI estimates will be 50% higher. For these purposes, we are also assuming that the change will take effect for all states and the independent bureaus which use NCCI or similar rating methodology (excluding California), but most of the independent bureaus have not yet indicated their plans for this change.

As always, feel free to comment here or to email me at kory.wells@zywave.com with any questions.

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

Further reading

News Regarding the 2013 Split Point Change (from NCCI and Independent Bureau States) 2/8/2012

NCCI Publishes FAQ on Split Point and Maximum Debit Mod Changes 8/8/2011

How Will Mods Change Under New NCCI Plan Recommendations? 8/2/2011

Login required for the following two resources:

• AgencyFuel article: A new way to sell with the mod.
• Broker Briefcase document “Work Comp Insights: NCCI Changes Primary-Excess Split Point for 2013.” Ideal for ModMaster users to share with clients and prospects.

All ModMaster users should have an AgencyFuel login – if you don’t, contact the Zywave Partner Service Center at support@zywave.com or 866.499.9283.

Beginning January 1, 2012, “Primary Credibility” and “Excess Credibility” factors will be substituted for “B” and “W” values in the experience rating formula and there will be significant changes to the appearance of the experience rating form and the manner in which the experience and rating computation are shown. The intent of these changes is to help policyholders better understand the experience rating formula and the data used in experience rating. The use of “Primary Credibility” and “Excess Credibility” in lieu of “B and W” values will not significantly impact 2012 experience modifications.

I know that’s short, but let’s recap:

• What’s not significant:  The impact on 2012 mods. Mods will not change appreciably because of this change. In most circles, this will be known as the good news.
• What is significant: The appearance and how we communicate about the mod calculation. An eternal optimist, I’m loathe to call this bad news, so I’m officially labeling this as the opportunity. And it is an opportunity, as the whole point of this change is to make communicating about the mod easier.

Here’s the complete regulatory filing summary from WCIRB. Be sure not to miss the WCIRB Quick Reference Guide listed on that page, as it includes an example of how the mod worksheet will look with the new factors in use.

For more about the credibility factors and how they will be used in the mod formula, see this WorkCompEdge article and this experience modification guide on the WCIRB site.

Calculating California Mods in ModMaster

Speaking of opportunities – our development team has already been hard at work making the necessary changes to support the move from ballast and weighting to credibility factors for California calculations 1/1/2012 and beyond. These changes will be available only in ModMaster 5.0. (This new web-based version has been in a staged roll-out for several weeks and should be available to all users by the middle of November.)

I’ll be writing more about this functionality – and how to communicate about the change using ModMaster reports – as soon as it’s available.

As a reminder, the Zywave Partner Service Center is available at support@zywave.com or 866.499.9283. And of course, I’m always interested in your comments and questions!

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

ModMaster 5.0 takes workers compensation data analytics to its highest level yet.

Some of you have been with this product since its beginning with Specific Software Solutions almost 20 years ago. You know how it’s changed over the years – from rating updates on disks (remember those?) to web-based updates; from the MS-DOS version to the Windows versions (2 of those); through bureau rule changes like the Experience Rating Adjustment,  California split formula change, and enough state exceptions to drive a certain programmer (which I was back then) nearly crazy.

You know the ModMaster team has always been responsive to rule changes and user suggestions – and you also know there have been a few requests that seemed to be perennially stuck on our enhancement list. With those requests especially in mind, I want to highlight a few of the changes in version 5.0 that I’m particularly excited the Zywave development team has accomplished. From conversations I’ve had with many of you over the years, I think you’re going to like that:

• ModMaster 5.0 is web-based. You’ll be able to calculate a mod from home, from your office, from a client’s office. Perhaps more significantly, this means rating updates will occur automatically. No more downloading and running executables to access the latest rates!
• ModMaster 5.0 will support an unlimited number of policy periods. No matter how the policy periods are shown on a bureau worksheet, you now can enter them the same way – no more contortions to get the data into the four periods that ModMaster 4.0 requires. This will make it much more straightforward to input complex interstate mods. (I can hear you cheering from here!)
• ModMaster 5.0 includes former QuickMod.com functionality. Maybe you’re prospecting, or maybe you’ve got a smaller client for whom you’re not quite ready to invest the time in entering full mod data. Input just the footer information from a bureau worksheet, a few key losses that you want to analyze, and a premium estimate, and you’ll have a substantial, attention-getting analysis available in mere minutes.
• ModMaster 5.0 recommends and delivers resources to help your clients lower their mod. Over 130 documents in a special workers compensation edition of Zywave’s Broker Briefcase product will help you help your clients focus on safety, injury management, supervisor training, and more.
• ModMaster 5.0 produces a branded report package with your logo and your choice of all the reports you love (with a fresh look), all paginated in one PDF. I think you’re also going to love expanded mod comparison capabilities for up to 5 mods!

Read Zywave’s official press release about ModMaster 5.0: New ModMaster links workers’ comp analytics and resources.

A few important notes:

• The new system is being made available to existing ModMaster subscribers on a staged basis, so you can expect an email from Zywave explaining how to access the new system anytime from today on through next month.
• The initial roll-out of version5.0 will support NCCI-type calculations only. For Pennsylvania/Delaware and New Jersey calculations, you’ll need to continue to use ModMaster version 4.0 for a while – but we hope you’ll go ahead and be exploring the new version as well.
• ModMaster now includes the concept of accounts – you’ll have to define each client to the system before starting new mods or converting old mods for that client. There’s both help and a video to help you learn about this and other features, as well as a What’s New webinar – look for more info on all these things in the email you’ll receive.

As a reminder, the Zywave Partner Service Center is available at support@zywave.com or 866.499.9283. And of course, I’m always interested in your comments and questions!

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

The intent of changes to the California experience rating formula is to make the formula easier to talk about. Brokers who are on top of this change will definitely catch clients' and prospects' attention.

Those of you who do business in that state will undoubtedly remember that California also made changes to their experience rating plan in 2010. For the newest change, let’s get to the best news first: the change affects how the formula looks and how brokers and employers will communicate about the mod, but WCIRB documents indicate that it shouldn’t change individual mods themselves.

The proposed changes are part of the 2012 pure premium rate and regulatory filing which the Insurance Commissioner should accept, reject, or modify by early November. California rate changes have historically occurred on 1/1 of most years. The WCIRB states in an August 22nd letter to the Insurance Commissioner that they anticipate having their systems ready for 1/1 implementation of the new formula, but could propose a three month delay if any unforeseen problems arise.

If you’ve been involved with workers compensation experience mods for very long, you’ve probably explained the formula, as we often do, by saying “it looks complex, but it’s basically a comparison of actual to expected losses.”

Well, the WCIRB says its now time for that formula to look not-so-complex.

To that end, this change does away with ballast and weighting values in favor of credibility primary and credibility excess factors:

• Credibility primary factors (Cp) are used to weigh a risk’s actual primary losses, which are a measure of loss frequency. The larger a risk is (as measured by expected losses), the greater weight that is given to primary losses.
• Credibility excess factors (Ce) are used to weigh a risk’s actual excess losses, which are a measure of loss severity. Again, the larger a risk, the greater the weight. Notably, very small risks have such little predictive value in this area that Ce will actually be zero.

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

The FAQ corresponds to NCCI Item E-1402, which the bureau is submitting for state regulatory approval as announced in Circular CIF-2011-14.

We’re happy to report that our prior analysis of the plan changes is accurate in light of this FAQ. One notable clarification is that

A state’s third effective filing year will further increase the split point to $15,000 plus two years of inflation adjustment (rounded to the nearest $500). [emphasis mine]

What seems most significant to you in this FAQ document? What further questions come to mind?

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

• News Regarding the 2013 Split Point Change (from NCCI and Independent Bureau States) 2/8/2012
• New Report Estimates Mod Change Due to 2013 Split Point Value 11/16/2011
• NCCI Publishes FAQ on Split Point and Maximum Debit Mod Changes 8/8/2011

We’re getting a lot of calls and emails about our previous blog article, NCCI Changing Primary-Excess Split Point in Experience Rating Methodology. Everyone, of course, is wondering the same thing: How will workers comp mods be affected?

With the help of a recent NCCI presentation, “NCCI Experience Rating Plan Review,” at the Casualty Actuarial Society 2011 Spring Meeting, we’re now able to tell you a little more about what to expect regarding the split point increase and some other changes that NCCI is recommending. I want to note, however, that we do not consider the NCCI presentation an official announcement – we’re still anticipating that this fall.  Update: NCCI Publishes FAQs on Split Point and Maximum Debit Mod Changes. The analysis below is still accurate in light of this additional information.

The Split Point Increase

As we’ve noted before, the primary-excess split point is changing over a three-year transition period from its current value of $5,000. The NCCI presentation suggests that the specific change levels may be approximately:

• 10,000 for the first year (2013),
• 13,500 for the second year,
• 15,000 for the third year, and
•  the split point will be automatically indexed for claim cost inflation in the third year and future years.

The presentation shows that average claims costs have increased almost 250% since the last split point change in 1993. Then, the average work comp claim was over $3,400; in 2011, the average claim is estimated to be almost $8,800. It’s easy to see how total excess losses – the amount of each claim over the current split point value of $5,000 – would have become a greater and greater portion of total actual losses. “If the split point is not indexed for claim cost inflation,” the presentation says, “a greater proportion of losses fall into the excess category as time goes on.” But what does that mean in terms of the formula going forward?

Jeff Adcock, FCAS, MAAA, says the spread of mods will increase under the new rules.

I talked with Jeff Adcock, a Consulting Actuary with SIGMA Actuarial Consulting Group, about this. Jeff pointed out page 14, “Experience Rating Plan Split Point Review,” of the presentation and said:

The results [on page 14] are not surprising. As the split point is increased from $5,000 up to higher amounts, claim dollars shift from the excess layer to the primary layer. Because primary losses receive more weight (higher credibility) in the experience rating formula than excess losses, the plan becomes more responsive.

‘More responsive,’ Jeff explained, means that the company’s experience will be given more weight. Referring again to page 14, he pointed out:

The spread of the modification factors increases with each increase in the split point. Companies with credit mod factors – factors less than 1.00 – should expect to see even lower mod factors at higher split points. Likewise, companies with debit mod factors should expect to see even higher mod factors at higher split points. Again, the larger the current mod factor, the larger the expected increase under the new plan as well.

A Change to the Maximum Mod Formula 

NCCI is also suggesting a change to the maximum mod formula. The purpose of this formula is to cap, or limit, any debit mod (a mod over 1.0) that exceeds a specific amount. The capped mod typically applies when expected losses are quite low in comparison to actual losses. Because the cap is determined by a formula related to expected losses and average claim cost (a number adjusted each year by NCCI), it is risk-specific. The presentation explains that NCCI is recommending a change because the current formula can produce a very low cap for small risks (generally 1,000 to 10,000 in expected losses, according to the NCCI graphs). This means:

• employers who are small risks and currently have a limited mod may see their mod increase
• other employers who are relatively larger risks and currently have a limited mod may see their mod decrease

How These Two Changes Will Affect the Mod

The mod change reflects the first year change to a $10,000 split point, an associated 50% increase in D-ratios (which are used to determine expected primary losses), and the new maximum mod formula.

Your client demographics may differ from this risk profile, but on average this graph suggests that:

• Nearly half of your clients will see a mod decrease of 2 points or more.
• Over a third of your clients will experience a small mod change of -2 to +2 points. While that doesn’t sound like bad news, you want to be extremely careful about clients in contracting, roofing, and other professions who may have to have a mod of a certain value (like 1.0) to bid on a job.
• If your clients are average, 1 in 7 will experience a mod increase of 5 points or more.
• Don’t forget, as I mentioned in our first article on this topic, that minimum mods should drop as a result of the split point change.

All of these changes are a great opportunity to be conversing with your clients and prospects about the minimum mod, the controllable mod, the maximum mod (when it applies to them) and the possibility of a mod change.

The NCCI presentation also mentions some other possible forthcoming changes, but it appears that only the split point and maximum mod formula changes will be filed for approval by the states this year, in anticipation of a roll-out in 2013. Future changes, which NCCI indicates they may further discuss late in 2011, include:

• an increase to the eligibility threshold
• replacing weighting and ballast factors with primary and excess credibility factors (Zp and Ze)
• other minor changes to make the language of experience rating more accessible

For those of you who use ModMaster and other Zywave products: If you’d like to go deeper into this topic, including learning how to analyze the impact of the first year split point change on a specific risk, I talk about how to do that in this Tips and Trends in WC webinar on Zywave’s AgencyFuel site. If you’re a former Specific Software customer who doesn’t yet have an AgencyFuel logon, please let us know at support@zywave.com.

As always, feel free to comment here or to email me at kory.wells@zywave.com.

- Kory Wells, WorkCompEdge Blog Editor

Updates to this article since its first publication are noted in dark red.

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

• News Regarding the 2013 Split Point Change (from NCCI and Independent Bureau States) 2/8/2012
• New Report Estimates Mod Change Due to 2013 Split Point Value 11/16/2011
• NCCI Publishes FAQ on Split Point and Maximum Debit Mod Changes 8/8/2011
• How Will Mods Change Under New NCCI Plan Recommendations? 8/2/2011

A few weeks ago, colleague Michelle Jackson and I attended NCCI’s 2011 Annual Issues Symposium. We got lots of great data and ideas to share with insurance and risk management professionals, and their clients, in coming blogs on a wide range of work comp topics. But the piece of news that captured my attention the most will also interest many of you, I’m sure. On one slide near the end of the sixty-slide State of the Line address, NCCI chief actuary Dennis Mealy shared this news about the experience rating calculation: The primary-excess split point is increasing.

The Few Facts We Know

NCCI has recently conducted an “extensive review” of the experience rating plan. Overall, Mealy stated, they are very pleased with plan results. While several adjustments, such as changing the number of years in the experience period, were apparently considered, the only change will be to the split point:

• 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; an NCCI staff member told me that the effective date of the change will roll out, state by state, in the late 2012 – early 2013 time frame.

Revisiting the Purpose of the Split Point

Every loss is divided into a primary and excess portion. Until now (and for as long as I can remember), the split point has been $5,000. This means that the first $5,000 of a loss is allocated to primary losses, and any amount over $5,000 is allocated to excess. (California readers, remember that your split point is calculated differently and this change won’t apply to you.)

Since small losses – those less than the split point – have NO excess value, primary losses work as an indicator of loss frequency. For example, three $4,000 losses yields $12,000 in primary and $0 in excess.

Since large losses – those over the split point – always generate some excess value, they work as an indicator of loss severity. For example, one $12,000 loss yields $5,000 in primary and $7,000 in excess.

Primary losses are used at their full value in the mod calculation, while excess losses are reduced by the weighting factor.  This follows the simple – but proven – concept in insurance that “severity follows frequency.” So in the sample above, a company with several small losses will have a higher mod than a company with only one large loss (all other things being equal). And, in the sample above, after the split point has moved to $15,000, both examples would have all primary and no excess losses!

What Does This Mean to Brokers and Their Clients?

A ratio analysis may be one way to gain insight into the possible impact of changes in the primary/excess split point. If a company has frequency issues now, it seems like this problem could become even worse as the transition occurs.

First of all, I think it’s important not to assume too much about this change, because NCCI will certainly be changing rates to coincide with the change in split point. Remember, their goal is for the average mod to be 1.00. That said, I think it’s reasonable to expect that companies with certain payroll and loss profiles may be slightly more vulnerable to an impact from this change than others. This is the phenomena that we saw when California changed some of their experience rating plan rules effective 1/1/2010. Unfortunately, we don’t know yet what those profiles may be, since we don’t know how NCCI will be adjusting the ELR and D ratios and the weighting and ballast values.

Just to see the impact of the split point change alone, I changed it from $5,000 to $15,000 in ModMaster (sorry, this isn’t something you can do on your version!). On a handful of test cases – all actual mods that we’ve assisted clients with – primary losses increased by 35 to 50%. But again, we can’t know the significance of this, since we don’t know how expected primary losses will be changing, and therefore it’s impossible to know what this will ultimately do to the mod. However, I do think this means there will need to be a mind shift about the significance of losses, since in a few years losses up to $15,000 will be contributing entirely to frequency.  Here’s what I recommend brokers, risk management consultants, and their clients start considering:

• What is the company’s current ratio of actual to expected primary losses, and actual to expected excess losses? (ModMaster users can run the Ratio Analysis report to get this data.) If the company currently has – or is on the brink of – a primary loss (frequency) problem now, then this seems like an especially good time to be talking about safety measures and hiring practices to reduce the incidence of losses, and the importance of keeping losses medical-only, in states where the medical-only reduction applies.
• What is the company’s current mod? If it’s at or only slightly under 1.00, and the company is one that must have a 1.00 or other value to bid on certain jobs, then you especially want to help them take a look at the current mix of their losses and what they can do to assure losses are under control in the next couple of years.

Hopefully, as we had in California, we’ll have indications from NCCI about what to expect before the change actually occurs. If so, we’ll certainly be updating you on this topic again. In the meantime, what thoughts and questions come to your mind about this change? I’ve been experimenting with some ideas for a ModMaster report to help assess the losses that might be most vulnerable to this change – do you have ideas for a new report that could be helpful?

As always, feel free to comment here or to email me at kory.wells@zywave.com.

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

As a work comp agent, you undoubtedly have an intuitive feel for how business size and industry are factors affecting your clients and prospects in the economic recovery. But also consider the hard data and how it can guide your own business strategy.

Earlier this month, NCCI released its 2011 Workers Compensation Issues Report, a 12 part, 50 page document that addresses a wide range of topics affecting the industry today.

The report is available in its entirety in two formats:

• pdf download (one file per report part)
• or a “virtual book” format which has some really cool features – but which I found awkward to use, primarily because of challenges with the zoom function, which I tried in two browsers. However, this may have just been pilot error!

The report is extensive, covering overall market topics such as economic conditions and recovery, legislative impacts, and claims studies. So how does it relate to those of you who are selling and servicing work comp accounts?

First of all, the report says that while the P&C industry is generally starting to look more favorable, the signals specifically regarding workers compensation are mixed. I’ve no doubt most of you can easily confirm that! While the report may support much of what you intuitively know, I think it does provide some hard data that I’ve translated into some key questions to ask yourself as you look for opportunities with your own book of business.

Are your clients and contacts still in business?

Yes, this sounds like a big “duh” question, but I ask it because of this trend included in the NCCI report: After business bankruptcies tripled between 2006 and 2009, the rate of bankruptcies appears to be have dropped significantly in 2010 (based on 3rd quarter data). Of course when a business goes bankrupt, that’s an entire book of business that’s lost – not just to another broker, but to the entire industry.  While the bankruptcy rate might be viewed as news that’s more not-negative than truly positive, here’s another hopeful statistic: While the job creation rate is slow, it is currently a positive trend, nationally, which leads me to the question:

Are your clients and prospects beginning to hire again?

Some states are still worse off than others, but overall, payrolls are recovering. The rate of business startups is at a 15 year high. Admittedly, many of these startups are coming from otherwise jobless entrepreneurs who may not be hiring employees and needing workers comp insurance soon.

I think all of these factors combined suggest that it’s time for agents to be touching base with former clients and contacts and keeping an eye on this part of the recovery picture. It also wouldn’t be a bad idea to think about specific markets that may be experiencing a higher rate of entrepreneurship or recovery, as suggested in this CNN article.

For more on payroll trends and other factors concerning the recovery, read the NCCI issues article The Road to Recovery: The Workers Compensation Insurance Industry in the Aftermath of the Great Recession by Robert P. Hartwig, PhD, CPCU.

We all know it can be hard to get psyched for a conversation you think may be negative. But your outreach to those who have been most affected by the recession will pay off in the long run. With that in mind:

Are you especially checking in with your smaller clients and prospects? 

It’s no secret that the recession has been harder on small businesses than large ones, with small businesses laying off proportionately more employees. Since small businesses, which have fewer self-insurance options, actually buy more full-coverage workers compensation policies, this has also produced a premium decline NCCI estimates at 4-6% over the last two years. (Precarious Market Outlook Prevails by Stephen J. Klingel, CPCU)

Are you especially keeping tabs on clients and prospects in manufacturing or contracting?

More than 40% of workers comp premiums come from manufacturing and contracting, although these sectors employ only about 20% of all workers. Particularly hard-hit by the recession, these industries alone account for a 4%–6% decline in workers compensation premiums, NCCI estimates.  (Precarious Market Outlook Prevails by Stephen J. Klingel)

“Strong rebound” unlikely

Unfortunately, as Klingel says,  a “strong rebound” in workers comp is unlikely. I think that means you’re going to work as hard as ever for new and renewing business, but there are indicators that the balance of 2011 and 2012 will bring a steady, if slow, increase in opportunities.

Are these helpful ideas? How are you looking to sustain and grow your work comp business in today’s economic climate?

As always, we love to see your comments here on the blog, or you’re welcome to email me personally at kory.wells@zywave.com.

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

The U.S. workers comp system turns 100 this year. We join industry leaders in examining work comp trends for the future, especially in experience rating.

It was significant to see how the same issues came up repeatedly with the majority of these eight writers examining future trends in workers comp. These themes included:

The tangle of the economy, growing healthcare costs, and healthcare reform.

Trends in these areas relate to the increase of medical costs as compared to indemnity costs, the corresponding decrease in claims frequency, and how workers comp may eventually be impacted by health care reform or other reforms at the federal and/or state levels:

General healthcare costs are growing as a share of U.S. GDP, and in workers’ compensation, there has been a gradual shift in the balance of medical/indemnity costs towards medical…Are we starting to see a bottoming of the reductions in claim frequency? Stephen J. Klingel, NCCI Holdings, in A Changing Workforce Among Many Challenges

Clearly, understanding medical loss components and their respective trends are going to play an increasingly important role in our industry. Reserves established on prior development models will ultimately prove inadequate in most cases. – Mike Britt, Accident Fund Insurance Co. of America, in Medical Losses, Top Line Growth Top Challenges

The changing nature of our work and workforce

Several writers pointed out the trend toward more service jobs and automation and away from construction and manufacturing jobs. The aging work force and the obesity epidemic also made the list of trends for many of the writers:

The workforce is getting older and less physically fit. Many Baby Boomers can’t afford to retire and will stay in the workplace longer. This is not such a big issue for clerical employees, but will be a problem for those who are engaged with physical labor. Obesity, diabetes, and high blood pressure are on the increase which complicates and extends injury recovery. – Frank Pennachio, The WorkComp Advisory Group, in Safer Workplaces, But Older Workforce

Improved technology

This, of course, is a category that very much interests me:

The industry needs to develop new strategies for identifying cost drivers, controlling medical costs, and understanding the impacts and implications of trends. To develop these strategies, insurers should tap into new ways of collecting data, such as using transactional reporting and data reporting standards, and new technologies, such as predictive analytics. – Arthur Cadorine, ISO, in Demographics, Healthcare Reform, Economy and Data Will Help Define Future

Corporate silos that have separated risk management from benefits management are breaking down. Agencies that offer a broad range of skills and integrated knowledge will be able to compete. – Preston Diamond, Institute of WorkComp Professionals, in For Agencies: Not Business as Usual

We believe there are substantial benefits waiting for the company that digs into its data, gains a better understanding of its customers and their environment, and takes the innovative action necessary to capitalize on those opportunities. Mike Britt, Accident Fund Insurance Co. of America, in Medical Losses, Top Line Growth Top Challenges

How do these trends relate to experience rating analysis?

To me, these trends are very much about the data and how it can be used in mod analysis – which, with the right data, can be a step beyond claims analysis.  Here are a few ideas and question I have. I’d love for you to respond through a blog comment or by emailing me at kory.wells@zywave.com with your ideas.

• It will become more important than ever to include demographic data with basic loss information in a mod analysis. Of course, all that’s needed to calculate a mod, in terms of claims, is to know the loss date, the loss amount, and if it’s a type 6 medical-only loss (for the majority of states). But the power of mod analysis comes from associating each loss with its demographic data. I hope you realize that in ModMaster, if you load “optional” information into the large loss page, you can produce numerous reports which “slice and dice” the data to show how certain demographics have affected the mod. This can help the employer see, for example, that “operating equipment” and “failure to follow procedure” are contributing the most to the mod points – and therefore premium. Or that “hand injuries” are a particular problem in their organization, which may point to an ergonomic issue that needs improvement. How often do you load “optional” information into the large loss page of ModMaster? What are the challenges to you doing so?

• New demographic data associated with the claimant’s medical profile needs to be included in mod analysis data. The trends above seem to indicate an option to input and report on data such as age and weight (which I talked about in Is It Time to Report Height and Weight on Workers Comp Claims) – into ModMaster. This certainly gets into the integrated knowledge and better sharing of data mentioned by the writers above. It also points to the integration of analytics to action, such as the opportunity for certain claimants to be flagged for specific wellness programs to help assure the best possible outcomes. I see this working something like an enhanced version of the WorkCompEdge Proposal Report in ModMaster. That report has been a big hit – even with users who don’t use WorkCompEdge – because it doesn’t just say “here are your problem areas.” It goes further and says “here are the things you need to do to address those problem areas.”

• Loss reserves will become a more important component of mod analysis. If, as Mike Britt suggests, reserves are going to start proving inadequate, this could mean that reserves will more often be adjusted upward year to year for a the three years that a loss is in the mod. Or, it could mean that a backlash effect causes reserves to spike. Currently you can enter paid and reserve components on large losses in ModMaster (to do so, you must enable ERM-6 reporting in the System Administration area.) Honestly, though, we don’t do much with reserves on reporting. Do we need to enhance this area so that you can see trends in reserving that may improve dialog with employers and claims adjusters?

Finally, as the comments by Preston Diamond and Mike Britt indicate, the future is in going both deep and wide with the data. If you’ll forgive the shameless self-promotion, I can’t resist pointing out that Zywave’s acquisition of Specific Software is combining their very strong benefits background and technology infrastructure with our work comp expertise to, in time, produce exactly that capability. But your ideas and feedback will be, as always, important to us providing both innovative and practical solutions. Let us hear from you!

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

Employers and professionals involved in all aspects of claims management are increasing their awareness of how the obesity trend is affecting U.S. productivity, our cost of doing business and even the availability of our workforce.

Comments posted in response to the Insurance Journal article confirm that this is a sensitive subject.  “Let’s look at all factors that increase medical costs,” one commenter says. I don’t think anyone would disagree that obesity is just one factor that can have a bearing on an injured worker’s recovery. For example, past studies by NCCI have evaluated how a worker’s age affects frequency and severity of claims. But as obesity around the world and particularly in the U.S. continues “unabated,” as the report says, this is an issue that deserves attention.

Blue States and Red States: A Very Disturbing Trend

No, I’m not talking politics… CDC graphics included in the NCCI report illustrate the obesity trend with stunning impact. In 1990, most of the U.S. is some shade of blue, indicating an obesity rate of 14% or less. In 1999, it’s about half blue and half gold, indicating an obesity rate of 24% or less. By 2009, all but Colorado and Washington, D.C., are some shade or orange or red, indicating an obesity rate exceeding 30%.  View an interactive version of this trend analysis on CDC’s site (scroll down just a bit to see it – depending on your browser, you may need to press the “play” link or not)

Is It Time to Report Height and Weight on Workers Comp Claims?

As many of you are undoubtedly aware, it’s currently not customary to report a worker’s height and weight on a workers comp claim. For this study, researchers identified obese claims  based on obesity being listed as a secondary diagnosis. But the authors of the report go on to suggest that collecting height and weight data would be one way to better manage claims and control costs. WorkSafeBC in Canada is already doing this, the report mentions. This idea certainly correlates with injury management principles we advocate in WorkCompEdge…it makes good sense that if you’re aware of a potential pitfall in a worker’s recovery process, you can make efforts to avoid that pitfall.

Other Facts and Findings

The study found that primary cost drivers of both obese and non-obese claims included complex surgery, physical therapy and drugs and supplies, suggesting that treatment patterns and claims management can have an influence on these cases.

The report also suggests that insurers explore wellness initiatives (another component of WorkCompEdge) and incentives similar to the drug-free workplace credit.

As the report acknowledges, obesity is an issue that’s ultimately up to the individual. America’s obesity trends reflect complex challenges, many of which are beyond the scope of an incentive program. But this isn’t a challenge only for the medical community, or the business community, or the government, or the individual. It’s a challenge for all of us. For employers and the professionals involved in all aspects of claims management, increased awareness of how this issue is affecting our productivity, our cost of doing business and even the availability of our workforce – based on data in this report and others like it – is a positive step.

What do you think? Does your experience with claims that involve obese workers agree with this study? What do you think about collecting height and weight data on workers comp claims?

- Kory Wells, WorkCompEdge Blog Editor

© 2011 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

LOSS-FREE RATING

followed by a number, for example: LOSS-FREE RATING 84%

What is this loss-free mod? And what do you do with it? In the following discussion, this new terminology applies to California, but the concept applies to all states that utilize experience rating (which is all but North Dakota, Ohio, Washington, and Wyoming).

Clients and prospects will think you're very cool when you can take their loss-free rating and show them how it relates to their potential workers comp premium savings.

The loss-free rating is the value the experience mod would be if there were NO LOSSES in the experience period. This is the very same concept we refer to as the “minimum mod” in our educational materials and ModMaster reports. It is simply the experience mod calculated using the risk’s expected losses, credibility factors (known as ballast “B”, and weighting “W” factors in NCCI states) and then substituting zeroes for actual losses in the formula.

A very important thing to remember about the loss-free rating is that it varies from year to year and from employer to employer. In other words, there is no general lowest rating that employers can refer to -  the loss-free rating must be calculated for each risk. Employers should also be aware that their loss-free rating may change from year to year as there are changes in their payroll values, their payroll codes (indicating the type of work their company does), and the expected loss rates and other rating data published by the appropriate bureau (WCIRB, NCCI, etc.).

The loss-free rating shows the employer how low their mod could be…but its real power is when you associate the mod with premium. Let’s face it, how moving is the following conversation?

Broker to client: Your experience mod was 104% (or 1.04). Your loss-free rating was 84% (or 0.84). So you could save 1.04 – 0.84 = 0.20 points on your mod if you had no losses.

Client (perhaps does not say this aloud): So?

Now let’s consider this conversation instead:

Broker: Your estimated manual premium is $150,000. Since your mod is 1.04, you will be paying approximately 1.04 times $150,000 = $156,000 for your workers comp premium this year. But let’s look at what would happen if you had no losses. Your loss-free rating of 0.84 times your manual premium of 150,000 = $126,000.  So if you had no losses, you would’ve paid $30,000 less in premium this year.

Client (with great interest): How do I get rid of these losses?

Of course this is condensed example, but we all know money talks. So, no matter what you call it – loss-free rating or minimum mod – find out what that number is, then use that number to determine how it relates to premium savings. It’s sure to open up a dialog with your clients and prospects.

- Kory Wells, WorkCompEdge Blog Editor

© 2010, 2012 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

If you're a professional involved in any aspect of workers comp, you need to know about the Work Comp Analysis Group on LinkedIn. It's outstanding for its peer-to-peer discussions.

Today I want to give you a more specific reason to join LinkedIn, and that’s the Work Comp Analysis Group, a great, free resource available only to LinkedIn members (join the Work Comp Analysis Group now if you already belong to LinkedIn). With over 6,800 members, this group is the largest online discussion community dealing exclusively with workers compensation issues. But it’s not just the number of members that make this group stand out: it’s the quality of the discussions.  Topics with activity in the past month have included:

• Are you responsible for work comp loss prevention? If so – and you only had one loss prevention action available – what would that one action be? (currently 27 comments)
• Can someone give examples of “measurable” outcomes for work comp case management, and how to measure them? (currently 51 comments)
• Is it time to stop the spine fusion juggernaut? If so, how? (currently 10 comments)
• What are some ways to save on workers comp insurance? (currently 35 comments)
• Experience with telecommute comp claims? (currently 19 comments)
• Carve-outs in workers compensation:  I am looking for information on construction industry carve-outs and collectively bargained workers comp from anyone with personal experience. Has it been successful? Pros/cons? (currently 5 comments)
• New opinion disallows attorney fees on MSA portion of WC buyout. How will this affect settlements? (a new discussion today, currently 1 comment)

As this sampling indicates, the scope of topics includes safety, medical and legal issues, and more, such as news items related to workers comp at both the state and national level. Subgroups for Canada, Australia, and the National Workers’ Compensation and Disability Conference & Expo are also available.

Any group member can start a discussion by simply typing a question or by linking to an article of interest. While any other group member can reply, posts that are essentially an advertisement for a product or service are against the group’s no-spam policy, and it’s rare that I see this policy violated.  (I confess: occasionally I think it’s quite legitimate for me to chime in on a conversation in which our products, ModMaster and WorkCompEdge, should be mentioned, but I do so quite carefully, as I so value my membership in the group.) Group members can control how often they receive email notifications of new and updated discussions; a once-daily summary is recommended and quick to scan for items that may interest you.

The group also has a companion site of resources at workcompanalysisgroup.com, but its exceptional offering is the intelligent exchange of information between workers comp professionals. Congratulations to Mark Walls of Safety National for starting and nurturing this great resource.

So if you haven’t yet, join LinkedIn today (a basic membership is free, I remind you). Then, when you’re signed in, join the Work Comp Analysis Group. Members must be approved, but if you’re a client of ours and you’d like an invitation that bypasses the approval process, just send me an email at korywells@specificsoftware.com.  The group is now soliciting ideas for the THE TOP 50 (or more) BEST WORKERS’ COMPENSATION COST CONTAINMENT TIPS. I know our readers have ideas they can share!

- Kory Wells, WorkCompEdge Blog Editor

© 2010 Zywave, Inc.  All rights reserved. For reprint permission, contact the blog editor.

Zywave has acquired Specific Software Solutions, makers of ModMaster software

You can read the official press release on Zywave’s corporate news page (pdf format) or on the Specific Software site.

If you’re not familiar with Zywave, get to know more about the company at zywave.com, on Twitter, on Facebook, and on LinkedIn.

On a personal note, I’m pleased to report that Zywave is welcoming all former Specific Software employees into its family, and we’ll still be operating out of the Nashville area. Since Zywave is based in Milwaukee, my transition priorities include acclimating the staff to my Southern accent and expressions and introducing everyone I can to the finer points of sweet iced tea, the fuel of choice for at least a few of us here in the Nashville office.  I’m sure the staff in Milwaukee will have some recommendations for us, too – perhaps starting with our acquisition of some real winter coats for our trips to the home office.

As always, we encourage our clients to let us know any questions.

- Kory Wells, WorkCompEdge Blog Editor

In many states, keeping a claim in "medical-only" status will save you mod points - and premium. Plus it's better for the employee's morale and recovery! The number of days you have to get an employee back to work varies by state. (Illustration copyright Specific Software Solutions.)

Many of you are undoubtedly familiar with the importance of medical-only claims to the experience modification rating process. In a great majority of states, these claims, also known as injury or IJ code type 6 losses, are reduced by 70% for the purposes of the mod calculation. This reduction is also known as the experience rating adjustment (ERA). Reducing medical-only losses for the purposes of the mod calculation can result in a considerably lower mod factor and, in turn, workers compensation premium.

A Change for Medical-Only Losses in New Mexico and Colorado

It’s timely to revisit medical-only losses right now because of two reasons:

1. New Mexico has recently approved the medical-only reduction, effective 9/1/2010. If you’re a ModMaster user, this reduction will only take effect on NM mods with an effective date of 9/1/2010 or later – IF you’ve applied ModMaster update 10.04 or later. This update also includes new NM rates, also effective 9/1/2010.
2. The Colorado legislature has recently DISAPPROVED the medical-only reduction, effective 1/1/2011. This change is part of Senate Bill 10-112, which also says that deductibles paid by employers cannot be used in determining the experience mod. NCCI has not yet published anything about this change (and we really wouldn’t expect them to for a while), but those of you who do business in Colorado may want to start thinking about this change now. We anticipate that mods with effective dates of 1/1/2008 through 12/31/2010 will still reduce medical-only losses by 70% and mods with an effective date on or after 1/1/2011 will NOT reduce such losses, but we hope this will be clarified by forthcoming documentation from the appropriate authorities. In the meantime, your best bet for anticipating this change on a certain risk in ModMaster  is to:

> Use File Utilities/Copy a file to make a copy of the desired mod file.

> On the Small Loss page, change all CO losses that are coded as IJ type 6 to any other code (usually 5 will be the most appropriate code for something that was previously medical only).

> On the Large Loss page, change all CO losses that are coded as IJ type 6 to any other code (again, usually 5).

> Now recalculate the mod.

You can use the Mod Comparison Report to compare your original file to your copy of the file with the IJ types changed – HOWEVER, before you get too excited, it’s important to remember that your new calculation is still using 2010 rates, AND the claims coded as med-only may fall under the deductible and not apply to the mod calculation. So you may also want to make a copy of your original file and DELETE some or all of the type 6 losses (depending on the deductible level you anticipate) and recalculate to see what that impact will be. We also anticipate that the 2011 rates will change somewhat to reflect these new rules.

We will continue to monitor the forthcoming changes in Colorado and write more about this as information becomes available. We appreciate our clients and readers sharing any information that you learn from other sources, too!

Update, 11/14/2010: The Colorado Insurance Department has approved the proposed change, and NCCI has documented this change in circular CO-2010-07. ModMaster has been changed accordingly so that calculations in Colorado effective 1/1/2008 through 12/31/2010 will still use the medical-only reduction. In ModMaster, calculations with effective dates before or after these dates will not reduce medical-only (type 6) losses. ModMaster must be on update 10.12 and code level 100915 for this change to take effect.

A Brief History of the Experience Rating Adjustment

The experience rating adjustment was first implemented in 1998 as a way to encourage employers to report ALL losses, not just those involving lost-time claims. Prior to the ERA (and still today in states that have not approved the ERA), companies would often pay their small claims to avoid having these claims count against the mod. Interested in collecting all possible data for actuarial purposes, NCCI implemented the ERA method of reducing medical-only claims by 70% for the purposes of the mod calculation.

This change in turn has considerably increased awareness of the importance of keeping claims medical-only through:

• optimal injury management, especially in the first 24 hours after an injury
• early return-to-work/modified duty
• and good communications between everyone involved in an injury: the injured employee, the supervisor, HR, and medical and insurance staff.

All of the above principles we explain in great detail on WorkCompEdge.com.

The ERA shows up in key strategy #8 in our 9 Key Strategies to Better Work Comp Sales and Service which we’re unveiling this summer. Look for a 2-minute video on this topic soon! In the meantime, for more about the ERA itself, don’t miss this related reading:

• ModMaster FAQ: What is the experience rating adjustment?
• ModMaster FAQ: What states have approved the experience rating adjustment?
• WorkCompEdge Blog: Small Medical-Only Claims: To Pay or Not to Pay?

Lower rates can act like a Trojan horse and pose great dangers for the employer.

With few exceptions, workers compensation rates have been declining across the country for several years.  Declining rates appear to offer employers relief, especially during these tough economic times.  But declining rates can be deceiving and ultimately lead to greater total workers compensation costs. Here are three pitfalls employers should be alert to avoid when workers compensation rates go down.

Pitfall #1 – Assuming that when rates decline, premium costs will decline.

Paradoxically, declining rates may actually drive up the employer’s costs and pose greater risks to their business.  Many employers are often surprised to learn that a reduction in rates does not always mean a reduction in direct workers compensation costs.

As regular readers of this blog probably know, rates alone do not determine the premium cost. An experience modification factor (mod) adjusts the cost of insurance to the individual loss performance of an employer. The workers compensation premium is calculated to be:

Rate x $100 Payroll x Experience Modifier = Premium Cost

The calculation of the mod factor itself is somewhat complex, but its overall purpose is to compare an employer with similar employers in the same industry classification. If an employer’s past losses are lower than average, a credit rating reduces the premium. Conversely, if past losses are higher than average, a debit rating can actually increase costs in spite of lower rates.

If an employer’s injury costs increase, then their mod will likely increase and not only nullify the benefit of the lower rates, but actually increase the employer’s costs.  In addition, when rates go down, the employer’s injury costs are expected to go down, as well.  If an employer’s injury costs stay the same or go up, then it is almost certain the mod will increase even more.

Pitfall #2 – Focusing only on direct costs

Employers tend to focus more attention on injury prevention when workers compensation rates are increasing and less when rates are declining.  Yet injury prevention and management is critical regardless of the direction rates are trending.  Rates have little to do with ultimate workers compensation costs.

Workers compensation insurance premiums are the direct costs of funding workplace injuries.  However, when an injury occurs, the indirect costs can be much greater.  These indirect costs include:

• overtime wages
• temporary labor
• increased training
• supervisor time
• production delays
• unhappy customers
• increased stress, and
• property or equipment damage.

While it’s difficult to track some of these costs directly back to a workers compensation claim, they indisputably add to the overall indirect costs. However, employers recognize if they lose a key employee to an injury, then their business will suffer.  An employee injury is costly, regardless of the direct insurance costs, and lower premiums have no impact on indirect costs.

Pitfall #3 – Failing to recognize the threat to business

It’s increasingly common for employers bidding on new business to find that their injury record and experience mod are important factors in whether or not they win a contract.  This is most prevalent in the construction industry; however, it’s emerging in other industries as well.  Suppliers are finding that they are not allowed to deliver goods to a business if their experience mod is above an acceptable number.

If an employer cannot secure new business or loses existing contracts, then lower workers compensation premiums are useless.  As stated above, lower premium rates imply an expectation that employers will experience fewer injuries and lower costs.  If they do not, then their experience modification goes up.  Their increased experience mod may now limit their ability to grow or sustain their business.

As you can see, lower rates can act like a Trojan horse and pose great dangers for the employer.  It seems ironic that an employer can be endangered by lower workers compensation premiums, but it is true.

As reported on several news and blog sites in the past several days, OSHA has recently released its preliminary list of top safety violations for 2009.  As stated in the full release on PRNewsWire, which came from the National Safety Council,

The number of top 10 violations has increased almost 30 percent over the same time period in 2008.

“We appreciate our colleagues at OSHA presenting their new violation data to such a receptive audience,” said National Safety Council President and CEO Janet Froetscher. “The sheer number of violations gives us new resolve in raising awareness about the importance of having sound safety procedures.”

So what's up with the 2009 spike in OSHA safety violations? Have layoffs, emotional states, and other fallout from the financial crisis stressed workers to the point of making bad safety decisions? Or have the OSHA inspectors just been especially diligent this year?

So what’s up with this spike in violations? And will this correlate to an actual increase in workers comp claims in 2009, something we suggested might happen when the global financial meltdown occurred? We’re not saying we told you so…we’re wondering along with you what’s going on. Have layoffs, emotional states, and other fallout from the financial crisis stressed workers to the point of making bad safety decisions? Or have the OSHA inspectors just been especially diligent this year? Regardless of the cause, as Ms. Froestscher points out, clearly there’s a need to mitigate this trend.

So, this is a good time to remind you of the WorkCompEdge Safety Training Center, which allows each of a company’s employees to take web-based video courses on desired subjects, answer a quiz at the end of each course, and, if he or she earns a passing grade, receive a certificate of completion for that subject. With over 40 videos on a diverse set of safety topics, including defensive driving, disaster planning, hazard communication, noise and hearing protection, recordkeeping, and more, it’s sure to have something for everyone – and addresses much of the top 10 list of violations. Here’s the list, along with the related video(s):

1. Scaffolding – 9,093 violations
Scaffold accidents most often result from the planking or support giving way, or from the employee slipping or being struck by a falling object.

See the WorkCompEdge Safety Training Center video Scaffolds in Construction

2. Fall Protection – 6,771 violations
Any time a worker is at a height of four feet or more, the worker is at risk and needs to be protected. Fall protection must be provided at four feet in general industry, five feet in maritime, and six feet in construction.

See the WorkCompEdge Safety Training Center video Fall Protection in Construction

3. Hazard Communication – 6,378 violations
Chemical manufacturers and importers are required to evaluate the hazards of the chemicals they produce or import and prepare labels and safety data sheets to convey the hazard information to their downstream customers.

See the WorkCompEdge Safety Training Center video Hazard Communication. Note that there’s a separate Hazard Communication for Healthcare Workers video.

4. Respiratory Protection – 3,803 violations
Respirators protect workers against insufficient oxygen environments, harmful dusts, fogs, smokes, mists, gases, vapors, and sprays. These hazards may cause cancer, lung impairment, other diseases, or death.

See the WorkCompEdge Safety Training Center video Respiratory Protection

5. Lockout-Tag out – 3,321 violations
“Lockout-Tag out” refers to specific practices and procedures to safeguard employees from the unexpected start up of machinery and equipment, or the release of hazardous energy during service or maintenance activities.

See the WorkCompEdge Safety Training Center video Lockout-Tagout – Authorized Employee

6. Electrical (Wiring) – 3,079 violations
Working with electricity can be dangerous. Engineers, electricians, and other professionals work with electricity directly, including working on overhead lines, cable harnesses, and circuit assemblies. Others, such as office workers and sales people, work with electricity indirectly and may also be exposed to electrical hazards.

This violation is in part addressed in the WorkCompEdge Safety Training Center videos Electrical Safety – Unqualified Worker and Arc Flash Safety

7. Ladders – 3,072 violations
Occupational fatalities caused by falls remain a serious public health problem. The U.S. Department of Labor (DOL) lists falls as one of the leading causes of traumatic occupational death, accounting for 8% of all occupational fatalities from trauma.

See the WorkCompEdge Safety Training Center videos Slips, Trips, and Falls and Fall Protection in Construction

8. Powered Industrial Trucks – 2,993 violations
Each year, tens of thousands of injuries related to powered industrial trucks (PIT), or forklifts, occur in U.S. workplaces. Many employees are injured when lift trucks are inadvertently driven off loading docks, lifts fall between docks and an unsecured trailer, they are struck by a lift truck, or when they fall while on elevated pallets and tines.

See the WorkCompEdge Safety Training Center videos Forklift Operator Safety and Introduction to Rough Terrain Forklift Safety

9. Electrical (general) – 2,556 violations
See #6.

10. Machine Guarding – 2,364 violations
Any machine part, function, or process that may cause injury must be safeguarded. When the operation of a machine or accidental contact injures the operator or others in the vicinity, the hazards must be eliminated or controlled.

See the WorkCompEdge Safety Training Center video Machine Guarding

Registration for the Safety Training Center is located in the Download and Online Tools section of the “Four” Safety module of WorkCompEdge. There are several other tools there that may also help improve your company’s safety culture and record, including a safety commitment statement, a safety culture survey, a safety measurement tool, and more.

Let us know what you think about the increase in violations this year, and other ideas for addressing this issue.

Workers  compensation policy premiums are usually based on estimated payrolls. The final earned premium is determined during a premium audit after the policy expires and is based on actual payroll. When payroll is higher than estimated, the employer owes additional premium, and when payroll is lower than estimated, money is returned. In current economic conditions, many employers’ payrolls are declining, so an employer may be paying higher than necessary monthly installments due to an overstated payroll estimate at the inception of the policy.

In these challenging times where cash flow is king, employers might want to consider another work comp insurance option known as Pay-As-You-Go.

Pay-As-You-Go integrates payroll processing with the payment of workers compensation premiums.  The employer pays their work comp premiums each pay period based on actual payroll.  Also, there are no upfront deposits or down payments.The advantages of Pay-As-You-Go plans include improved cash flow since your workers compensation premiums will be immediately reduced if your payroll declines during any given pay period.  In addition, should you have an upward spike in payroll, you will not be surprised with a significant amount of premium due after the premium audit.

However, to participate in a Pay-As-You-Go program, an employer usually must outsource its payroll processing.  If you have already outsourced payroll processing, you may want to explore whether Pay-As-You-Go is available through your current provider.  If you have been considering outsourcing payroll, but have not yet done so, Pay-As-You-Go may be a tipping point in your decision.

Pay-As-You-Go plans are often touted as alleviating premium audit problems, but it is still critical for the employer to make sure a premium audit is done correctly. While it’s true that you won’t get a surprise with understated or overstated payroll estimates if you’re using a Pay-As-You-Go plan, that doesn’t absolve you from making sure you take all the right steps in providing and verifying information, such as the payroll classes to which your employees belong.  The WorkCompEdge training module “Eliminate Overcharges by Taking Control of the Premium Audit” assists employers with avoiding errors and mistakes in their premium audit.

Pay-As-You-Go plans are available through several insurance companies and payroll processing services.  If you’re interested in exploring this option, your insurance agent will be able to help you connect with providers of this type of program.

Improving cash flow and freeing up capital has likely never been more important for many businesses.  Every little bit helps.  Pay-As-You-Go plans may offer some relief.

Related WorkCompEdge blog articles: Playing by the Rules for Fun and Profit

by Kory Wells, WorkCompEdge Blog Editor

We’re grateful that several hundred of our readers and clients took the time to participate in our recent survey “How Do You Stay Informed and Connected?” We’re still compiling the results, but for today, I want to focus on one trend that was glaringly evident: professionals in the insurance industry (which made up 98% of our respondents) are not taking advantage of social media sites like LinkedIn and Twitter. Now, admittedly, Twitter is still pretty new, so it may be understandable that more folks in the insurance industry haven’t yet experimented with it. But LinkedIn? A whopping 85% of our respondents say they’re not using LinkedIn. While we understand that social media may not be for everyone, at least exploring the possibilities – particularly if you are in business-to-business (b2b) sales or service – should be an objective for every business, period. So let’s talk more about LinkedIn today.

Well, yes, a lot of us probably do. But as with other social media, LinkedIn is not about being a substitute for relationships. LinkedIn is about nurturing existing relationships and helping you find new business relationships. It lets you visually see who among your contacts may themselves know a prospect you’ve been wanting to meet. It’s also about helping other people find you!

Here’s one member’s comment from a LinkedIn blog entry

I also was a bit skeptical of LinkedIn at first. When I found out the ways to really use it, however, I discovered that it’s a great way to not only find and get introduced to people through your network for business opportunities, etc., but also a way for the people you DO know to recommend your services which can be viewed by the public.

Every time I meet with a new client or come back from a networking function, I tell them about LinkedIn via email with a brief layman’s overview of what it can do, then follow with an invite to connect. I have received more recommendations this way and also been introduced to several new people who I wouldn’t have gotten the privilege of knowing, had I not been using this service.

Not enough time

If you spend time nurturing relationships through phone calls, emails, lunches, business mixers, centers of influence, and other methods, you really should consider adding LinkedIn to the mix. LinkedIn is not something you have to nurse every day. Yes, you will have to spend a little time building your profile. If you’re not the most tech-savvy person, hopefully someone in your office is, and can help you get started. As an almost immediate benefit, creating a profile will help you and your company get a little more love from the search engines. You can also join groups that discuss topics of interest to you. For all this activity, you can receive a summary on the frequency you choose. I get emails from LinkedIn once a week, and usually check in only once or twice a week. It really doesn’t take that long to scan status updates and group activity to see if there’s anything I want to respond to.

Haven’t seen my clients or prospects using it

First of all, LinkedIn has over 43 million members, so have you really looked for those clients and prospects – and the people you know who can lead you to them? If someone you’d like to connect with truly isn’t on LinkedIn and you have their email address, you can invite them to join – and thereby establish yourself as a leader in the relationship. You can send them a personal message with the invitation, and they’ll immediately see your profile, which helps communicate the professional you are. Obviously, if you have their email address, you can email them directly, but in our own experience here at Specific Software, this is simply a little bit different way to approach people, and it’s often successful.

Security issues or no access from work

I know that some of you work in large corporations that have tight control for different software/network security reasons. I don’t have the expertise to argue for or against such policies. Doing business in the virtual world certainly has its risks. However, if the decision to prohibit access is more of a cultural decision in your corporation, I’d certainly question that. I can understand Facebook and MySpace being off limits in some work environments, but LinkedIn? No way.

Summary

I hope this is enough to pique your interest and give LinkedIn a try – and not for just one day. You need to keep revisiting it for several weeks to get the feel and benefits of it. You can start by connecting with me (Kory Wells) at http://www.linkedin.com/pub/kory-g-wells/3/975/787

Also, here are some other resources that may be helpful for you to get even more ideas and details about using LinkedIn:

Business Week: Why Social Media Is Worth Small Business Owners’ Time

Search Engine Guide: Why LinkedIn is the One Social Network I Couldn’t Work Without

Social Media Guru: Why LinkedIn?

I’ll give you a few weeks to digest this and experiment for yourself. Then it will be time to talk about Twitter!

Editor’s note: In today’s blog, Jeff Adcock, consulting actuary with SIGMA Actuarial Consulting Group, shares his analysis of the recent ratemaking change announced by NCCI. Jeff, once an intern at NCCI, contacted NCCI’s Tom Daley directly to confirm his understanding of this change. Thanks to both Tom and Jeff for their insight – and if you’re an employer, scroll on down to the “As-Plain-English-As-We-Can-Get-It Summary!”

Today’s blog will be most useful to insurance agencies who are assisting their clients with experience mod verification and analysis, but the main point is important to agents and employers alike: sometimes errors in the mod occur, and these errors can cost the employer money through increased premium costs. Therefore it’s important to go “looking for trouble:” to know how to identify such errors, and how to get them corrected.

One of the more dreaded phrases in the English language – particularly on high school and college campuses – is probably “compare and contrast.” As in:

• For 20 points, compare and contrast mitosis and meiosis.
• For 30 points, compare and contrast the style and theme of Shakespeare’s “Sonnet 18″ to “A Red, Red Rose” by Robert Burns.
• For 50 points, compare and contrast the economic, political, and social structures of ancient Athens to modern-day Iraq.

Comparing and contrasting your work comp experience to industry standards isn’t difficult with the right information and tools. (Shakespeare would insist on complete sentences, of course.)

If these questions (which I found on the Internet, by the way) give you a not-so-nostalgic pit-in-the-stomach feeling, you’re definitely not alone. If you’re like me, you’re grateful such academic gymnastics are in your past. But here’s a compare and contrast exercise that will be useful to your company today:

Compare and contrast your company’s work comp losses to the average for your industry. Use actual and expected losses on total, primary and excess amounts. Include comparisons on a policy period basis. Use complete sentences.

OK, you don’t have to use complete sentences. Even without that directive, this analysis can still sound a bit intimidating. However, if you have a mod worksheet from NCCI or another bureau, all the data you need is on the worksheet – and at least some of it is already summarized and ready to use.

The whole purpose of the mod calculation formula is to compare your company’s loss experience with the average for your industry. The code word for this in mod-speak is “expected.” On your worksheet, you see total expected losses, total expected primary losses, and total expected excess losses. If you don’t know the differences between all these expecteds yet, don’t worry. It’s enough to know that these values reflect the standard, or average, for your industry for a theoretical company that has the same payroll you do.

The mod itself tells a story, comparatively speaking: if your mod is over 1.0, your compare unfavorably to other businesses in your industry. If your mod is under 1.0, you compare favorably; you are, as we’ve said in other blog entries, “beating the average.” But the formula can be broken into components which can be analyzed for additional insight. So let’s take this exercise in pieces:

1. Compare your company’s total losses to the industry average.

Why you want to do this: This comparison provides a general indicator of your loss experience.

How to do this: Divide your total actual losses (box H on the NCCI bureau report) by total expected losses (box D).

2. Compare your company’s total primary losses to the industry average.

Why you want to do this: This comparison provides an indicator of whether too MANY losses are keeping you from reaching your minimum mod.

How to do this: Divide total primary losses (Box I) by expected primary losses (Box E).

3. Compare your company’s total excess losses to the industry average.

Why you want to do this: This comparison provides an indicator of whether the SEVERITY of your losses is keeping you from reaching your minimum mod.

How to do this: Divide total actual excess losses (Box F) by expected excess (Box C).

Now, for the trickier stuff: compare your actual versus expected losses for each policy period in the mod. This is harder to do because all of the totals that you need – by policy period – are often not shown on the bureau worksheet. So, you’ve got to haul out the slide rule, calculator, Excel workbook, or (ahem) ModMaster software to make this easier.

This seems like a good time to mention the WorkCompEdge Proposal Report that employers or (more likely) their insurance agents can print from ModMaster. We discussed the first part of this report, about what your mod is costing you, in another blog entry. Now let’s look at the second part – How Your Company Compares to Industry Standards.

Here’s a snippet of a sample WorkCompEdge Proposal Report that shows how you can use mod data to compare your company to industry standards – and identify trends that will affect your future mods.

The first 4 bullet points in the report excerpt correspond to the comparisons we discussed in items 1-3 above (note the wonderfully complete sentences), and the graph on the left, Actual vs. Expected Losses, visually shows the same information. In this sample, when so many of the percentages look so good, the 134% ratio of the primary loss comparison stands out. While this company has a pretty healthy mod, that 134% points to a clear opportunity to reduce the number of losses they’re experiencing and thus drive their mod even lower, for even more cost savings.

The graph on the right, Loss Trend, shows the actual losses and expected losses for each policy period. This graph is really helpful for two reasons:

First, it shows us the general trend of losses for our own company versus the industry average. In this particular example, we see that this company has never exceeded industry norms, and that in the most recent year they’ve beat the average by quite a bit.

That’s important information, but we can also discern more. This graph also lets us see the anomalies that a certain period may be contributing to the mod. In this case, the “blip” of increased actual losses in 2006 is probably the principal contributor to the mod. So, until 2006 comes out of the calculation (after one more year), the mod is going to stay a little higher. When policy year 2006 no longer affects the calculation, provided that the latest trend has continued, THAT’s when the mod will really decrease.

So, for real cost savings – not points on a test – compare your work comp losses with industry averages using mod analysis.

http://www.WorkCompEdge.com
http://www.SpecificSoftware.com

Layoffs have become an unfortunate reality of everyday life in America. While historically layoffs are often due to legitimate competitive practices (and in some cases corporate heartlessness), I don’t have to tell you that almost all layoffs in the past 18 months have been due to the severe economic downturn. For this article, let’s take a further look at work comp claim issues associated with layoff situations:

Don’t just do the paperwork: employers mustover communicate in layoff situations. These are human beings whose lives have just been turned upside down. The surviving employees will give the employer the benefit of the doubt and their commitment to the employer if the employer tells them the truth and treats the employees who are leaving with fairness and compassion.

It is a documented fact that an impending or even threatened layoff increases workers compensation claims…especially in a tight job market. Individuals faced with a reduction in their income, temporary unemployment benefits and the likelihood of unaffordable health insurance may look to workers compensation as a way to ensure their income is sustained in the face of a layoff or termination. Even the rumor of layoffs and company reorganizations is enough to scare some employees into filing a work comp claim. But note: simply because an employee files a claim after his or her employment ends does not necessarily mean that the claim is fraudulent. Some employees, previously worried that filing a claim would affect their job security, go ahead and file once they are terminated. Whether the injuries are real or imagined, the fact is, workers compensation claims increase during and after a layoff.

Employers can’t completely stop illegitimate claims from being filed, but there are steps they can take to prepare for defending against such claims – and thereby minimizing costs. The following techniques, a list I’ve tweaked from an article by the Louisiana Workers Compensation Corporation to include my own experience, can avoid or minimize claims cost following downsizing, terminations or layoffs.

1. Communicate with Your Insurance Carrier

Let your insurance carrier know about any downsizing plans your company has. The carrier should be more than willing to strategize with you on ways to thwart any fraudulent claims. Report any suspicions you have about a claim, along with all the reasons for your suspicions, to your workers compensation carrier. The earlier you voice concerns, the better the opportunity to investigate, gather medical evidence and discuss strategy on defensible positions.

2. Focus on the Things You Can Control

The workers compensation system was designed to protect the employee and the laws favor the employee. However, measures can be taken to minimize cost and limit the life of the claim. Often this is the goal – reducing cost and the life of the claim – which can be frustrating to employers. The reality of workers compensation claims is that they are not won by hitting a home run. Rarely is there one isolated piece of information that “knocks it out of the park” and provides an ironclad denial. Claims are won through a series of singles. Documentation of anecdotal evidence (the employee was fine on the last day of employment; no one saw the individual get hurt; the employee was observed using the body part he or she is alleging is not functional etc.) and objective evidence (the independent medical exam’s x-ray or MRI shows no injury) builds your defensible positions and gets you to home base (which is usually a negotiated settlement). The value of the claim will be substantially less with well documented information. The claims take patience and persistence to resolve as bringing the employee back to work (the most common resolution to workers compensation claims) is not an option in a layoff situation. The lack of this option complicates the claims handling. The efforts and costs expended to defend suspect claims is difficult but worth the aggravation as it far outweighs suffering the enormous cost of a permanent long term workers compensation claim.

3. Revisit Your Accident Reporting Policies

Require all employees to report accidents immediately, no matter how minor.

4. Recommit to Thorough Accident Investigations

Accidents in times of company turmoil can be especially upsetting, but this is not time to get lax on your procedures. Investigate accidents immediately after they’re reported. Separate witnesses from each other and the injured employee to get the whole story – and signed statements. Remove or restrict access to any equipment or other physical evidence involved until it can be examined. Address any other hazards which may have contributed to the accident as soon as possible.

5. Be Vigilant About Your Recordkeeping

Many of the workers compensation claims filed after employment ends are occupational disease in nature. Claims for hearing loss are common after layoffs. Be vigilant about your industrial hygiene recordkeeping, including baseline levels of noise, airborne particles, in-door air quality, chemicals and dust exposures. Also be sure not to neglect equipment condition or housekeeping inspection logs. Make sure records are not destroyed, since employees’ payroll, schedule and accident reports may become evidence in a claim after their employment has ended.

6. Use Wellness Exams and Videocams to Document Employees’ Health

Many employers contract with their workers compensation medical provider to conduct physical examinations to determine an employee’s overall health and fitness status preceding a layoff. Employers may also videotape work areas to document employees performing their usual duties. These tools can help establish an employee’s health and activities at the time employment ends. A cautionary note – information obtained about an employee’s health must not be used as a reason to terminate or lay off the individual. This would violate the Americans with Disabilities Act.

7. Ask Employees to Confirm They Haven’t Had Unreported Accidents

As part of an employee’s exit interview, have the employee sign a form stating whether they have been involved in any unreported accidents on the job. This is an important document that can help defend any claims arising after employment ends.

8. Invest in Employee Assistance Programs

Terminations can easily and understandably thrust employees into an antagonistic frame of mind that can lead to fraudulent claims, but this can be mitigated if the employer communicates caring in the exit interview – and provides some real programs to support those sentiments. Consider job fairs, resume counseling, placement services, on-site therapy, and other services that demonstrate your concern for your terminated employees’ welfare.

9. Consider Stepping Up Security Measures

As we all know from unfortunate events reported in the media, workplace violence is a real concern following layoffs or terminations. Any employee hurt on the job through violence of another current or prior employee will result in a workers compensation claim. Examine the level of security you can provide for remaining workers. Use exit interviews to assess an employee’s attitude and tendency towards violence, and take all threats seriously. Employees probably should not have unescorted access to work areas following a layoff or termination.

10. Watch for Potential Fraud Indicators

Familiarize yourself with the warning signs of fraud developed by the National Insurance Crime Bureau:

• the employee is disgruntled after being fired or laid off
• the employee has been told his or her employment is about to end
• the employee is having financial difficulties
• the accident is not witnessed
• the injury involves subjective complaints of pain with no ability to obtain objective medical evidence

Your claims adjuster is undoubtedly familiar with these, but, as noted in our first point, your awareness and good communications will facilitate optimal claims handling.

Conclusion

Although none of these tips may actually prevent an employee from making a workers compensation claim after leaving an employer, they can assist in defending against such claims. The more evidence to present to the judge that there was no mention of any accident until after employment ended or was announced to end, the stronger the defense will be.

Employee reductions can pose a significant challenge for employers and often a devastating turn of events for employees. It is important for employers to have a layoff strategy broken down into goals and an action plan for the company. The layoff can be so overwhelming an employer may forget the overall company’s vision and strategy. Each employer should ask the question; “How do we not just survive but thrive after a layoff? How do we inspire our remaining employees to achieve amazing things… to continue their focus and innovation and not be paralyzed by these troubled and uncertain times?” First, every employer must over communicate in these situations. The employer should reiterate the vision and strategy of the company and the action taken (layoffs), although painful for everyone, accomplishes the mission.

Next, keep in mind; these are human beings whose lives have just been turned upside down. The surviving employees will give the employer the benefit of the doubt and their commitment to the employer if the employer tells them the truth and treats the employees who are leaving with fairness and compassion.

A few years ago, employers in the state of Virginia were initially gratified by the Virginia’s Supreme Court’s ruling to exclude illegal immigrants from the protections of workers compensation. But in an almost immediate demonstration of the law of unintended consequences, the onslaught of litigation had employers clamoring to amend state law to explicitly include aliens, both legal and illegal.

Without the remedy of workers comp – and the careful adherence to changing state and federal obligations regarding immigration, an employer may be sued.

Admittedly, workers compensation is an imperfect system, and its imperfections vary from state to state. Nevertheless most workers compensation stakeholders would argue it is certainly better than the alternative…an injured worker as a plaintiff in a civil tort suit in front of a jury of his or her peers. Instead of statutory limited benefits, the employer is exposed to open tort award.

According to the National Conference of State Legislatures, more than 1,500 pieces of legislation related to immigration have been introduced in state legislatures in the last year. Much of this legislation creates significant new obligations for employers. Depending on the state, the penalties may include:

• fines
• loss of business license
• allowing illegally employed workers to pursue tort cases against the business
  labeling non-compliance as a felony
• loss of workers compensation exclusive remedy, and
• voided workers compensation insurance coverage entirely (requiring the employer to pay the medical and lost wages) for illegally hired workers.

As the immigrant population—both legal and illegal—continues to grow in the United States, their numbers will continue to expand among the American labor pool. This increases the chances that employers will hire aliens and suggests that their potential involvement in issues dealing with workers compensation related to these employees will also increase. As the old adage goes, “Ignorance of the law is no excuse,” and the trend in most states is to echo that sentiment with tougher laws against employers who would hire illegal aliens—perhaps to circumvent the need to pay for benefits such as workers compensation. Unfortunately, as states scurry to catch up through the legislative process, many variations make up the rugged terrain of workers compensation. Employers and their insurance advisors need to be informed and vigilant to be able to negotiate this territory successfully.

Three primary issues arise in workers compensation cases involving illegal aliens:

1. Are illegal aliens included in the definition of “employee” under state workers compensation law?

2. Does the Federal Immigration Reform and Control Act (IRCA), as interpreted by the Supreme Court’s decision, preempt state workers compensation laws?

3. If an illegal alien is an employee, does his illegal status deprive him of certain compensation benefits?

Employers must follow a checklist to determine the legal status of new hires, and follow up in writing with any new hires who cannot be verified through the Social Security Administration.

In America, we have a Uniform Plumbing Code to protect the health of the nation (not to mention the sanity of plumbers and builders) and a Uniform Commercial Code enacted in all 50 states for a standard method of dealing with business law questions involving commerce. Unfortunately, no such code exists for our nation’s employers and employees for the purposes of work comp.

Knowing how the pieces fit together is especially challenging in work comp due to the lack of a national standard.

As states passed work comp laws starting in the early 1900s, each state established its unique work comp system. This resulted in a mishmash of laws, benefits, compensability and eligibility from state to state. There are many different, non-uniform work comp laws in the United States (state, territorial and federal). The state and territorial laws, which exist in every state, Puerto Rico and the U. S. Virgin Islands, are especially non-uniform in terms of which kinds of employments are covered, dollar amounts of wage benefits payable for different kinds and degrees of disability.

The complexity of our varied work comp system presents challenges for employers in three key areas:

• Establishing proper coverage in jurisdictions in which the employer has operations or other jurisdictions the employer has employees working, living or traveling in
• Understanding what jurisdiction benefits the employee can collect
• Determining what rates (premiums) will apply. (This subject mirrors in its complexity the coverage and benefit structures of the various state and federal laws. We will briefly discuss pricing and only as it relates to extraterritorial issues).

The hodgepodge evolution of work comp laws has resulted in uneven or nonexistent uniformity across state jurisdictions, which creates challenges for employers when confronting extraterritorial issues, including questions of coverage, benefits and pricing.

Work comp coverage in various jurisdictions may depend on where workers reside, employer operations sites, licensing, and the willingness or reluctance of carriers to accept “broad” language in the work comp policy.

On the Information Page of a work comp policy, the insurance agent for the employer must have the insurance carrier list the states the employer operates in or expects to operate in at the inception of the policy. In a separate section, states are listed where an employer expects it may have employees working but the work in those states will begin after the effective date or renewal date of the policy (with some exceptions). The policy requires that the policyholder (employer) must notify the insurance company at once if the employer begins any work in any state listed in this section. Broad wording (suggested in the full article on this topic) is recommended to assure coverage in most jurisdictions even in unforeseen circumstances.

When a state is listed on the work comp policy, essentially we have attached hundreds of pages of work comp statutes and laws and thousands of pages of case law for that state. Add multiple states and I would argue that, although the basic policy is only about six pages long, the addition of statutes and case law make the work comp policy the largest and most complex policy an employer buys.

Employees working, living, traveling in or through other jurisdictions frequently present special work comp challenges including state specific time limits, variations in benefits, state law, reciprocity agreements and other issues.

To compound the challenges, work comp pricing is often driven by pressure to minimize work comp costs. This presents risks to employers as carriers may deny claims or charge some or all of a claim back to an employer. Errors in extraterritorial issues can result in devastating financial consequences to employers.

Knowing how the pieces of work comp policy and law fit together is especially challenging due to the lack of a national standard. For agents and employers, it is critical to understand each state’s work comp laws, customs and practices and, in doing so, to secure the broadest coverage possible. They also need to understand that any claim can result in a dispute as to which benefits apply as well as other extraterritorial issues. In these cases, it is best to work through these issues constructively with employees rather than engage in a standoff.

Will paying small medical-only bills rather than reporting them to the carrier save you money – or cost you? The answer’s not simple!

The most common question an insurance agent gets from employers is whether or not they should pay (or continue to pay) small medical bills on workers compensation claims rather than submitting them to the insurance carriers for payment. The answer to this question is not simple. It can depend on several factors including:

1. Whether or not the state has approved the Experience Rating Adjustment (ERA) in their experience modification formula.
2. Whether or not the employer has expertise in paying according to the state fee or reasonable and customary schedule and/or has access to discounted medical networks as insurance carriers do.
3. Whether or not a small deductible to handle small medical claims might be more appropriate and assist in complying with state rules.
4. Understanding the state rules and penalties where the employer is located.
5. Whether or not the state of operation has a favorable alternative option for handling small medical claims.
6. How organized and detailed the employer is.

An Analysis of Reporting vs. Not Reporting in ERA States

Many of you do business in states which have approved the Experience Rating Adjustment (ERA) to the experience mod formula. Medical-only claims, also known as injury code 6 claims, are reduced by 70% in states where ERA is approved before they are utilized in the experience rating process. Also, the expected loss rate and discount ratio, used to compute expected losses and expected primary losses, have been changed to reflect that medical-only claims will be reduced by 70%.

Many feel the incentive to not report medical-only claims has been eliminated in states where ERA is approved. In the interest of showing that, I performed several “what if” scenarios on employers either reporting to the carrier or paying medical-only claims on their own in ERA states and its impact on the Experience Modification and the employer’s overall costs. The studies are conclusive that the employer did not save money by paying medical-only claims itself in an ERA state, particularly if the employer does not know how to apply the state fee schedule and/or has no access to discounted networks like those developed by insurance carriers. Here is an example.

Conclusion

The variances among states dictate that there is no one, simple answer to the employer’s quandary of whether to pay small medical-only claims or turn them in to the insurance carriers for payment. An employer must weigh the advantages and disadvantages of paying small medical claims after obtaining a complete understanding of their state’s rules and laws, evaluating their staff’s ability to effectively manage their own medical bills and reviewing the insurance alternatives available that take paying small medical claims into consideration.

Every presidential election we are reminded that it’s the electoral vote that really counts. It is, as history and pundits remind us, possible to win the popular vote and lose the electoral vote. Now, hold on to your comments, as I’m not trying to make any political statement here, and I know we all get our fill of polls and graphs. I mention these numbers as an example of the cliché: it’s all in how you slice and dice the data.

I recently met with top level claims representatives from a major insurance company to discuss some issues related to their management of several injured employee cases. These are good people striving to do a good job. They do difficult work in a challenging system.

When it comes to claims management, insurance companies and employers are looking at the data in different ways.

However, during the meeting, it suddenly occurred to me why employers – and the agents who serve them – are often at odds with insurance companies over the way injury claims are handled. We’re looking at the data in different ways. Simply put, insurance companies frequently have different goals, objectives, and measurements than employers. I was at the meeting to discuss 9 individual injured employees. They came to the meeting to explain the workings of a system that handles 20,000 injuries a year.

Insurance companies’ key measurement for workers’ compensation injuries is something called the pure loss ratio. This is the percentage of the premium dollar that goes to pay for injury costs. For example, their goal might be to spend no more than 60% of premium dollars on injury costs. Add expenses to that percentage and what remains is their profit, not counting investment income.

From the insurance company’s perspective, if they meet their goal, then their processes are working. They see the work comp world from an aggregate view, while we’re looking at specific injured employees.

Some might suggest that if insurance companies are not effectively dealing with the specific, they will not meet their overall objectives. However, there are times, as is now the case, when they are saved by legislative reforms which drive down injury costs regardless of their processes. When doctors and lawyers get reigned in by the legislature, everybody looks smart. But as the saying goes, just because you are standing on third base, that does not mean you hit a triple.

The employer’s primary objective is for the injured employee to get the best medical treatment and to get back to health and productivity as soon as possible. The insurance company’s primary objective is to meet a number. If they attain their aggregate goal, then they are not as open to improving their processes.

Thus, it is up to the employer to make sure the employee gets what is needed and is not just a set of dates and numbers “sliced and diced” in the insurance company’s claims system. The incentives are not aligned such that the employer can abdicate this critical responsibility to insurance companies.

Trick or treat, WorkCompEdge blog readers. In the spirit of Halloween, this week we offer some scary stories contributed by our staff. Some are true and some are imagined, but all illustrate concepts of which employers should beware. Can you tell which is which?

Of course, we think the scariest thing of all is an employer who doesn’t understand their experience mod!

Category 1: Do we really want this employee returning to work?

The employee who tried to siphon liquid chemicals with his mouth.

The skull and crossbones must not have been enough. Now there has to be a label that says
“use an approved siphoning device.”

The employee who instigated an assault that led to work comp claims for himself and another employee.

Talk about needing an improvement in corporate culture.

Category 2: They said that?

Employer: “What’s wrong with putting our gear machine operators in code 8810?”

8810 is the common code for office and clerical workers. A manufacturer classifying all employees in this category would probably be charged with, let’s see, falsifying business records and committing a fraudulent practice.

Employer, in incredulous tone: “That’s the sixth work comp claim this employee has made?”

Needless to say, they hadn’t been doing much with claims management.

Employer, on buying work comp insurance: “I went with the low bid.”

Cliches are usually true. You get what you pay for.

Employer, on buying work comp insurance the next year: “I don’t know why my premiums went up so much this year.”

It’s called experience rating. Your agent should be helping you understand it.

Agent to employer: “The mod? I really can’t explain it, but I know it’s better if it’s low.”

Time for a new agent!

Much has been written about the decline of the frequency of workplace injuries over the past 15 plus years. Improved workplace safety, modular construction, cordless tools, and reductions in heavy manufacturing are some of the most popular reasons attributed to the decline.

On the surface, this sounds like a positive thing. But upon further examination, this much-celebrated decline in the number of workplace injuries may not be completely legitimate.

Does it make sense that delays in getting prompt medical care are often increasing the treatment requirements – and therefore the cost – of injuries? Increased rates of surgery and physical therapy are contributing to increased loss severity.

The June 2008 report to Congress by the U. S. House of Representatives Committee on Education and Labor, “Hidden Tragedy: Underreporting of Workplace Injuries and Illnesses,” states that work-related injuries and illnesses in the United States are chronically and even grossly underreported.

According to the report, “as much as 69 percent of injuries and illnesses may never make it into the Survey of Occupational Injuries and Illnesses (SOII), the nation’s annual workplace safety and health “report card” generated by the Bureau of Labor Statistics (BLS). If these estimates are accurate, the nation’s workers may be suffering three times as many injuries and illnesses as official reports indicate.”

What are the causes of underreporting? According to experts:

• OSHA’s reliance on self reporting by employers. Employers have strong incentives to underreport injuries and illnesses that occur on the job.
• Twenty percent of workers— including public employees in high-risk jobs such as law enforcement, fire protection, and public works; workers on small farms employing less than 11 employees; and those who are self-employed—are not even counted by BLS.
• Work-related illnesses are difficult to identify, especially when there are long periods between exposure and illness, or when work-related illnesses are similar to other non-work-related illnesses.
• Recent changes in OSHA’s recordkeeping procedures have affected the accuracy of the count of musculoskeletal disorders (MSDs).
• Some employers are confused about reporting criteria and OSHA staff are often not well-trained to provide accurate advice.
• Workers report widespread intimidation and harassment when reporting injuries and illnesses. Immigrants are also less likely to report, as explored in last week’s blog entry by Bill Wilson.
• While they may be well-intentioned, widespread and popular safety incentive programs which provide awards for a period of time without a recordable injury, can have the effect of putting pressure on workers not to report their injuries.

Here’s what I’d like your ideas about: Do you think it’s possible that underreporting of injuries may be one of the causes of the increased severity of the injuries that are reported? In other words, are employees resistant to report an injury, and only do so when they can’t stand the pain any longer? If so, does it make sense that delays in getting prompt medical care are often increasing the treatment requirements – and therefore the cost – of injuries?

A report published just a few days ago by NCCI presents an interesting analysis of claim severity as related to the “growth in treatments per claim” over recent years. This report shows that significant contributors to increased claim costs are increased rates of surgery and physical therapy. Catastrophic injuries aside, of course, doesn’t it make sense that the longer you defer medical attention for a problem, the more likely you may need surgery and/or extensive physical therapy?

Ultimately, it’s in the best interest of the employer and the injured employee to report all injuries promptly and get immediate medical treatment. It’s essential for the employer to create a culture that fosters the reporting of injuries. Education and communication is the key. Get the message out loud and clear: if you get hurt, report it. The company, the injured employee, and the employee’s family will all benefit from reporting all injuries. It’s the right thing to do – and it may cost us all less in the long run.

One of the few email discussion lists I participate in is a Yahoo! Groups list called “RiskList.” Recently, the topic of discussion was illegal aliens and workers compensation. Some issues discussed include whether or not these workers are covered under workers compensation laws and what kind of impact they may be having on loss experience.

Immigrant workers may be more inclined to take risks not commensurate with their skill levels. In cost-cutting measures that played a role in their hiring to begin with, they also may not receive proper safety equipment.

This article addresses the issue of whether or not illegal aliens are entitled to benefits under state workers compensation laws. The purpose is not to opine about the situation from a political or social standpoint, nor to comment on construction workmanship issues that have been addressed in the press.

Of 9.3 million illegal adults in this country, 7.2 million (77%) are employed and comprise about 5% of the entire U.S. workforce. However, they comprise a far more disproportionate percentage in some industries, such as 24% of farm workers, 17% of cleaning workers, 14% of construction workers, and 12% of food preparers. Within an industry, illegal workers may comprise high percentages of specific (often more hazardous) occupations…e.g., 36% of all insulation workers and 29% of all roofing employees are estimated to be illegal aliens. In general, illegal workers tend to be younger than other workers.

Because of language barriers and lack of training and experience, some experts believe that the exposure to injury may be significantly greater for illegal aliens than other workers. According to an Associated Press story, Mexican workers are about 80% more likely to die from a work injury than native-born workers. In several Southern and Western states, these workers are four times more likely to die than U.S. citizens performing similar jobs.

Given language barriers that might interfere with effective supervision and training, along with the frequent lack of experience, there is a fear that illegal aliens may be at greater risk due to several additional compounding risk factors. For example, because of the reasons many are here, they might be more inclined to take risks not commensurate with their skill levels. In cost-cutting measures that played a role in their hiring to begin with, they may not receive proper safety equipment. And, because they are inclined to avoid attention being directed at their illegal status, they may be hired or assigned to more hazardous jobs by employers who feel they are far less likely to file workers compensation claims….

….which brings us to the topic of this article, which is to answer the question, “Are illegal aliens entitled to state workers compensation benefits?” The short answer to this (as often the case with insurance coverage questions) is, “It depends.” In a significant majority of states, illegals ARE entitled to workers compensation benefits. However, this is not true in every state. In addition, the types of benefits or extent of coverage may be restricted in some states depending on a number of factors.

Whether or not an illegal alien is entitled to workers compensation benefits will be established in the state statutes or by regulatory or court decision. Are illegal aliens “employees” as defined by most state statutes? If so, are they entitled to all or some of the statutorily-prescribed benefits? In trying to answer these questions, I’ve constructed a state-by-state chart that references each state’s statute, lists any known case law or regulatory ruling, and provides commentary on whether or not it is likely that illegals are entitled to benefits:

Workers Compensation and Illegal Aliens Chart (Word document format)

As you’ll see on the chart, most states do allow illegal aliens to claim workers compensation benefits. The only state that expressly excludes benefits by statute is Wyoming. The only state that has excluded benefits across the board by court decision was Virginia, but the decision was subsequently overridden by legislation. The vast majority of other states permit at least the claiming of medical benefits by illegals. Some states (e.g., Georgia, Michigan, and Pennsylvania) attach restrictions to disability benefits. Other states (e.g., California, Nebraska, and Nevada) limit or preclude vocational rehabilitation benefits.

This chart is a work in progress, so information is not currently available for all states, but it is for most. Also, keep in mind that where case law is absent (to the best of our knowledge), any opinion about how statutory law might respond is conjecture on our part, based on how courts in other states have ruled on similar statutory wording. As statutes are reviewed and case law uncovered, this chart will be revised on an ongoing basis. If you are aware of any inaccuracies or missing information, please email corrections to me at Bill.Wilson@iiaba.net.

In the popular 2001 film “Legally Blonde,” Elle Woods (played by Reese Witherspoon) is a stylish sorority girl who, in a quest to get back the guy who dumps her, discovers her true potential way beyond the stereotypes of her blonde mane.

If you’re just crossing your fingers that you’ve hiring a candidate who’s medically fit for the job, don’t be surprised if you find yourself with costs related to a new or pre-existing injury.

When we employers are interviewing job applicants, we likely have a movie running in our heads that I call “Legally Correct.” Delving below the surface to discover a job applicant’s true potential can feel like tricky business. This age of political correctness can make the most eloquent orators among us stumble. More importantly, there are EEOC guidelines to worry about: What questions we can ask. What questions we cannot ask. While we are trying to determine if an applicant has the abilities and personality to fit in our company, there’s another aspect we often overlook: whether they are medically fit for the work we need them to do.

I can hear you now: “Frank, I can’t ask someone their medical history.”

You’re right. In most cases, you can’t – not until you make them a conditional offer of employment. But after you do that, your applicant should undergo a medical screening to make sure he or she is fit for the specific functions of the job you want to hire them to do. This is a legally correct and – I would argue – moral thing to do. This process will weed out an applicant who truly is not fit – or who has intentions of filing a claim on a pre-existing injury after they’ve been with you a few months.

Most large employers have been doing medical screenings for a long time. But I find that a lot of my small business clients learn about this the hard way.

Here’s a real life success story: I recently met with a client to renew his company’s workers compensation insurance policy. In 2003, this client was paying over $480,000 in workers compensation premiums. The company was scrambling to find an insurance company that would offer them a renewal policy: their experience mod factor was 1.63. If they didn’t get an offer from the voluntary insurance market, then they’d be driven into the assigned risk market, where their cost would exceed $800,000.

Fast forward to 2008 and the story is dramatically different. The company’s projected premium cost for the upcoming year is under $200,000. Their experience mod factor is 0.85.

I asked the Chief Financial Officer what he felt were the major factors influencing this turnaround. Without hesitation, he said, “Beefing up our hiring practices and returning injured employees to work.” (In my next blog, we’ll talk more about back-to-work programs. As Jim mentioned in his comments to my last blog entry, it’s all about expectations.)

You notice the CFO didn’t make any reference to safety? Not safety committees, safety programs, or safety inspections. This company’s problems didn’t arise from an unsafe workplace, and they already had a positive corporate culture.

Now obviously, creating a safe workplace is a foundational and necessary step to any business. But, employers often don’t understand that the safest workplace in the world will not overcome hiring an employee who isn’t a good fit for the job.

Let me hear from you. Do you or your clients use “Legally Correct” pre-employment medical screenings? What’s your experience with them? Have you seen their implementation improve your claims history and premium costs? Is there a down side to medical screenings that I haven’t mentioned?

As I suggested in last week’s blog and several of you commented to confirm from your own experiences, the so-called “bad employee” – one who is intentionally milking the system – does NOT contribute to work comp costs and problems as much as we might like to think.
Today I’d like to explore one of the myths of a bad employee, and that’s an employee who gets caught in the wrong treatment plan.

Trivia for your next game show appearance: The process of drilling a hole in the skull is called trepanation and has been around since Neolithic times. (18th century image from Wikimedia Commons)

If you had a headache several hundred years ago, your friendly neighborhood medical practitioner might’ve drilled a one inch hole in your skull to let out whatever was causing the pain. If you survived this treatment, surely you never complained of a headache again, even if it was worse! If you didn’t survive, the practitioner believed you died from whatever was causing the headache, not the cure, so he went on to treat the next patient this same way.

It’s easy to laugh at this example from the history of medicine, and delight in the many scientific and medical advances since then. However, the more things change, the more they remain the same. As new technology, pharmaceuticals, and medical methods are introduced at a rapid rate, the potential for their overuse and abuse seems to grow, too. Here are two examples:

According to this USA Today article, medical treatment of back pain costs about $25 billion annually, and workers compensation costs add another $25 billion. Yet best treatment for back pain remains elusive and highly debated. Some patients undergo surgical procedures that studies have shown demonstrate little effectiveness and have considerable risks. Other patients are on long term opiates that were intended for cancer patients in their last days. These treatments prevail while new studies show that behavioral and psychological treatments can be more effective. (See the article The Psychology of Back Pain for some interesting reading.)

Depression in an injured employee is both common and quite understandable: the employee has the psychological load of the physical challenges of the injury as well as the myriad of social issues of being out of work, being dependent on family members, etc. But how often does the injured employee end up on pain meds AND antidepressants? In recent years, there’s been debate in the media about studies showing that antidepressants prescribed for mild depression are no more effective than placebos. Other studies have shown that a walking program is far more effective for mild depression than any pharmaceutical.

Like most of us, injured employees with physical OR psychological pain will do almost anything to make the pain go away. When the treatment is authorized by someone in a white coat, when it involves a pill that’s advertised on TV or in their favorite magazine, and when the insurance company will pay for it, then it must be a good thing, right?

Don’t get me wrong – I’m not blasting doctors or insurance companies or anybody else, but I am questioning the system, and I am questioning what we in the work comp system – whether we’re employers, insurers, or medical professionals – can do to better anticipate and cope with the challenges our injured workers face.

Let me know what you think. Does your experience support my suggestion that treatments through the work comp system are sometimes no better than a hole in the head of our injured employees? Do you have a return-to-work program that acknowledges the psychological aspects of pain and injury? Does mental health need a stronger footing in the work comp system? Do you have a wellness program that addresses depression?

Are there really that many “bad employees” out there crippling the workers comp system?

The prevailing message I received at a recent two day workshop on workers compensation is that there are. But I don’t agree.

The workshop was conducted by a renowned risk management organization and primarily attended by risk managers, claims people, and safety managers from large, self insured organizations. The Bad Employee, mentioned again and again, was synonymous with one who malingered in recovery, experienced a delayed recovery, or committed fraud.

“How easy it is to make people believe a lie, and how hard it is to undo that work again!” – Mark Twain(Photo from Wikimedia Commons)

I keep asking myself why so much emphasis was put on the Bad Employee as a major, if not primary, cause of costs and problems in the work comp system. Addressing that question prompts several additional questions in my mind:

1. Why is it that in the information age it is so difficult getting good information to people who can make a difference?
2. Is it because the person doing the telling has something they want to sell you and can benefit from such erroneous myths?
3. Is it because dusting off and rolling out the same old tired stuff is easier and takes less effort?

I realize that these questions point to a range of ills, from operational legacies to intellectual laziness to the much more serious intentional deceit. My dad, who got smarter as I got older, used to say that a person’s position depends on his position. In other words, a person’s point of view depends on his or her station in life or business. Is it too cynical to think that service providers think they can make more and easier money off the Bad Employee story as opposed to a an alternative, more credible story?

Truthfully, I’m not that cynical most days. I think it’s more the case that the Bad Employee just makes a good story, an easy scapegoat. But I know for sure that these workshop leaders vigorously defended the current methods of management in the workers compensation system. Are we all thinking the same ways on these issues, or are we simply overdue for new thinking to reach all levels of the work comp business?

There are ample amounts of academic and actuarial research written over many years that tell a story different from the Bad Employee one. But, as Mark Twain said, “How easy it is to make people believe a lie, and how hard it is to undo that work again!”

In addition, John Kenneth Galbraith said, “Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.”

Do you think Bad Employees are the root of all problems in the work comp system? Is a malingering employee a Bad Employee? Post a comment to the blog and let’s get a discussion started!