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

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

Further reading

NCCI Publishes FAQ on Split Point and Maximum Debit Mod Changes

How Will Mods Change Under New NCCI Plan Recommendations?

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

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

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

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

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.

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

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

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

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

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, ballast (“B”), and weighting (“W”) values (or other applicable factors, in states like Pennsylvania, Delaware and New Jersey) 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.

To learn more about this concept and other insights available from a mod analysis, our free e-booklet is a great resource for brokers and employers: Mod Analysis: The First Step to Controlling Work Comp Costs

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

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

Well, hold on to your hats – uh, make that your mobile devices, because our latest freebie is the WorkCompWisdom mobile application for workers compensation news, available now! It features, for all to enjoy:

• Workers comp news from Insurance Journal, the Workers Comp News Network, Joe Paduda’s Managed Care Matters blog, and other resources. (If you’d like us to consider adding your blog or news feed, send me an email.)
• An RSS feed that features the articles from this blog
• A social media link that connects you to our Twitter, Facebook and YouTube pages, where we’re frequently sharing news and ideas related to workers comp, agency marketing, risk management, and more.

Try the WorkCompWisdom mobile app for workers compensation news at your fingertips. It will connect you to ModMaster support, too!

If you’re our client, you’ll also enjoy the app’s Click to Contact link, which will connect you to our product FAQs, websites, support email address, and of course, our support phone number – all features designed to make it even easier for you to get help regarding ModMaster, WorkCompEdge, or our other software products.

You can access the general mobile browser version of the WorkCompWisdom app at http://bit.ly/wc-app

You should also be able to browse the apps on your phone and find the WorkCompWisdom app. But in case you need help, here are some phone-specific versions of this free app:

• Google Android: http://www.buildanapp.com/dld/JINQZXq65TE/WorkCompWisdom.apk
• Blackberry: http://www.buildanapp.com/dld/VBZdr3nWGMg/WorkCompWisdom.jad
• Blackberry 4.7 (Storm or later models): http://www.buildanapp.com/dld/9DW7-YYRnWA/WorkCompWisdom47.jad
• Blackberry 4.5: http://www.buildanapp.com/dld/8VBgofcCxv4/WorkCompWisdom45.jad
• Windows Phone: http://www.buildanapp.com/dld/1W0SSo-SMU4/WorkCompWisdom.CAB

We may be newer to mobile apps than you are, so don’t hesitate to let us know if you see ways for us to improve the app, or if you have questions!

- Kory Wells, WorkCompEdge Blog Editor

Let's face it - workers compensation is not THE most scintillating subject. But we've tried to make it as interesting as possible, with the help of our cartoon characters.

This is a booklet that every business owner or manager who deals with workers compensation insurance should have. Insurance agents and brokers and other risk professionals will enjoy it, too, and find it a great resource to share with their clients. And there’s no excuse not to get it, because it’s free!

Get your free booklet on mod analysis now

Many employers realize that the workers compensation mod affects their premiums in some way. But many don’t realize what they can do to lower their mod and their insurance costs.

This booklet will help you understand

• the fundamentals of experience rating and
• 9 key strategies you can follow to learn what your mod reveals about your company and its workers compensation costs.

We’ve written this book using the knowledge we’ve gained from 20 years of developing and supporting ModMaster software and from writing our first booklet on experience rating, Master Your Workers Comp Modifier (which is available for the low, low price of $7, if you’re interested in a deeper discussion of experience rating). It’s one of several new resources we’re developing to support our WorkCompWisdom program.

We’ve had a lot of fun with this piece, even adding little cartoon characters to illustrate our points. We hope you find it informative and enjoy it, too!

One more time, in case you missed it – get your free booklet on mod analysis now!

- 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?

We’re currently evaluating a number of ModMaster enhancement ideas and user requests. One of those concerns the default view of the Large Loss screen in ModMaster, and we’d like your feedback.

Currently when you go to the Large Loss screen, you see something that looks like this. (This particular image is for an NCCI calculation, but the overall layout of the screen looks similar for PA/DE or NJ calculations).

View 1. The FORM view of the Large Loss screen. Exact screen will vary depending on calculation state and other options.

You can then use the View button in the toolbar to change to a SPREADSHEET view that looks something like this. Note there’s one row of data for each loss record, and you scroll to the right to see all of the optional data.

View 2. The SPREADSHEET view of the Large Loss screen. The exact screen will vary depending on calculation state and other options. Most users will have to scroll to the right in ModMaster to see all of the optional fields for each record.

It’s been suggested that view #2 is actually more useful and should therefore be the default. You would still be able to change back to the Form view if that’s what you preferred.

So, today’s quick question is: Which of these views would you like to see by default when you go to the Large Loss screen? Take this quick survey (there’s just 1 question and 1 box for comments) to help us decide! And thanks very much for being on the ModMaster Enhancement Evaluation Team!

Part of the book will include results from a questionnaire which, director of research Chris Stout says, the editors hope will be “representative of a diverse group of workers compensation professionals.” He urges you to provide “honest, gloves-off, and provocative responses based on your opinions, stories, perspectives and wisdom.”

The ebook will be published by Bentham Science Publishers, which has a longstanding international reputation for their excellent standards and top quality scientific publications. Seven Nobel Laureates have endorsed a number of Bentham Science journals.

Insurance professionals are among those invited to take the survey, and are also encouraged to share this post with professional colleagues and clients, including:

• employers
• physicians
• physical therapists
• mental health professionals
• attorneys and other legal professionals
• in short, anyone professionaly involved in work comp.

Take the survey now at:  http://atipt.com/Webpages/Research/WorkersCompensationSurvey.aspx

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.

An unexpected increase in a client’s experience mod rating can be one of the more unpleasant client relationship situations you can experience in the workers compensation arena.  This blog takes a look at 2 reasons why a mod might increase from one year to the next, but more importantly, what you can do to anticipate, analyze, and respond to potential increases in your clients’ mods.  In the weeks ahead, I will be covering a total of 10 reasons a mod may increase. With your feedback, which I encourage, I’m sure we can expand to an even longer list!  Through awareness of these various scenarios and through effective use of ModMaster, you should be able to anticipate and explain increases in the mod. 

#1 The mod may increase due to an overall increase in losses.

It may sound obvious that an increase in losses is going to result in an increase in the mod.  However, this scenario is sometimes manifested in a way that’s difficult to anticipate, if you’re not looking for it!  It’s not unusual for a ModMaster software user to call because they have run into a situation where losses decreased from one year to the next, but the mod has increased.  How can that be? 

Typically what has happened is that losses were increasing  quickly for the past several years.  As a result, the employer engaged a new broker (our ModMaster user).  The new broker helped the employer get focused and get losses lowered.  So the employer is expecting the mod to improve. But everyone needs to remember that the mod is usually calculated using a three year experience rating period that does not include the most recent year. Therefore it may take some time for the mod to improve. If the most recent year coming into the experience period is not better than the oldest year leaving the experience rating period, then the total losses for the three years will increase, and the mod will most likely follow suit. 

What you can do: Knowing the total losses by policy period is a key strategy to understanding what ‘s happening with the mod. 

A Loss Analysis by Policy Period helps you see how losses are affecting the mod now - and in the years to come. In this example, the best year will be leaving the mod - so unless the new year coming on is extremely low in losses, a mod increase will be likely.

This video clip shows how the ModMaster Loss Analysis by Policy Period report can help you graphically see how actual and expected losses compare from one period to the next. This report makes it easy to anticipate what may happen when the oldest year drops out of the mod calculation. 

If you’re a ModMaster user,  you may also want to use the rollover function to project an estimated mod for the coming year. The rollover deletes the oldest policy year of data and “scoots” all the other data over on the payroll and small loss pages so that the newest column is empty and awaits your data input – which can be estimates, until you have final payroll and loss information. 

#2 The mod may increase due to a change in expected loss rates (ELRs).

The expected loss rates (ELRs) used in a mod calculation represent the expected, or average, losses that will occur per $100 of payroll for each job classification.  ELRs are determined by the individual states and are typically updated once per year.  If the loss and payroll amounts in a mod calculation remain similar from one year to the next, a mod increase can still occur due to new expected loss rates.  For example, the ELR for a code may be 3.82 one year and then be decreased to 3.42 the next.  This will decrease expected losses and increase the mod – perhaps significantly.

What you can do: If you are concerned about specific payroll codes and how they might have changed, you can look them up in the “Expected Loss Rates and Discount Ratios” tables which are published by NCCI and many state rating bureaus. If you use ModMaster, you can go to the System Administration menu and click on the Rating Data link.  Enter the state and code to view a historical list of the ELRs for that code. 

Also, for a quick estimate of how the rate change might affect the mod, you can recompute a previous year’s mod with the new rates.  Here is how you do that.  Suppose you computed a 6/1/2009 mod for a client last year.  You just got a ModMaster update that has new rates effective 3/1/2010 for your state.  If you open that old mod file, change the effective date to 6/1/2010 on the Company Setup page, and then recalculate, you will see the impact of all the rate changes (along with ballast, weighting, and loss limits) on that previous year’s mod. 

For example, if the 6/1/2009 mod was computed to be 0.92 and the mod using the new rates was 0.97, then you can anticipate that the new rate changes will contribute to a higher mod in 2010 – for this client. It’s important to realize that in a typical update, some ELRs go up and some go down. And of course, this is a rough estimate.  To accurately compute the 2010 mod, you will need to rollover the data file, enter the new year’s losses and payroll, make any revisions to the old year’s data that are appropriate, and then calculate the mod.  But, let’s say the resulting mod is 1.05.  How do you know how much of this was due to rate change and how much to data changes?  The process I just outlined – of using the new rates to calculate the old mod – will help you sort that out. 

Our new mod comparison report provides a lot of good information to investigate a mod increase.  The average expected loss ratio shown on the report particularly applies to this issue. This value is a blend of several factors and is the implied expected loss rate for the risk as a whole.  It’s calculated as the total expected losses divided by payroll times 100.  The average ELR therefore reflects not only changes in the individual ELRs in the calculation but also changes in payroll levels between codes.  It’s an interesting singular number that captures a lot of underlying moving pieces. 

I will be posting more ways that a mod might increase in the weeks ahead. In the meantime, we’d love to hear about your experience with mod increases – email me or comment on this blog.

As the year draws to a close and  “best of 2009″ lists permeate the media – best films, songs, books, news stories, and so forth – we’ve decided to make our own contribution with a list of the best new features in our ModMaster software that calculates the workers compensation experience modification rate.

There's a long list of ModMaster enhancements we've implemented this year. Here are some of the best!

We’ve based this list on both our web stats, which give some indication of our most popular features, and on the comments of our tech support staff who talk to and email with ModMaster users every day. Our staff asked to include a few features that were actually introduced in 2008 based on some of our more frequent questions, such as, “What’s the loss limit in my state?”

For the record, we distributed 13 updates to ModMaster this year. All 13 included new expected loss rates and other data from NCCI or other bureaus as it became available, and five of those updates also included software enhancements – from things as minor as expanding the width report fields to accommodate larger estimated premiums to several all-new reports. Of course we mention each of these new features in our update documentation as they are released, but we know you sometimes get busy and might’ve missed one or two. So, without further ado, and working our way to #1, here are the top 10 new features you simply MUST know are available in ModMaster.

10. Enhancements to the Aggregate Loss Sensitivity report

We’ve tweaked the mathematical rounding behind this report so that the premium estimates – which can get very large in some cases – are more consistent from one analysis point to the next. We’ve also added new fields to the report to show the aggregate loss amount, the change in the estimated mod, and the change in the estimated premiums.

9. The ability to import payroll data when you’re on the Payroll form in ModMaster.

As opposed to the import function on our Utilities menu that requires you to import setup, payroll, and loss data, the import button on the toolbar of the Payroll form allows you to import payroll into an existing file. This may be handy in cases where you obtain loss information from one source (such as Zywave) and then want to import payroll from another source. You might also use this function to import only payroll data for the newest policy period after performing a File Utilities/Rollover of an existing mod file.

Learn more about all of our import options

8. The ability to use the up and down arrows on your keyboard to move between fields on nearly all ModMaster forms.

This functionality falls into the “makes life easier” category. While it’s been available on the Payroll and Small Loss pages for some time, we didn’t have it on all of the “spreadsheet” views of the Large Loss page. Now, no matter which spreadsheet view you choose from the toolbar of the Large Loss page, and no matter which type of calculation you are doing (NCCI-type, PA/DE, or NJ), you can quickly move up or down a column of data using the arrows keys, just like you can in a spreadsheet.

View a quick video clip about the spreadsheet views in ModMaster

7.  The ability to view loss limits for each state.

When you have a large or catastrophic loss, perhaps that involves a multiple claim accident, employers liability, or USL & HW (U.S. Longshore and Harbor Workers) often the question arises as to exactly what the loss limit is in the applicable state. Although that information can be derived from some ModMaster reports, now it’s easily available to check BEFORE you enter all of the data for a mod calculation. Simply go into the System Administration menu in ModMaster, then click the “Loss limits” link and specify the desired state to see the state per claim and state multiple claim limitations, plus limits for employers liability, and USL & HW claims.

6. New group and grand totals on the Cause of Loss, Injury Type and Loss Identifier reports

Many of our enhancements are implemented because of a user’s suggestion, and this is one of them. Now you can see the total number of losses that fall into a certain category, the total cost of those losses, and their total impact on the mod.

5. The new WorkCompEdge Proposal report

Even if you’re not using WorkCompEdge, this is a great report to help you analyze and suggest what changes a company needs to make to improve its mod. Learn more about it in this article.

4. Support for New Jersey non-”F” classes.

Ironically enough, these classes are preceded - rather than followed – by a “F” and then a payroll code.  ModMaster now makes a 50% adjustment to the manual rate and excess element factors for the indicated code, per the Longshore and Harbor Workers’ Rule 4a in Part Two, Section 1, Page 8 of the NJ manual.

3. Support for the new 1/1/2010 California loss split.

While of course we always make any changes that we need to in order to generate a correct mod in all of the states ModMaster supports, we’re proud of the timely analysis our actuarial staff performed on this and the related California rate changes. Read our California 1/1/2010 Mod Calculation Change Advisory.

2. The new $1,000 WorkCompEdge “Agency Plus” license option

While it isn’t strictly a software change, this new license option is significant. Our agency users can now boost the power of ModMaster with the extensive training and resources of WorkCompEdge.  Learn more about WorkCompEdge licensing.

1. The new Mod Comparison report

Hands down, this is the big winner for 2009, considering all the excitement and feedback it generated. This report lets you compare 2 different mod files, and based on user feedback, we’ve already enhanced it to include total payroll and an average expected loss rate. Read Comparing Two Workers Compensation Mods.

What’s your favorite feature of ModMaster, or something new that you learned about ModMaster from the blog this year? As always, we love to hear from you. Happy holidays from all our staff, and we’ll see you here on the blog in 2010!

Sometimes we think of technology only as an expense, but when it’s well-implemented, it can be an effective time and money saver. Today’s blog features news about a cost-effective work comp webinar at which you can train a room full of people at one low price; Kindle delivery of our blog; and a free newsletter that will bring you more technology tips on a regular basis.

Interested in workers compensation training?

Bill Wilson from the Big "I" Virtual University will be offering a comprehensive experience rating webinar in January.

Better understand – and communicate with others about – the experience rating mod, premium overcharges, expected loss rates, loss runs, and more.  Our friend Bill Wilson, Director of the Big “I” Virtual University (VU), will be offering a Workers Compensation Experience Rating Webinar on January 14, 2010, from 2:00 – 4:00 p.m. EST. We heartily recommend that you check it out (and no, we don’t receive any type of compensation for making that recommendation). Here’s a description of the class from the VU:

What do these numbers have in common: $30,000. $16,000. $23,000. $199,957? They’re all real-life examples of premium overcharges due to workers compensation experience mod errors. In each case, a bidding agent was able to take these accounts away from an existing agent who was not vigilant in monitoring the insured’s mod. In this webinar, Bill Wilson, CPCU, ARM, AIM, AAM, director of the Big I’s Virtual University will show you how to decipher a mod worksheet and explain it to an insured or prospect. You’ll learn what information is needed to monitor, check and project mods, how to calculate a mod from scratch, and how to identify and correct worksheet errors.

More specifically, Bill will explain what experience rating IS and what experience rating is NOT. This is critical to understanding how an insured can have a relatively high mod with what appears to be good loss experience. Through exercises, you’ll be able to determine when an account is eligible for experience rating…and when it’s not (something good to know if the insured has a debit mod). Also examined is the impact of ownership changes on the mod when someone sells a business to a newly created corporation in an attempt to revert to a 1.00 mod.

Using a carpentry contractor as an example, this webinar will identify the sources of information you’ll need to check or calculate mods, from the worksheet to loss runs and audit reports. Then you’ll examine every single entry on a mod worksheet, from Expected Loss Rates to D-Ratios and Weighting to Ballast values. You should then be able to explain these items in a way your insureds can understand.

At that point, another example business will be used to go through a complete exercise of calculating an experience mod from scratch. Following that is a discussion of related issues such as when changes can be made to the mod after policy inception, the impact of loss frequency on a mod, how deductible plans work, the importance of loss control, and an overview of interstate rating.

The webinar will conclude with a comprehensive analysis of a final business where you’ll use loss runs, audit reports, and other information to find multiple errors on their mod worksheet. Included in this webinar is a full PDF workbook (with separate appendix) which has dozens of real-life examples and exercises. All of the errors addressed in this program actually happened to real insureds and you’ll learn how to find and correct them.

For more information or to register, go to https://www1.gotomeeting.com/register/581283377.

Do you use a Kindle (or other ereader)?

A few of you have already noticed and subscribed, but we wanted to point out that the WorkCompEdge blog is now available on the Kindle.  Kindle blogs are fully downloaded onto your Kindle so you can read them even when you’re not wirelessly connected. And, unlike RSS readers which often only provide headlines, blogs on the Kindle give you full text content and images and are updated wirelessly throughout the day. Check out the Kindle edition of the WorkCompEdge Blog on Amazon today. And, if you use a different ereader (or get one for Christmas!) let us know – we’ll certainly investigate making the blog available in other formats.

Technology Tips for Your Insurance Agency

Steve Anderson is our neighbor just down the road in Franklin, TN, but it seems he’s always traveling to a consulting or speaking gig, a conference, or a training event related to insurance and technology.  Steve offers a free weekly technology tip newsletter your agency shouldn’t miss. Just this week, for example, the newsletter talked about lower-cost alternatives to Adobe Acrobat, a tool that’s needed but cost-prohibitive to some smaller agencies. Learn more and sign up at http://steveanderson.com/.

Editor’s note: This is our final and most detailed article in a series on the 1/1/2010 changes in the California workers compensation experience plan rates and rules. It explains more about the key factors we summarized in our previous post, California 1/1/2010 Mod Calculation Change Advisory.

As you probably know from our previous blog entries, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) pure premium filing with effective date 1/1/2010 proposed a 22.8% increase in the pure premiums, or filed loss cost benchmarks. In early November, the insurance commissioner rejected the proposed rate increase and ordered no change in the pure premiums overall, although individual class codes did see shifts.

The filing also proposed significant changes to the California Workers Compensation Experience Rating Plan (ERP), primarily driven by recommendations of the Experience Rating Task Force. The insurance commissioner accepted the proposed changes to the ERP, with the caveat that the Expected Loss Rates (ELRs) originally filed should be modified by 1% to maintain the same experience rating off-balance factor of 1.030 that was underlying the 1/1/09 pure premiums.

The following summarize the significant changes to the ERP effective 1/1/2010:

1. Changes/enhancements to the methodology for calculating the ELRs.
2. Use of a single split point of $7,000 to segregate individual claims into primary and excess components, in lieu of the current formula for splitting claims.
3. Changes to the D-Ratios and Credibility Values (“B” and “W” values) to reflect the adoption of a primary/excess split point of $7,000 and to reflect recent frequency and severity trends.
4. Increase in the experience rating eligibility threshold from $15,700 to $16,300 to reflect wage inflation.

The WCIRB states in its executive summary of the filing that “based on the proposed methodology change, the impact should be relatively minor for the overwhelming majority of experience rated employers”. However, based on the several moving parts above and particularly the significant changes in the ELRs for many class codes, it is our opinion that the experience modification factor for more than just a small minority will change. That’s why we believe it is more important than ever to consider in advance the impact these changes will have on a specific client, particularly those that must maintain an experience modification factor below a particular number. Now let’s explore these changes, and the mod trends we’ve seen in our analysis, in more depth.

Changes/Enhancements to the Methodology for Calculating ELRs

The WCIRB recommended changes to the calculation of the ELRs based on

• the final report of the Experience Rating Task Force and
• hindsight studies that showed ELRs for some groups were consistently higher or lower than indicated by actual experience.

The most significant change was using adjustment factors based on and grouped in accordance with the North American Industrial Classification System (NAICS). The following table taken from the WCIRB January 1, 2010 Pure Premium Filing (page B:C-12), shows the impact by NAICS group related only to the change in calculating adjustment factors at the NAICS group level:

Again, the above estimated impacts reflect only the change in the methodology related to the adjustment factors. The ELRs effective 1/1/2010 also changed based on actual loss experience, of course. The individual class codes use between two and five years of policy year data (2002 through 2006) to calculate the indicated limited loss to payroll ratios which are the basis for the ELRs.  For individual class codes, policy year 2006 rolling into the data while an older year rolls off may also have a significant impact.

The table below shows the change from 1/1/2009 to 1/1/2010 in the ELR for the 20 largest class codes by payroll. So for example, for class code 8742, even though the new methodology led to an expected decrease in the ELR of 12.2%, the actual change in the ELR including the impacted of updated experience in the filing, was a decrease of 20.0%.

Change in the ELR for 20 largest class codes in California based on 2006 payroll:

PDF documents listing all class codes and their ELR and D changes, sorted three different ways, are available below

Sorted by Class Code Number

Sorted by Payroll (highest to lowest)

Sorted by Percentage Change in ELR between 1/1/2009 and 1/1/2010

Since most risks have several class codes, the impact on the individual risk will depend on the mix of payroll by class code.  It’s interesting to note that 116 out of 500 class codes, representing almost 50% of the total payroll in the state, have decreases of over 10% in the ELR from 1/1/2009 to 1/1/2010.  96 out of 500 class codes, representing less than 10% of the total payroll in the state, have increases of over 10% in the ELR from 1/1/2009 to 1/1/2010.

Impact of Change to a Primary Split Point of $7,000 per Claim

The ERP effective 1/1/2010 defines the primary loss amount as the actual loss amount capped at $7,000.  Contrast that with the prior method of calculating the primary loss using the formula (9,000 x Total Loss) / (Total Loss + 7,000). A single split limit was recommended to simplify the experience rating formula and to be consistent with the experience rating formula used in other states. While the split limit in most states is $5,000, the limit amount of $7,000 limit was selected to minimize the impact, in total, of the change in formula.  As noted on page B:C-35 of the WCIRB January 1, 2010 Pure Premium Rating Filing, based on the 2006 policy year projection, the D-Ratio for the $7,000 split is 0.203 and the D-Ratio based on the old formula is 0.199.  So the change in the formula had minimal impact on the overall D-Ratios.

Even though the intent of the plan is neutrality in terms of the split of losses between primary and excess, the impact on individual losses varies. The table below summarizes the impact on the actual primary losses included in the experience rating formula for several individual loss amounts.

Change in primary losses for various loss amounts, old vs. new split method

Losses less than $24,500 are included at higher amounts in the primary layer and therefore lead to an increase in the experience mod factor, all else being equal.  Losses greater than $24,500 are included at lower amounts in the primary layer and therefore lead to a decrease in the experience mod factor, all else being equal.

Impact of Changes in the Credibility Values (“B” and “W” Values)

The last significant change to the ERP effective 1/1/2010 is the impact of the updated credibility values – calculated as a function of the Ballast (“B”) and Weighting (“W”) values. The current “B” and “W” values were adopted effective 1/1/1997, so it has been a significant amount of time since those have been updated. In the 13 years in between, claim frequencies have decreased and claim severities have increased.

The decrease in claim frequencies and the increase in claim severities are reflected in the approved “B” and “W” values effective 1/1/2010.  The primary credibility, which is a function of the “B” and “W” values, increased by over 20% for risks with total expected losses (limited to $175,000 each) of between 11,820 and 40,147 during the experience period. Risks with total expected losses (limited to $175,000 each) of greater than 40,147 have primary credibility of 100%.  With the prior “B” and “W” values, a risk needed expected losses of over $1.4 million for full primary credibility.

The higher the primary credibility, the greater the impact of the actual loss experience of the risk. Higher primary credibility will raise the experience mod on a risk with primary losses greater than expected primary losses. Conversely, higher primary credibility will lower the experience mod on a risk with primary losses less than expected.

The excess credibility has decreased on risks with expected losses (limited to $175,000 each) greater than $708,762.

Bottom Line of Impact of Changes to ERP Effective 1/1/2010

1. Change in ELRs – ELRs decreased by 6.4% in total, due to change in methodology and actual experience.  116 out of 500 class codes, representing almost 50% of the total payroll in the state, have decreases of over 10% in the ELR from 1/1/2009 to 1/1/2010.  96 out of 500 class codes, representing less than 10% of the total payroll in the state, have increases of over 10% in the ELR from 1/1/2009 to 1/1/2010.
2. Change in primary loss “split amount” – The move to a fixed amount of $7,000 per claim leads to individual losses less than $24,500 being included at higher amounts in the primary layer and increases the experience mod factors, all else being equal.  Losses greater than $24,500 will be included at lower amounts in the primary layer and therefore decrease the experience mod factors, all else being equal.
3. Change in credibility values (“B” and “W” values) – Credibility factors related to the primary layer have mostly increased, and full primary credibility (i.e. 100% primary credibility) is now given to all risk with total expected losses (limited to $175,000 per claim) of $40,147. This increase in credibility will lower the experience mod for risks with primary loss experience less than expected.  The opposite will occur for risk with primary loss experience greater than expected.

Question: Why did the WCIRB file for a 22.8% increase in pure premiums, but ELRs decreased approximately 6.4%?  Aren’t they related, and shouldn’t the ELRs be increasing in line with proposed pure premiums?

WCIRB filed the 22.8% increase in pure premiums and the decrease in ELRs effective 1/1/2010 at the same time. It should be noted that the ELRs were later adjusted by 1.0% to take into account the impact of the experience rating off-balance.

There are probably a variety of factors at work including:

• the impact of reforms (the 2010 modification factors use 2006 through 2008 which are all post-reform)
• slight differences in indications based on policy year data used in setting the ELRs and the accident year data used in determining the overall pure premium increase
• the future impact of the Ogilvie and Almaraz/Guzman decisions

However, the main reason the indicated change in the ELRs and pure premiums are so different seems to due to the way the insurance commissioner has handled each in the past few rate decisions. While the insurance commissioner has not always approved the increase in the pure premiums proposed by the WCIRB, he has typically approved the changes (most increases) in the ELRs with only minor adjustments due to the impact of changes in the expected off-balance amount.

For example, as of 1/1/2009 the WCIRB filed for a 16.0% increase in pure premiums.  The insurance commissioner approved a 5.0% increase in pure premiums but accepted the ELRs with only a 1% modification based on the off-balance factor change.

Question: Are certain mods more likely to increase as a result of these rate and rule changes?

While there are clearly no hard and fast rules about how a particular mod will change under the new rules, we have observed these trends in our analysis:

• For insureds with a mod above or below 1.00, the new mod formula will increase the gap from 1.00.
• For insureds with a high frequency rate – that is, numerous losses under the 7,000 split point – the new mod formula will increase the mod.
• For insureds with high severity – that is, relatively few losses greater than the 7,000 split point – the new mod formula will show little change.
• The new mod formula will penalize the smaller insureds while having minimal impact on the larger insureds.

We’d love to hear from you. Let us know if your experience and observations with mods under the new California rates and rules coincide with our analysis.

ModMaster update 09.11, available to our clients on Friday, November 20th, includes support for the California rates and the split calculation change recently approved by the California insurance commissioner, effective 1/1/2010. If you do business in California – whether you use ModMaster or not – you need to be aware of how these changes may affect your or your client’s workers compensation mod.

Our actuaries have been analyzing the data, and it’s going to take us a few more days to get more details in a form to share with you. (Don’t miss our previous post that excerpts the WCIRB summary of changes.) But we wanted to go ahead and alert you to a few key principles that may affect your mod under the new rules:

1. Our actuaries have determined that, on average, expected loss rates (ELRs) have decreased 6.4%. In fact, over 100 payroll codes had ELR decreases of 10% or more. While your results will depend entirely on the mix of payroll codes in your mod, an overall decrease in ELRs means that, if everything else stayed the same in your mod, you would have a good chance for your mod to increase in 2010.

2. An important loss level to keep in mind is $24,500. Under the new primary/excess split method, losses under $24,500 will have a greater primary value than they did under the old method.  Since primary losses affect the mod more than excess losses do, this is another factor that may drive your mod up, especially if you tend to have more smaller losses than very large losses. Losses over $24,500 will generate a lesser primary value than they did under the old method, so if you have only losses over $24,500, this may benefit your mod.

3. The best defense is to be prepared for a mod increase, and a good way to do that is to compute your old mod with the new rates and split method.  In ModMaster, this is easy to do (remember, you must be on update 09.11, code level 091118, or later):

• Select the desired mod file with a 2009 effective date, and note the current mod value. Use the Utilities/Copy feature to make a copy of the file with a new name.
• On the Company Setup page, change the effective date to 1/1/2010. Don’t worry that this isn’t the policy anniversary date, and don’t change any other policy dates or other data.
• Calculate the mod and see what the 2010 value would be.  You may want to look at your favorite ModMaster reports for the 2009 vs. 2010 files side-by-side, but don’t forget that the Mod Comparison report will do a quick comparison for you.

Of course, in the real world, your 2010 mod will have different payroll and loss amounts due to the oldest policy period leaving the experience period and the new policy period coming in. In the real world, there are also a lot of other moving parts to the mod formula aside from the ELRs and the primary/excess split values. Certainly not everyone is going to see a mod increase, and some entities will see a decrease. But our testing and analysis has revealed some cases of attention-getting mod increases.

More details of our analysis are forthcoming now available in the article More Details on the Significance of the 1/1/2010 California Workers Compensation Experience Rating Plan Changes. We’d love to hear from our users how the 2010 changes appear to impact the mod files they run with a 1/1/2010 effective date in ModMaster.

The fact that California Insurance Commissioner Poizner has once again rejected an increase in workers compensation pure premium rates (read the November 10th Insurance Journal article California’s Poizner Rejects Workers’ Comp Increase Request, Again) is almost overshadowing the fact that he approved other changes that will interest workers compensation agents and others advising clients in the work comp arena.

As stated in the WCIRB’s November 9th announcement:

The Insurance Commissioner approved amendments to the USRP include changes to the Standard Classification System and the elimination of the requirement of insurers to report social security numbers due to privacy concerns. The approved amendments to the ERP include (a) changes to the eligibility threshold, (b) classification expected loss rates, (c) the split formula used to segregate individual claims into their primary and excess components and (d) the ERP credibility (“B” and “W”) values.

This announcement undoubtedly prompts questions such as:

How will these changes to the California rating plan affect the mod?

Part B of the 2010 Regulatory Filings posted on the WCIRB site goes into the changes and their anticipated impact in great detail.  A brief summary (emphasis ours) lies in this sentence from page B:C-12:

While this methodological enhancement will improve the accuracy of experience modifications, the 2010 experience modifications for some employers will be impacted.

For those of you who are interested in learning more about the anticipated impact on the expected loss rates and the mod, we’ve packaged an excerpt of Part B in pdf form.

The first page (B:C-12) of the excerpt has a chart showing the impact on expected loss rates (not the mod itself) by industry sector that may be of interest. As you can see,  real estate, arts and entertainment, and outside sales are some of the areas where the expected loss rates will change the most, with utilities and construction, education, and administrative also showing fairly significant impacts.

The second page (B:C-36) of the excerpt makes it clear that while the overall statewide average mod is NOT going to change, there will be some variability.  The following pages, Exhibits 2.1 through 2.7, show the expected variation in the mod by size of account as measured by expected losses (Exhibits 2.1 through 2.5) and then by existing mod (Exhibits 2.6 and 2.7).

One of our actuaries, Jeff Adcock, consolidated the exhibit data into this spreadsheet (also available in pdf format) so you can have a one-page overview of the estimated impacts. The interesting thing about the existing mod analysis is how current risks with a mod of over 1.00 have a higher percentage of anticipated increase. Jeff is continuing to study the WCIRB documentation and may provide further analysis here on this blog, as warranted.

When will these changes be available in ModMaster?

The change in the split formula requires a ModMaster programming change. We were already working on this change prior to the commissioner’s approval and now have it in testing. This change – along with the new expected loss rates and B and W values – should be available within a couple of weeks.

In the meantime, if you already have 2010 California mods that you could share with us for testing purposes, we’d certainly appreciate you doing so – contact support for more information.

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.

Many of our readers have found themselves, at one time or another, in the unfortunate position of trying to explain why the workers compensation mod went up from the previous experience period. The possible culprits are numerous and have a lot of moving parts: changes in

• expected loss rates,
• payroll,
• overall loss experience, or
• the mix of loss types (frequency, severity and/or medical-only losses)

all contribute to a change in the mod. Of course, a change can be positive or negative depending on all the moving parts. Mod increases will occur, even if loss levels remain the same, if expected loss rates fall. Business owners don’t expect to pay more in premium when their business is down, but it’s definitely possible. So how do you get a handle on what exactly is influencing a mod – and premium costs – from one experience period to the next?

We know you already use ModMaster to calculate and analyze the experience mod calculation (What? You don’t? Learn more about ModMaster now), so in the past you would’ve undoubtedly used one of our many reports – perhaps the Loss Analysis by Policy Period, for example – to help see what’s happened with the mod from one rating effective date to the next. Still, that involved selecting the desired mod file and requesting the desired reports, then opening up the mod file for the previous experience period and requesting those reports. So much paper and time and looking back and forth from one page to another.

Find the new Mod Comparison report on the Reports and Graphs page of ModMaster.

But now (drum roll, please), that’s all changed. The new Mod Comparison Report, available in ModMaster update 09.08 and later, produces a two-page report that shows critical information for both the current mod file and a second mod file of your choice. Here’s how to use this report for best results:

1. First, let’s say that you have the 2009 mod for Favorite Client already loaded into ModMaster. You’re ready to put in data for the 2010 mod. Start by doing a File Utilities/Rollover of the Favorite Client 2009 to a new name, let’s say Favorite Client 2010. This deletes the oldest policy year of data (in this case the 2005 policy year) and “scoots” all the other data over on the payroll and small loss pages so that the newest column is empty and awaits your data input.

2. Input payroll and loss data (either estimates or actuals, if you have the data) for the newest policy data into the Favorite Client 2010 file. This would be the 2008 policy period for our example. Also make any other adjustments to existing payroll or losses to match the bureau worksheet.

3. Calculate the mod. If there are no errors, then proceed to the Reports Menu.

4. You’ll see that the Mod Comparison report is now a choice on the Reports Menu. When you click on this report and then click “Print Preview” or “Print Now,” the following dialog appears:

Mod Comparison report dialog

5. Now, here’s the important part: when you pull down the list of mod files, be sure to select the mod file for the same risk but only one year earlier. While ModMaster will attempt to compare any two files you indicate, this report is designed to compare mods that differ by one and only one experience period.  If you try to compare other mods, unpredictable results may occur, as we say in the software business.

6. After you select the mod file to compare to, click the “Run Comparison” button, and something like the following will print or preview. (Click the report image to view the report as a pdf.)

Mod Comparison sample report, page 1

Mod Comparison sample report, page 2

At a glance, you can see how much the mod changed from year to year, but just as importantly, how much the minimum and controllable mods have changed. You can also see what’s happened with the expected and actual losses: whether they’ve gone up or down, and what’s happening with actual to expected ratios.

In this case, we can see that the mod went up, not only because expected losses were down but also because the actual losses which dropped out of the calculation were less than the actual losses which were added for the 2008 policy period.

The new Mod Comparison report is based on a user suggestion we greatly appreciate. We’ve already had a new suggestion from a different user that we should also list payroll totals, not just expected losses. Give the report a try today and let us know what you think!

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

As you may recall, we launched WorkCompEdge last fall – just in time for the economic crisis. Since the downturn affected many sectors, including insurance and risk management, we’ve been especially grateful to our WorkCompEdge founding members and to all of our ModMaster customers who evaluated WorkCompEdge. Time and again, we’ve heard similar feedback, however, and that’s led us to make some changes to our WorkCompEdge licensing options we think you’ll be excited about. Here are the highlights:

Our new Agency Plus license represents some cool savings over previous WorkCompEdge license options for agencies and similar providers. Thanks for giving us your feedback!

IF YOU ARE AN AGENCY, BROKERAGE, INSURANCE COMPANY, CONSULTANT, PEO, TRUST, ETC.

For only $1,000 per year, the new and very affordable WorkCompEdge Agency Plus license offers agencies and similar providers the opportunity to access WorkCompEdge for internal training and coordination of service activities in 15 different areas that affect work comp costs, including:

* hiring practices,
* safety,
* the premium audit,
* mod verification and analysis,
* medical clinic relationships,
* return-to-work,
* and much more.

As you probably know if you’re a regular reader of this blog, site access includes to-the-point educational modules PLUS strategy and tools to help you evaluate a company’s entire work comp picture.

For an additional $500 per client, you can add the option for your clients to have direct access to WorkCompEdge and the WorkCompEdge Safety Training Center.

The Agency Plus license can be purchased as an add-on to your annual ModMaster subscription, or you can contact us for a prorated license until the time your subscription is due for renewal.

IF YOU ARE INTERESTED IN AN AREA “EXCLUSIVE” LICENSE TO WORKCOMPEDGE

For agencies who are eager for exclusive access to the benefits and competitive advantage of WorkCompEdge, we’ve enhanced the Member Agency Exclusive license to include custom marketing support, flexible employer seats, unique educational opportunities, and more. A number of our founding members have already converted to this license, which is priced at $850 per month. Some markets – including Albuquerque, Atlanta, Buffalo, Shreveport, and parts of Maryland, Minnesota, and Wisconsin – are already closed.

IF YOU’RE AN EMPLOYER

WorkCompEdge is still available through your favorite agent, broker or consultant on terms they specify. It’s also available directly from us for $500 per year.

FAQs

Q: If someone else gets an exclusive license in my area, does that affect my ModMaster subscription?

A: Absolutely not. It only affects your ability to be a registered WorkCompEdge user. You will still be an important ModMaster client, participate in our forthcoming WorkCompWisdom program, and glean valuable knowledge from our blog and other resources.

Q. Exactly what are the fifteen modules in WorkCompEdge?

A. A graphic showing all of the modules is at http://www.specificsoftware.com/wce/videointros.htm. Click on any of the module titles to see the short video introduction to that module. At $1000, we believe you’ll get your money’s worth by using even ONE of these modules!

MORE DETAILS

Learn more about the new WorkCompEdge license options at http://www.specificsoftware.com/wce/pricing.htm

If WorkCompEdge interests you, act soon! To order or inquire further, contact Helene Pellett at 800-929-4052 x 205 or helene_pellett@specificsoftware.com

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 our CEO Tim Coomer at http://www.linkedin.com/pub/timothy-coomer/2/a99/6 or 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!

Listen/subscribe to this blog on the WorkCompEdge podcast feed

 

by Kory Wells, WorkCompEdge Blog Editor

Several years ago, Specific Software conducted a survey about favorite online sources of insurance and risk management news and information. The survey garnered some media attention in the industry and was useful to us internally as we developed marketing and publicity plans.

But that was a few years ago! With the growth of both content and “2.0″ applications on the web, we’ve decided it’s time to resurrect the survey, with a few new questions geared towards not just information, but how you stay connected with colleagues and clients.

Whether you’re an insurance or risk management professional or a business insurance consumer, please take our survey “How Do You Stay Informed and Connected?” now.

While I’m on the topic of staying connected, this is a good time to mention that you can now follow WorkCompEdge on Twitter. I’m trying to tweet at least once a day with some sort of information about workers comp, general insurance and risk management, general business or technology news, or news about Specific Software and SIGMA Actuarial that I hope others may find interesting.

You can use Twitter for free simply through the Twitter website - using your cell phone is optional. I’ve found that starting just by using the web interface is a good, low-impact way to try it out.

In general, the insurance industry doesn’t seem to be embracing social media as quickly as other industries. But numerous activities, such as the recent AMS Users’ Group Social Media Road Trip, Insurance Journal’s promotion of social media webinars, and consultant Rick Morgan’s blog entry “Insurance Agents Don’t Market,” suggests that we are on the cusp of change when it comes to how we connect with each other and our clients.

We’d love to hear your thoughts in our survey – and in the blog comments!

Listen/subscribe to this blog on the WorkCompEdge podcast feed

Editor’s note: In today’s blog, Jeff Adcock, consulting actuary with our affiliate 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.

Listen/subscribe to this blog on the WorkCompEdge podcast feed

Editor’s note: I recently joined the Small Business Online Community sponsored by Bank of America. Among several interesting articles there, I was thrilled to find a safety guy talking about the workers comp mod. Robert F. Tilley, Jr. is the CEO of SafeTek USA, a company that provides knowledge, supplies, products and services to North American organizations ranging from small residential builders to the US Navy. SafeTek’s vision – “to help create safe and healthful workplaces, where quality is higher, mistakes are fewer, and costs are lower” – is quite similar to the mission of WorkCompEdge, and Robert’s article certainly has some points that should sound familiar to our regular readers. But he also brings the perspective of a safety professional and the business owners his company serves – along with some interesting statistics. The following article may give your company’s management, or your clients, some new food for thought.

If you are not motivated to have an effective safety program by either OSHA, the threat of fines or care for your employees, one thing that will motivate you is the actual cost of a workplace injury to your business.

At a recent speaking engagement for business owners addressing how to implement effective safety programs, I had a question from a member of the audience-we’ll call him Bob. Bob asked why he should invest in safety. He told me he has insurance if an employee gets injured, he has a safety manual, OSHA has never bothered him and the only employee injuries so far have been minor. Why should he do more if what he’s doing now is working?

“Well Bob,” I said. “How much will it cost your business if an employee falls from a roof, and how much have those ‘minor injuries’ cost you so far?” Needless to say, Bob, and everyone else in the audience that day, were quite surprised as we revealed the actual costs of workplace injuries to their businesses. Unfortunately, the only thing most employers are aware of is that they have to spend money to have an effective safety program, and that’s where the train stops. Successful companies, however, maintain very effective safety programs and pay the expenses involved even when business is slow and times are tough.

Most employers maintain some semblance of a safety program at their company, either because they care about their employees or because they’re required to by OSHA. OSHA violations can range anywhere from just a warning, to $70,000 per incident with recent proposed legislation asking to raise fines even further into the range of EPA violations. I would like to think that all employers care about their employees, but often profits come first. What does that mean? It means one thing is certain-all employers care about their company because of the profits derived from it. A for-profit business is created to make a profit 99.9 percent of the time. You carry insurance to protect yourself and your business, you plan ahead to avoid unforeseen costs and cut expenses where they are not needed to ensure you are as competitive as possible while maintaining a good profit margin.

Unfortunately, however, the cost of effective safety measures are all too often deemed an “unnecessary” expense. When business is slow, what is the first expense to get to get cut? You already know: the safety program. Normally the responsibility gets transferred to the HR manager, and training and other expenses are cut, which could really lead to disaster, especially for the new employee you just hired. If you are not motivated to have an effective safety program by either OSHA, the threat of fines or care for your employees, one thing that will motivate you is the actual cost of a workplace injury to your business. So how much does it cost?

Statistics and Costs

Every year in the United States there are over 6,000 workplace fatalities. The greatest majority of these fatalities are men ages twenty-five to forty-four, of which there are approximately 30 million in the United States. That means, using this example, just over 1 in every 6,000 men aged twenty-five to forty-four dies at work each year.

Even with these staggering numbers, this does not include deaths related to occupational illness. Another 50,000 workers die every year in the United States from occupational illnesses due to exposure to a workplace hazard. These occupational illnesses include asbestosis caused by exposure to asbestos, silicosis which can be acquired from concrete cutting operations (and any work involving exposure to crystalline silica dust if not using proper respiratory protection) black lung disease for miners, or brown lung disease for textile workers, etc. (Just an FYI, though not usually fatal, poison ivy is an OSHA reportable illness.)

In addition to deaths, there are over 6 million U.S. workers that suffer non-fatal workplace injuries with an estimated cost to U.S. businesses of around $128 billion annually. A person’s life or health is obviously priceless, but incidents and injuries carry a tangible cost to business, one quarter of each dollar of pre-tax corporate profits, to be exact.

The actual cost of a workplace accident or illness to your organization depends on a few different things. Costs depend on how many employees you have, how many incidents you have, the type of work you do and the value of your materials, products or services. For companies that may be experiencing a tough time financially, any losses are serious. Even for a large employer, losing an employee on a job who is skilled in their trade, for even a few days, can have a much larger impact on profits than the actual direct costs might suggest. With smaller businesses this would be magnified because they often have very little buffer when it comes to accidental losses. A serious incident could not just make it difficult to get by, but put them out of business. In fact, according to a recent study, 60 percent of companies experiencing a serious disruption that lasted more than nine days went out of business.

“But Wait, What about My Insurance? Isn’t My Business Covered?”

Insurance only covers what is detailed in the policy, and it usually only pays for serious injuries or damage. Workers’ compensation does cover all employee injuries, but you will end up paying for the cost of that injury and more-we’ll get into that later. Some of the costs that are not covered by insurance include lost time, sick pay, damage or loss of product and materials, lost time and failure to keep schedule, extra wages for overtime and temporary labor, investigation time and expenses, OSHA fines, loss of contracts, legal costs and loss of company reputation, to name a few.

The uninsured costs differ between businesses, the type of work being done, insurance and type injury. No matter how you look at it, though, the uninsured costs are many times greater than the insured costs. If your business is a ship, costs are like an iceberg. Most of the costs are hidden beneath the surface and are not immediately visible, but you feel it when you run into them. Studies have shown that the insurance premium to uninsured cost ratios for the construction industry generally range from 1:9 to 1:41. That means that for every $1 paid in insurance premiums, the company has to pay an additional $9 to $41 themselves for losses arising from incidents. Another way to look at it-uninsurable expenses often run up to as much as 4 times more than the actual costs covered by insurance.

Workers’ Compensation Insurance

It may surprise even the financially savvy how much you can save on your insurance by being safe. A poor claims record will affect the amount a company pays in insurance premiums. Depending on the number of incidents a company may have, insurance premiums can increase, and coverage may even be cancelled. Insurance companies set a base rate for a particular industry, and the number of incidents you have directly affects how much you pay as your base rate. This is called an experience modifier. Your workers’ compensation insurance premium is determined by this easy formula:

Payroll x Workers’ Compensation Rate x Experience Modifier

Workers’ compensation rates reflect the average claim cost per $100 of payroll. Workers’ compensation rates can take a huge chunk out of your profits if you are not safe. The average worker’s compensation rate for construction is 7 to 8 percent of your payroll, but can be lower for executives, around 2 percent, or 25 percent for more high risk activities. According to the U.S. Census Bureau, construction claims comprise around 21 percent of the total claims for all industries. This is quite a large number considering that only 5.7 percent of the U.S. workforce is in the construction industry.

An experience modifier of 1.0 means your company’s workers’ compensation claims experience is no better or worse than your industry. If you have a lower experience modifier, you pay less.

For example, if your business had a 1.47 experience modifier because of increased incidents and injuries and paid $85,958 in premiums, but reorganized, got serious about safety, and got down to a .82 experience modifier, your business would only be paying $47,950. That is almost a $40,000 savings. That $40,000 with a 9 percent profit margin equates to approximately $445,000 in new business each year!

There are other savings to be had. Many businesses find that by improving workplace safety and health standards, their investments are repaid by improved productivity and efficiency, less employee absence, good company reputation, less turnover and improved quality of work. Tackling the causes of incidents and injuries is not unnecessary overhead, but an investment in your business. An investment in an effective health and safety program is as valuable as any other for your company. The American Society of Safety Engineers found in a recent study that for every dollar spent on a quality safety and health program, businesses saved $8. That’s a healthy return on investment.

An investment into an effective safety and health program for your business is just that, an investment. Not only is it unethical to risk an employee’s health or safety to save money and cut costs, but in reality, it does just the opposite. It creates unnecessary risks, costs and headaches. A safe company with limited incidents and injuries will not only have an increased profit margin, but will be more appealing to potential clients and good employees. Successful businesses plan for the future, for growth and for potential risks. Safety should play a key role in your strategy and is the reason long-term successful businesses invest so much into their safety and health programs, because as I am sure some of you know, gambling isn’t a good long term, or short term investment. Play it safe with safety. You may skimp by for a while, but the house always wins.

Listen/subscribe to this blog on the WorkCompEdge podcast feed

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Maybe you’re in an agency that’s considering WorkCompEdge. Or maybe you’re already an agency member. Integrating WorkCompEdge into your sales and service processes is admittedly a task that takes some thought and – that dreaded word – change. WorkCompEdge member Garry Watts of the Winona Agency acknowledges it isn’t easy. “I’m a producer,” he says, “and we don’t think ‘process-oriented.’” But, in a new audio interview available here on our corporate websiteand as a podcast feed, Garry also goes on to offer encouragement for – and his experience with – implementing WorkCompEdge.

Today’s blog marks the first time we’ve published the blog as a podcast. Would you like all WorkCompEdge blog entries delivered as a podcast? Let us know!

“WorkCompEdge seemed to be a missing link for us,” he says. “We think the return on investment is very high.”

WorkCompEdge contributor Frank Pennachio, another agency owner and work comp trainer, also lends his thoughts on how WorkCompEdge helps agents lead and engage employers and how various work comp training programs integrate with WorkCompEdge.

(For our Member Agencies, Frank and Garry will be continuing this discussion in more depth in a web-enabled roundtable discussion in July – watch your inbox for more details.)

Thanks to Jack Burke, president of Sound Marketing and host of the popular insurance programs “Audio Insurance Outlook” and “Insurance Talk Radio,” for conducting the interview.

For you podcast subscribers out there, this blog marks the first time we’ve pushed audio to a podcast feed. Be sure to subscribe, and let us know if you’d like all blogs available as a podcast! It won’t always be Jack’s professional voice, but we’re willing to give it a try if the interest is there!

Subscribe to the WorkCompEdge podcast feed

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Workers compensation consultant, writer and trainer Margaret Spence of Douglas Claims and Risk Consultants has founded National Return to Work Week and is observing it now (May 11-15, 2009) for the first time with a free virtual conference. Here are a few of the seminar topics coming up in the remainder of the week:

• Physician Where Art Thou – Medical Management
• Best Practices – Workers Compensation and Beyond – From a Defense Attorney’s Point of View
• I’m Injured and I Can’t Come Back to Work
• Engaging Employees With Disabilities – Getting Them Back to Work

“Kory,” you might say, “it’s a whole week of free events. And this is Wednesday afternoon. Why didn’t you tell me about this sooner?”

“Well,” I would say sheepishly, “that might have something to do with me not opening every email I receive in the most timely manner. Not yours, of course.”

But all is not lost! The seminars we’ve missed are recorded and also available. These include:

• Disability is a Daunting Task – Right?
• The Flip Side: Attorneys and Return to Work
• Vocational Retraining: a Viable Return to Work Option

and many more. Speakers include attorneys, an ergonomics specialist, a medical doctor, human resource professionals, Ms. Spence, WorkCompEdge contributor Frank Pennachio, and others.

Visit www.brighttalk.com/summit/nationalreturntoworkweek

This initiative mirrors many of the principles we advocate in WorkCompEdge, and we congratulate Ms. Spence on her leadership and vision.

http://www.WorkCompEdge.com
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Part 4 of the series “The Power of Intentionality”: Part 3

Those of you who are regular readers know that my early career was spent as a systems analyst in the defense industry. If you’ll bear with me mentioning it again, that job taught me something that applies to today’s blog: focusing on one piece of a large, complex system can easily lead to weakness in other parts of the system. And, elements that will challenge a system – such as ballistic missiles – will find the weak parts of the system and potentially take advantage of them.
Is your work comp focus too narrow?

With work comp being as big and complex as it is, it hardly feels like I left defense systems. Many of the same principles apply, and here’s the principal weakness I see with how employers try to manage work comp: During the past several decades, employers and the risk management industry have focused on safety as the ultimate solution to lower workers compensation costs. But despite the tremendous effort put into safety training – and the significant gains in work place safety – many employers still struggle with workers compensation losses as a significant and often unpredictable expense.

• hiring someone with a medical history that comes back to bite you
• having the attitude that accidents are inevitable
• assuming that human resource and medical personnel communicating with an injured employee is enough
• not understanding how important it is to get an employee back to work, even if on modified duty
• being satisfied with a mod of 1.0
• buying work comp insurance with a “low bid” mentality
• and so much more!

 

Editor’s note: I’m here to confirm that Tim really can juggle, although as far as I know, he’s exaggerating about the flaming sword routine. However, if you talk to him, ask him about his unicycle!

The principles of juggling apply to managing many components of a big system such as work comp:

1. You have to touch each object on a regular basis. In other words, you can’t focus just on safety, or just on return-to-work, or just on the mod. There are 15 WorkCompEdge modules, and eventually, you should be using all or most of them.
2. You have to manage your speed. For example, this is why we recommend quarterly reviews of data in the Verify Your Mod module and workbook. This is why your actions in the first 24 hours following an injury are so important.
3. You have to manage your accuracy. If your payroll isn’t classified correctly, you may be paying too much in premiums. If your losses aren’t classified as medical-only when applicable, your mod may be much higher than you deserve. If claims aren’t closed in a timely way, it can affect your mod. These are just a few examples.
4. The right kind of object will make juggling easier. You don’t start out juggling flaming swords (I’ll post the YouTube video of me doing that soon.) The right tools and automation are going to help you maximize your success. Enough said!
5. Starting with a small number of objects is easier. This is why we have our Getting Started quiz, to help you prioritize which issues you should consider first.
6. Of course, you get better – and can juggle more – with practice. This is why module after module in WorkCompEdge urges you to come back and reassess on a regular basis.
7. And finally, at any given time, you have to have a mind’s eye view of where each object is. As you practice more, you develop this ability – and even an intuition – that helps you continue to improve.

 

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Prior to my career in defense, I fueled planes at an airport, where there would sometimes be fairly long delays between flights destined for our terminal. During the downtime, I taught myself to juggle. I still keep beanbags in my office to entertain and relax myself (and to challenge our blog editor Kory Wells, who has yet to get the hang of it).

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.

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Today we continue the series inspired by the marathon goals of our actuarial analyst Tony King. Now that we’ve outlined all that being intentional encompasses in part 1, let’s talk more about the root of it all: a vision.

“If you want to reach a goal, you must ‘see the reaching’ in your own mind before you actually arrive at your goal.”- Zig Ziglar
A vision statement often takes the long view: a bold statement or dream for the future.

Whether it’s for an individual or an organization, a vision drives all other components of intentionality as you strive for the knowledge, intelligence, measurements, discipline, and repetition it takes to reach a goal or level of achievement. In Tony’s case, the vision could be simply stated: he wanted to qualify for the Boston marathon. But a vision statement can be considerably more complex, especially for an organization.

Do I hear some of you groaning now? I’ll admit, the words “vision statement” can conjur the image of a slow and painful staff meeting, something we avoid as much as possible here at Specific Software and SIGMA. But Zig Ziglar hasn’t been talking about goals and visualization techniques for all these decades for no reason.

So, what’s your vision for your workers’ health, safety and productivity, and how should you define it? What things should be considered? Here is a list of questions to get your thinking on the right track.

• What type of workplace do you want to have?
• What is the culture you are trying to create?
• How does the wellness of your employees affect your business, and what is your business’ role in supporting employee wellness?
• How is safety viewed within your organization?
• What is your view of and relationship with OSHA?
• What is the relationship between management and line employees?
• What responsibility do you have in gathering and determining the accuracy of data pertaining to the premium audit?
• Should your organization take time to understand, analyze, and manage the experience mod?
• Are you trying to buy the cheapest insurance possible or do you have a broader goal?
• Do you have a vision for how your agent and insurance company should serve YOU the CUSTOMER?
• Do you or should you have a leader who oversees many aspects of injury management?
• Is there a commitment to having a relationship with a local clinic?
• Do you know what happens right after an injury occurs and how your organization will respond to it?
• How are injured employees treated?
• What do the processes you go through to hire someone look like?
• How is an injured employee returned to work?
• What is the driving force behind your organization?

This list presents a lot of questions to help you form a vision that will guide you through the remaining principals of intentionality. Your complete vision might look something like this:

Does this seem like a tall order? It’s OK if it does! I even considered saying that XYZ is committed to a culture that eliminates all injuries. After all, a vision statement is often the long view: a bold statement or dream for the future. For more about leadership and vision, see An Interview With Leslie Kossoff on Management Leadership Skills, or chapter 10 of The Leader’s Guide to Storytelling by Stephen Denning, which gives a template and considerations for crafting a “future story,” which is what a vision is.

Of course, having a vision statement is only worthwhile if you compare the actual conditions of your workplace against your vision on a regular basis and work to make needed changes…which is where we’ll pick up next time with how knowledge applies to the power of intentionality.

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. A full article addressing layoffs and terminations, discrimination, duties of the employer to comply with state and federal laws, and more about the human costs on both the laid off and remaining employees is available to WorkCompEdge members on our wiki. For this blog, 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.

Don’t miss the full article on this topic, available to WorkCompEdge members, on our wiki.

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Perfect and yet attainable scores apply to many areas of life: credit reports, bowling, the game of Yahtzee, and ACT college prep exams immediately come to mind. These are cases in which the higher the score, the better. Less commonly, an excellent score is represented by a low number: as our director of strategic consulting Lloyd Kelley would be quick to point out, golf is an example, even if it doesn’t have a true perfect score.

If your mod was a game of golf, you’d 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 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, as shown in the report example below, a large company with a mod of 0.98 may think they are doing quite well, however, since they have a controllable mod of 0.22, there is significant room for improvement – which in this case translates to a $44,000 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.

Here’s a snippet of a sample WorkCompEdge Proposal Report that shows the minimum mod and controllable mod – and how much money this company could be saving!

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.

Ask your insurance agent to show you your minimum and controllable mod values – and estimate the premium dollars you can save by attaining that perfect score. A WorkCompEdge agent can do this using the WorkCompEdge Proposal Report from our ModMaster software. WorkCompEdge members can also use the WorkCompEdge QuickMod tool in the module Learn the lessons your experience mod can teach you to obtain this valuable insight.

Our blog earlier this week about staffer Tony King’s marathon training and intentionality seems to have started a trend: WorkCompEdge regular contributor Maureen Gallagher is also preparing for a big physical challenge ahead of her, and we’re hoping WorkCompEdge readers might help. Maureen, who’s also a partner with Neace Lukens, is going to be fighting childhood heart disease – and testing her own physical limits – in the grueling Carew Climb, part of the Skyscraper Vertical Mile challenge, on Sunday, February 22 at Cincinnati’s Carew Tower.

Specifically, that means she’ll be climbing and descending the Tower’s forty-five floors ten times, with another eight floors and six steps thrown in just to round off the total distance to one mile up and one down—a total of 3,780 stairs in under three hours. And by auctioning off each one of those stairs, she’s hoping to raise enough money to send twenty kids to camp through Hope With Heart as well as raising money for the American Lung Association, the Climb’s sponsor.

Established as a summer camp experience, Hope With Heart provides year round support and friendships for its campers. The camp, now in its tenth year, is unique because it accepts high-risk children with limited life expectancies. The camp has children with varied heart problems such as valve replacements, pacemakers and transplants. Providing a recreation and social eight-day camp experience for children ages seven to fifteen, Hope With Heart has transformed the lives of more than 400 children with serious heart disease through the generosity of contributors.

As you may know, we have two affiliated businesses under one roof here at Specific Software and SIGMA Actuarial. Our actuaries hang out on the “south side” of the office, while most of our software staff is located on the north end of the floor. This provides us with the opportunity to kid each other about where the brain power resides. One of my favorite targets for this friendly ribbing is actuarial analyst Tony King.

SIGMA actuarial analyst Tony King has been very intentional about his marathon goals. At WorkCompEdge, we believe the components of his intentionality can apply to any goal, including a new vision for your company. Photo courtesy of Mike Stanfield.

Tony is mild mannered, humble, intelligent, highly disciplined, and focused. But, as he recently taught me by example, he’s also very intentional in working toward his goals. Tony has been a runner most of his life, although he took a break from it while his children were young. Now he puts in about 60+ miles per week. Last year he decided to step up his training in order to decrease his time and qualify for the Boston Marathon. Popping into his secluded south side office ever so often, I kept up with his progress and learned a lot that can apply to any goal:

Being intentional requires specific knowledge

Tony bought Lore of Running – and actually read it. (I have a copy collecting dust on my bedside table.) Gathering the knowledge one needs to effect change is a crucial first step that takes initiative.

Being intentional requires whole system intelligence

Tony then put the knowledge from his reading into practice. Knowledge is, in my definition, information and facts. Intelligence is a more abstract concept that involves applying knowledge to the whole system or “big picture” – in this case, Tony’s body and environment – to the challenge at hand. Intelligence includes a healthy dose of creativity, reason, and abstract connections between seemingly unrelated items to bring about change and improvement. It is one thing to read the Lore of Running, but is an entirely different level of functioning to know what the heck it means to you!

Being intentional requires quantitative measurements

Tony strapped on numerous electronic devices and gathered heart rate, distance, time, and speed data he needed to measure his progress. He then downloaded this data to a computer and gained insight that led to new questions and new measurements – and thus the feedback loop got tighter and tighter. Some of his insights – like how his heart rate correlated with his endurance – were new for him. They also led to new strategies, such as starting slow and ending fast. Some of his discoveries were not intuitive, thus proving the value of lots of measurements and an unbiased analytical approach.

Being intentional requires discipline

Tony used his knowledge, intelligence, and quantitative measurements to develop and execute specific action plans. Most of us can figure out what to do to a reach a goal – it is the doing itself that we struggle with. Discipline overcomes that emotional resistance.

Being intentional requires repetition

After going through the process above, Tony wasn’t sure he was where he needed to be, so he started the entire process over again. He reached out to new experts, identified road blocks, doubled his efforts, measured data again, tried new things. He persevered.

Being intentional produces results

Tony was shooting for a time of 3:15:59 to qualify for the Boston Marathon. He ran the Marshall University Marathon in West Virginia and finished with a time of 3:15:28, trimming about 30 minutes off his previous personal best!

So, when did Tony succeed? Would this have been a worthwhile effort if he finished with a time of 3:16:00? Certainly! The moment Tony decided – to the exclusion of all other options – that he would pour his heart and soul into creating a new level of performance, he created a new reality for himself. Which brings me to my final point:

Being intentional requires a vision

I don’t use the word decision lightly. A true decision leaves no alternative because it’s based on a vision of where we want to be. Arguably, the vision – of qualifying for the Boston marathon – is the first thing Tony had in this process. But he also kept that vision foremost in his mind. A solid vision guides our decisions and provides opportunities for the future.

So what’s your vision as an employer? What’s your “Boston marathon” goal?

In our local area, a radio commercial for a life insurance company seems to run about ten times a day. In a dramatic voice, the announcer explains that we all need life insurance for the “unforeseen.” It is exactly the “unforeseen” that causes so many of the severe and tragic workers compensation losses that our actuarial firm sees in the the analytical consulting projects we do. 

You CANNOT “punt” on planning and training for foreseeable emergencies and catastrophes – because this is what is going to save you or mitigate damage when the significant unexpected event occurs.

While I sat in traffic recently and heard this commercial for what must have been the 1,000th time, I quickly ran through some of the “unforeseen” things that I’ve personally experienced in my lifetime. Have you ever done this? It is amazing how many things we all must confront in the normal course of life. Here are a few of the highlights for the ones that worked out well for me:

• Having at least 6 trips to the emergency room for injured kids (broken bones, car wrecks, head injuries – oh! the joys of parenting).

• Being the passenger in a high speed car crash. (The car was totaled – I was lucky to survive with recoverable injuries!)

• Having the doctor tell my wife and me that our unborn child had a 0% chance of being born. (The doctor was wrong – the kid is awesome.)

• Living through a house fire. (The house didn’t fare too well, but family did.)

• Confronting a home intruder. (I used my most intimidating primal scream!)

• And my personal favorite, which goes back a while – being chased by the neighborhood German shepherd when I was 8 years old!

Thoughts of these could-have-been disasters brings me to the question: How do you prepare for the worst possible scenario, the unexpected, and the catastrophe that could threaten your business? Some employers believe you can’t prepare and therefore don’t bother. However, I recently got another perspective on this when I had the opportunity to hear Rudy Giuliani speak.

Rudy is a great speaker. Watching him live is very inspiring. He is an effective story teller and, as you might guess, has some pretty amazing and powerful stories to relate. Rudy asked the question, “How do you prepare for the unknown?” Obviously, there was no way the city of New York could have prepared for the 9/11 catastrophe. While I am sure the volumes of studies done on the response find areas for improvement, the city of New York can be proud of how it dealt with this unimaginable scenario.

Rudy shared his theory on this: “Prepare for everything known and you will be prepared for the unknown.” He goes on to describe how the city had action plans for specific disaster scenarios. Each plan was divided into components and each component was then well researched, planed, and rehearsed. One example might be setting up a triage near a large industrial accident. Despite the extensive preparation that the city had undergone for various disaster scenarios, there was no plan for the collapse of the World Trade Center twin towers.

When Rudy arrived on the scene, he began to direct all the city’s departments to pull components of other emergency plans together to create, on the fly, a custom response to the emergency at hand. Because they had planned for everything they could imagine and had their plans compartmentalized into specific function areas, they were able to respond to the unimaginable. While I cannot do this story justice as Rudy so passionately does, I can relate this to the importance of disaster planning for an employer. You CANNOT “punt” on planning and training for foreseeable emergencies and catastrophes – because this is what is going to save you or mitigate damage when the significant unexpected event occurs.

In more recent news, the US Airways captain who successfully protected the lives of his passengers and crew after losing both engines on his Airbus 320 after takeoff probably never trained specifically for so masterfully using the busy Hudson River as an alternative runway. But, if you read his resume you will notice that Captain Chesley B. “Sully” Sullenberger III had, in addition to his training as a pilot, extensive experiences related to safety and risk management. He had practiced, without doubt, thousands of emergency situations over his 40 years of flying. He had studied safety and participated in accident investigations. His training and experience also included glider flying – a handy skill when your Airbus becomes a 160,000 lb glider over one of the most densely populated cities in the country. So what was the payoff for the untold hours of training and emergency drills for theoretical situations that never actually happened? A miracle!

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

If you’ll indulge us a moment of shameless self-promotion, we’re excited to share with you that WorkCompEdge has been awarded Best of Show for “distinguished technical communication” in the 2008 Technical Communication Competition sponsored by the middle Tennessee chapter of the Society for Technical Communication (STC). 

The judges particularly mentioned this WorkCompEdge video from the Avoid Low Bid Mentality module about “you get what you pay for.” If you have trouble viewing the video above, try this link.

We received top honors from the judges, whose written statement about the site included the comments:

• “extremely well-planned”
• “intelligently thought-out”
• “design planning that accounts for all learners”
• “concise, clear and useful topics”
• “entertaining and impactful visual ideas” (our videos also won an award for excellence in the “promotions” category)
• “perfectly executed”

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

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.

A full article addressing these areas and examples from many states is available to WorkCompEdge members on our wiki in pdf format. The “Legal status of new hires” checklist and sample letter is also new content available in the More Depth section of the Avoid Hiring Your Next Workers Comp Injury module.

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

In our last blog before the holidays, I was telling you about the materials in Jim Rohn’s Weekend Leadership Event. I wanted to mention Mr. Rohn one more time, in view of the resolutions that some of us may have made for the new year. Let’s talk about some of Mr. Rohn’s suggestions related to personal growth. What? Do I hear you groaning? No, I’m not trying to talk you into some new fitness or sales goal. I’m suggesting instead that the principals and observations that Mr. Rohn makes about personal growth easily translate to challenges employers face – and to the work comp resolutions you’ve made for the new year. You have made some resolutions, right?

Successis nothing more than a few simple disciplines, practiced every day. – Jim Rohn

Discipline is remembering what you want. – David Campbell Founder, Saks Fifth Avenue,quoted in 100 Ways to Motivate Others by Steve Chandler and Scott Richardson

Will these changes get you to success overnight? Most of the time, no – but as with personal goals, if you change your thinking and your habits, your world will change!

First, he says, you have to study how to stay healthy

If you’re an employer struggling with work comp costs, it’s critical that you decide to engage in the study and practice of business processes that will eliminate your work comp issues. This is a commitment to read the latest blogs, journals, and books (and all that handy WorkCompEdge content, if you’re a member) and to understand what a “healthy” business with low work comp costs looks like.

Second, you have to actually do what it takes to become and stay healthy

Of course we all know that only reading about good business and work comp practices isn’t enough. One employer recently told me that if they conducted a drug test on every job applicant they wouldn’t be able to hire anyone! Now, that seems like a problem to me – did I miss something? I wanted to ask if they had considered the liability cost of a deadly accident. To use the personal health analogy, you can’t be slamming back the junk food at lunch every day and not expect to eventually pay the price… which leads me to my next thought.

Daily habits matter

It may not happen until your forties or fifties, but a daily lunch of junk food will catch up with you. Conversely, let’s say you’re 30 pounds overweight and switch that junk food lunch to salad and fruit. Changes won’t happen overnight, but changes will occur. The point is, you can get away with errors in judgment for a while and fall into a false sense of “it doesn’t really matter.” But, as Mr. Rohn says, “everything matters.” Eventually, sloppy business practices – such as ignoring good hiring methodologies, expecting that a perfect safety rating is not realistic, or failing to train supervisors on their “soft skills” when dealing with injured employees – will cost an employer an enormous amount.

Do the disciplines

The daily, weekly and monthly business processes which we describe within WorkCompEdge will begin to transform a business and lower work comp losses. Will these changes get you to success overnight? Most of the time, no – but as with personal goals, if you change your thinking and your habits, your world will change!

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