January 2013 Archives

January 30, 2013

 

When Cassandra warned the Trojans about a peculiar looking horse, she was ignored. In a somewhat similar vein, the Insider has predicted potentially dire consequences of an aging workforce: unable to retire, some older workers labor to the breaking point and then might hope to parlay workers comp into the retirement plan of last resort. So far it has not turned out that way. But a new study by Sage Journals confirms some of our concerns about risks among older workers and possibly even explains why fatally injured older workers might not show up on comp radar.

The Sage researchers set out to examine the relationship between fatal falls and age. They focused on the construction industry, which comprises only 8 percent of the American workforce, but generates 50 percent of all fatal falls. The frequency of falls among younger workers (here defined as under 55) was higher, but older workers who fell were more likely to die. (Kudos to Sage for defining older workers as 55+ - as opposed to the fairly meaningless federal standard of 40+.) The greatest risks for fatal falls occurred, not surprisingly, among roofers, iron workers and power line installers. Among roofers, older workers had a fall rate of 60.5 fatalities per 100,000 workers, compared to 23.2 fatalities among younger workers. Older workers were more likely to fall from ladders. In addition, their fatal falls could occur at substantially lower heights than the fatal falls of younger workers.

Where's Comp?
As we continue to zero in on the problem, the workers comp dimension comes into focus. Fatal falls among older workers were more likely to occur in residential settings - worksites less likely to be overseen by OSHA or state authorities. And fatal falls were more likely to occur among small contractors, many of whom were sole proprietors. The study points out that nearly 40 percent of construction workers 55+ are self employed.

Therein may lie one of the clues to the mystery as to why workers comp costs among older workers have not risen at the rate we once anticipated. Among fatalities, a substantial portion of the workers were independent contractors and thus did not carry workers comp coverage; many states preclude coverage for sole proprietors. Even in states where independent contractors are allowed to enroll in comp, most did not bother, as the cost, often based upon the state's average industrial wage, is well beyond the means of a part-time, self-employed craftsman.

Case in point: In Massachusetts, a relatively low cost state for comp, the rate for roofers is $26.10 per $100 of payroll; the state average industrial wage is $42,700. A sole proprietor roofer would have to pay over $11,000 to secure the protection of a comp policy, even if his annual billings were less than the average industrial wage.

The Sage study points to a number of factors in the severity of falls among older workers. Over time, we all succumb to the biomechanics of aging: slower reaction times, decreased joint mobility, reduced elasticity of tissues and loss of strength. Based upon my own experience, mix in a little forgetfulness, an occasional lack of coordination, and you have a potentially toxic mix, especially in the context of heights and ladders.

Unbroken Falls
The aging workforce is not about to go away. The Sage researchers point out that older workers - again, 55+ - totalled 17 million in 1998, reached 27.9 million in 2008 and are projected to reach 40 million by 2018. The median age in construction has gone from 34 in 1985 to 41+ in 2009; in the same period, workers 45 to 64 went from 25 percent to 34 percent of the workforce.

Given the absence of strong safety oversight in residential construction, the inevitable aging of the workers who perform residential work and the common use of ladders, we can expect the trend of fatalities among older construction workers to continue. The impact on workers comp is another matter altogether. It appears that many of the aging craftsmen working on our homes are independent contractors. When they fall, there is little or no safety net between them and the cold, hard ground.


Thanks to Julie Ferguson for the heads up on this research.

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January 29, 2013

 

With ice encrusting a huge segment of the nation today, it's a good day to think about your organization's stance on telework. Are your employees among the 20-30 million people who work at home one day of the week or more? That's the most recent estimate from the Telework Research Network. They report that "Regular telecommuting grew by 73% between 2005 and 2011 compared to only 4.3% growth of the overall workforce (not including the self-employed)."

Telecommuting has a lot of benefits for employer and employee alike. A few of the benefits include:

  • Reduced traffic congestion, commuting time and costs - it's an environment-friendly option
  • Risk management in addressing disruptive nuisances such as weather and seasonal flus that pose threats to employee health and safety
  • Enhanced business continuity in emergency situations resulting from more extreme and catastrophic events
  • Improved job satisfaction and morale for employees, and a tool to strengthen work/life balance and reduce stress
  • Expanded pool of available workers, offering more flexibility for workers with disabilities, older workers,and workers with dependent care or caregiver responsibilities

Carol Harnett wrote more about the benefits of flexibility in the wake of superstorm Sandy in her article Telework is Good for Business, which appeared in Human Resource Executive. She credits telework policies as being "the keys to keeping many organizations - and even the federal government - open for business before and after Sandy's arrival."

The government as an early adopter
More than 20% of eligible federal employees now telework, with telework defined as work that occurs as part of a regular schedule. There's been a marked increase since President Obama signed the Telework Expansion Act of 2010. Roughly 21% of federal workers teleworked in 2011 compared to 10% teleworked in calendar year 2009. See the full report to Congress: Status of Telework in the Federal Government

Telework.gov is the official website of the federal government's telework program. While the site pertains specifically to the federal work force, it provides an interesting case study and reference point for employers on issues of policy, practice, training and more.

Workers Comp & Telecommuting Resources
Telecommuting and -based work opens a lot of compensability issues should an injury occur so policies and procedures need to be thought out carefully in advance.One of the best articles on the topic that we've seen is John Stahl's Mobile Workforce Issues: Home-based Employees and Traditional Workers Subject to Same Standards, which covered a session on the mobile Workforce at last November's Workers' Compensation & Disability Conference. Mark Noonan also has a good overview of some of the issues related to telecommuting and workers' comp, including tips to avoid claims.

Additional resources
Safety Checklist for Telecommuters

Telecommuting: Are Employers Liable for Home Office Injuries?

Promoting safety among lone workers

Telework / Telecommuting - resources from the Canadian Centre for Occupational Health & Safety

Five tips for successful telework

Technology tools for effective telework

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January 25, 2013

 

Research & Studies
New NCCI Report: Medical Services for Claims 20 or More Years Old - "According to NCCI, it is likely that more than 10% of the cost of medical benefits for the workplace injuries that occur this year will be for services provided more than two decades into the future. That percentage has been growing and might continue to grow." Related: In workers' comp, it's the tail that'll kill you - Joe Paduda

Prior Relationship Common Factor in Workplace Homicides: Study Offers Guidance - At LexisNexis, John Stahl reports on a study that addresses the related phenomenon of workplace homicides in which the assailant has a relationship with either the business or an employee.

Study on Fatal Falls Among Older Construction Workers - from CPWR-The Center for Construction Research and Training, Silver Spring, Maryland.

Putting a price on the hassle of preauthorization - "The first study of its kind attempting to document the true cost to physicians of insurer-mandated prior authorizations has delineated what researchers say is most likely just the tip of the iceberg."

How Much Can Workplace Wellness Programs Save? - 18 percent -- and even more for older workers, reports a study in the January Journal of Occupational and Environmental Medicine.

News & Views
Upper Big Branch Mine superintendent sentenced - "A former Upper Big Branch Mine superintendent was sentenced to nearly two years in jail for his role in a plot to skirt safety rules and cover up the resulting hazards at the Raleigh County operation where 29 miners died in an April 2010 explosion."

Work Comp and Independent Counsel - Dave DePaolo

Inside A.I.G.'s Decision Not to Sue

Charts: Suicide, PTSD and the Psychological Toll on America's Vets

Women Account for 72 Percent of the Decline In Union Membership from 2011 to 2012

On Being awesome: Who can you delight today?

The High Cost of Taking a Sick Day

A Look at New Insurance Laws Taking Effect in 2013

Medical groups praise Obama's gun-control plan

Health & Safety
Reminder: OSHA Logs MUST Be Posted Feb 1

The Painful Subject of Progressive Disciplinary Policies for Drivers - "This policy addresses steps to take following accidents or incidents as well as how to respond to new convictions you find during your annual MVR checks."

Portable Fire Extinguishers: Part 1: Identification & Visibility and Part 2: Maintenance & Recordkeeping.

Retailers Launch Safety Data Sheet Initiative - The Retail Industry Leaders Association (RILA) has launched a safety data sheet initiative to streamline the process for the safe handling of chemical products

What Can You Do to Prevent Accidents Caused by Worker Fatigue?


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January 23, 2013

 

Life is just plain risky. Welcome to the biweekly grab-bag of risk related issues. We are pleased to be hosting this week's 127th roundup. As a theme, we've chosen to intersperse our entries with a humorous look at risk via a few clever clever insurance commercials from the Netherlands insurance firm Centraal Beheer (hat tip to Consumer Insurance Blog for the levity.)

We open this week's posts with an entry from our fearless leader and Cavalcade founder, Hank Stern. What's on his mind this week at InsureBlog? Risky Bulbs. He highlights (ahem) reports that those newfangled curly bulbs may be a lot more dangerous than we'd thought, increasing one's risk of burns and exposure to UV radiation.

If you require any medical treatment after your encounter with the hazardous bulbs, you may be in fro sticker shock. Jaan Sidorov of The Disease Management Care Blog posts about hos The $5 Billion Price Tag for medication errors and injectable drugs.

The good news is that even if your treatment is expensive, at least you should be able to get good care. At Health Business Blog, David Williams dispels the myth that there is a nursing shortage. He tells us that there's oversupply right now and with technological change there's reason to believe no shortage will ever arise.

In thinking about hospital care, one might wonder how they manage their own costs for healthcare... Jason Shafrin, The Healthcare Economist investigates how much money hospitals spend insuring their own workers.

At Colorado Health Insurance Insider, Louise takes a sobering look at health insurance costs to the individual under the ACA. She explains in detail why it is likely that costs will go up substantially.

My Wealth Builder looks at his own experience in maximizing insurance benefits and minimizing out-of-pocket costs, sharing what he's learned in Insurance Out-of-Pocket Cost Management.

Moving away from medical and healthcare risk and into other insurance and finance matters...

This week, we celebrated the pageantry of the presidential inauguration - an event that pleased many but not all of our fellow citizens. Democracy is messy. But Russell Hutchinson, our favorite blogger from down-under, gives us an object lesson in why we should be grateful that we live in a democracy in his post Supervision of the Insurance Industry - Fijian Style.

Not that our own insurance system isn't sometimes very flawed. At his Insurance Claims and Bad Faith Law Blog, Dennis Wall posts that refusing to pay valid Sandy claims is just bad faith. He notes that at least one Representative changed from a nay to a yea vote after seeing with his own eyes how Sandy made needy victims out of so many people and businesses.

Insurers can improve their chances of a good outcome when following the Boy Scout motto of being prepared. At Workers Comp Roundup , Rebecca Shafer posts about implementing electronic claims management systems to gather all information necessary for high quality claims management.

And here at Workers' Comp Insider, we deal with the risks of getting old. At My colleague Jon points out that our century-old workers' comp system is poorly equipped to handle the increasing numbers of older workers in the modern workforce.

In this final segment of our risk review, Ken Faulkenberry of the AAAMP Blog suggests that a good risk control approach is to focus on what you can control, good advice for life in general, as well as for your investment portfolio.

At the eponymously named Life Insurance By Jeff blog, Jeff Rose reminds us that coverage needs change throughout fluctuations in jobs and life situations. A 15-year term life policy might be a better option than a lifetime policy.

Does everyone need life insurance? What about someone who has no income to replace? Jacob @ My Personal Finance Journey makes the case for why homemakers should have life insurance - and plenty of it!

That wraps up this edition. Keep an eye out for the next issue of Cavalcade of Risk, which will be hosted by Dennis Wall at Insurance Claims & Issues.

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January 17, 2013

 

Health Wonk Review: The Inauguration Edition is freshly posted by Chris Fleming at the Health Affairs Blog. Here's a preview: 2013 predictions, healthcare spending, risky behaviors, nursing workforce projections and more. A good and substantive edition: Get your wonk on.

Electric car crashes could pose new risk for first responders - With the proliferation of hybrids and new technologies, emergency workers that respond to the scene of an auto accident could be subject to shocks from batteries that have not powered down. See our prior post on Electric Vehicle Safety Training for first responders.

Are the flu & Tamiflu overhyped? - At Managed Care Matters, Joe Paduda casts a skeptical eye on the hoopla over the flu and the media's propensity to blow everything up into a crisis. If it's not shark month or killer bee week, we need some fear-factor issue to fascinate, worry, and horrify us. Don't miss his comments on Tamiflu. But if you do need some workplace guidance, see Influenza tools & tips for you & your employees at HR Web Cafe. Also of interest: NIOSH Research on Airborne Influenza Transmission

A Primer on Fee Schedules - Peter Rousmaniere's most recent column in Risk & Insurance is a good bookmark. He offers an overview and a rundown on the status quo on this complex and important managed care issue of how doctors get paid.

Internet-Use Disorder: The Newest Disability? - There's apparently a growing catalog of technology related maladies - we've previously discussed Blackberry Thumb, Cell Phone Elbow, IPod Ear. But this one is actually included in the DSM-5 - although as a condition that requires further research. Jon Hyman of Ohio Employer's Blog thinks it bears watching because if it is deemed a psychiatric disorder, then employees who suffer from it may be protected by the ADA. See his post for more on this.

For Americans Under 50, Stark Findings on Health - "Younger Americans die earlier and live in poorer health than their counterparts in other developed countries, with far higher rates of death from guns, car accidents and drug addiction, according to a new analysis of health and longevity in the United States." Access the full report.

Drugs & Guns: Arming Investigators - Dave DePaolo posts that the Texas Medical Board (TMB) has asked the state's attorney general to rule on whether the board may authorize its investigators to carry concealed handguns as private citizens when investigating pill mills. Drugs are a big and dangerous business. Ohio recently approved such a measure so the request is not without precedent.

CT officials hope to change workers comp law for Sandy Hook responders - Some lawmakers are looking to extend benefits to first responders for PTSD related to incidents like Sandy Hook (although it is unlikely any legislation would be retroactive). Currently, state law extends workers compensation benefits only to those who had a serious injury/fatality but not PTSD. We've seen this issue before: (Uncompensable) Nightmare at Work.

News Briefs

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January 16, 2013

 

New York has just signed into law a new gun control measure [S. 2230] that comes as a direct response to the incomprehensible tragedy in Sandy Hook, CT. While the bill touts its "first in the nation" status, with respect to its approach to mental illness, it is by no means a model for other states to follow.

The bill addresses three distinct issues relating to mental illness: first, limiting access to gun licenses for those diagnosed as mentally ill and dangerous. Second, the bill requires gun owners who reside with a mentally ill and "dangerous" individual to keep guns under lock and key. Finally, and most disturbingly, the bill requires mental health professionals to report any patient who is "likely to engage in conduct that will cause serious harm to
him- or herself or others." In other words, the bill assumes that any individual with suicidal tendencies is a potential mass murderer. Such stereotyping is not what is needed in the mental health community.

Double Bind
S.2230 places a formidable burden on mental health professions - who not only must treat their patients, they are held accountable for predicting future behavior:

A new Section 9.46 of the Mental Hygiene Law will require
mental health professionals, in the exercise of reasonable
professional judgment, to report if an individual they are treating
is likely to engage in conduct that will cause serious harm to
him- or herself or others. A good faith decision about whether to report
will not be a basis for any criminal or civil liability.

If we have learned anything in the all-too-frequent incidences of random slaughter, the "likelihood" of homicidal acts is usually only revealed retroactively, long after the fact.

The bill goes on to read:

When a Section 9.46 report is made, the Division of Criminal Justice
Services will determine whether the person possesses a firearms
license and, if so, will notify the appropriate local licensing
official, who must suspend the license. The person's firearms will
then be removed.

After a therapist reports a potentially violent patient to the state - once again, this rather large population includes people who only threaten to hurt themselves - New York will run the names through the data base of licensed gun owners. All hits must result in license suspension. Of course, bureaucracies being what they are, it might take months for the suspension to take place. Hence, the individual who at one time exhibited psychotic symptoms or discussed violent feelings with a therapist might find him or herself months later confronted by cops on the doorstep. Such encounters will hardly be helpful for people trying to establish mental equilibrium.

Finally, the image of forcefully removing guns from the home surely presents enormous risk to gun owners and public safety officials alike. Who will do this and under what circumstances? My guess is that, given the profound implications of reporting patients to the state, most therapists will err on the side of non-reporting and rationalize their inaction, when necessary, under the heading of acting in "good faith."

The Wrong Cohort
It is important to note that only individuals receiving treatment for mental illness will be subject to this onerous standard. Given the fractured and fragmented nature of mental health treatment in this country, the vast majority of mentally ill individuals have never received and are not about to receive any treatment. And among the violent individuals who might well contemplate an attack of homicidal proportions, few would bother to discuss it with a therapist or go through the formality of securing a gun license before buying an assault weapon.

The relatively small subset of people impacted by the New York bill - people diagnosed with mental illness who are licensed gun owners - is likely to prove statistically insignificant, as is the probability that a single mass murder can be prevented by this radical undermining of the doctor-patient relationship. Surely, there is a better way to manage what has become a remote but appalling risk of life in the 21st century.

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January 14, 2013

 

We have often discussed the disconnect between the roughly 100 year old workers comp system and the realities of today's workforce. The old system was not designed to handle older - and we do mean older - workers. Today's case in point is Von Brock, a 77 year old greeter for Walmart in Mississippi. In July 2008 Brock was moving a lawn mower for a customer when the handle fell off, causing him to fall and break his leg. After surgery, one leg was shorter than the other. Brock was assigned a 20 percent disability rating and never returned to work.

Given his permanent total disability, Brock was awarded benefits of $163.67 per week for 450 weeks. He requested and was granted a lump sum settlement which totalled about $75,000, minus what had already been paid, for a revised total of $53,000. Using actuarial tables for life expectancy, the workers comp commission further reduced the lump sum to $32,000 - a discount of 42 percent, compared to the usual 4 percent discount for younger workers. Brock sued, stating that he had already exceeded average life expectancy for white males and was in good health. He alleged that the use of actuarial charts was discriminatory.

The Mississippi court of appeals rejected Brock's claim, citing Mississippi Code Annotated section 71-3-37(10):

Whenever the [C]ommission determines that it is for the best interests of a person entitled to compensation, the liability of the employer for compensation, or any part thereof as determined by the [C]ommission, may be discharged by the payment of a lump sum equal to the present value of future compensation payments commuted, computed at four percent (4%) true discount compounded annually. The probability of the death of the injured employee or other person entitled to compensation shall be determined in accordance with validated actuarial tables or factors as the [C]ommission finds equitable and consistent with the purposes of the Workers'Compensation Law.[emphasis added in appeals court decision]

The appeals court noted that the language of the law is unambiguous: the commission "shall apply validated actuarial tables..." Hence, despite Brock's apparent good health and his already beating the prevailing odds on mortality, the lump sum was discounted substantially because of his age.

New Realities of the Working World

The Mississippi statute, like those of other states, does not contemplate the dilemma of a 79 year old disabled worker. Nor do these various statutes take into account the precarious state of the rapidly aging American workforce, where post-employment prospects are exceedingly dim. Retirement is hardly an option for people who lack the substantial resources necessary for retirement. Von Brock continued working because he needed the money; once disabled, he needed workers comp to fill in the gap. Unfortunately, the "mortal coil" of age finally caught up with him: his working days are over.

Even if Brock had prevailed, the nest egg represented by the maximum lump sum settlement would only have covered his expenses for a few years; as it is, he now walks away with a substantially lower amount. While his former employer Walmart continues to offer discounts to bring in the customers, workers comp offers a discount that substantially reduces his ability to survive. Mr. Brock is in the vanguard of a multitude of aging workers in a dire situation. We wish them all the best of luck.

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January 10, 2013

 

This is Part 5 in 5 part series on Experience Rating changes. See Part 1: The Experience Rating Process: Significant Changes Are Imminent; Part 2 A Basic Review of Claim Losses, the Building Blocks of Experience Rating; Part 3 Primary and Excess Losses: Big Changes Beginning in 2013, and Part 4 Dealing with Reserves: When Do Losses Really Count?

We finish this series of blog posts with a brief discussion of "Expected Losses" and "Expected Loss Rates."

The entire experience rating process is driven by "expected losses," the total losses insurance actuaries expect you to suffer. But what exactly are "expected losses" and where do they come from?

Expected losses are contained in the premium rates you pay for each classification of worker. Expected primary loss rates and expected excess loss rates (called the "D ratio") are a percentage of the total rate.

For example:
Class rate - $5.00
Expected losses - about 50% of the rate - $2.50
Expected primary losses about 20% of total losses - $0.50

These percentages do vary somewhat, but will be close to the above estimates.

Thus, the calculation for expected losses for $500,000 in payroll for the above class would be:

Manual premium = $500,000 times $5.00 divided by 100 = $25,000
Expected losses = $25,000 times 50% = $12,500
Expected primary losses = $12,500 times 20% = $2,500

Note that even with half a million dollars in payroll, the expected primary losses are only $2,500. This amount would be exceeded by relatively small losses or one big loss.

One final note: under the new rating plan in PY 13, expected primary losses will increase by about 50%. Using the above example, the new rating plan raises primary rates as follows:

Expected primary losses = $12,500 times 30% = $3,750

In other words, primary losses will go up as the split point goes up, but not fast enough to help employers with significant losses.

Expected losses and expected loss rates have significance in workers comp program performance measurement. Here's why. A good way to measure how well a company manages workers comp is to track how much it spends in losses per hundred dollars of payroll. Then, one can compare that number with the expected loss rate, which is a rate per hundred dollars of payroll. If losses per hundred are running higher than expected losses per hundred, one can readily see that a problem exists, which can be immediately addressed.

After 20 years of stability, the experience rating process is about to undergo significant changes. Educated employers will track these changes and make any needed adjustments to their workers comp cost control programs.

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January 10, 2013

 

Nina Kallen hosts the biweekly smorgasbord of risk at her blog Insurance Coverage Law in Massachusetts - the 174th Cavalcade of Risk. You should be sure to check out this issue, and while you'te there, sample a few of Nina's other posts.

As the name of her blog implies, Nina's law practice focuses on insurance-related matters and her blog covers a wide range of issues from sexual harassment to restraint of trade.

Thanks for hosting, Nina. We'll be hosting the next issue here at the Insider.

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January 7, 2013

 

This is Part 4 in 5 part series on Experience Rating changes. See Part 1: The Experience Rating Process: Significant Changes Are Imminent; Part 2 A Basic Review of Claim Losses, the Building Blocks of Experience Rating and Part 3 Primary and Excess Losses: Big Changes Beginning in 2013. Part 5 will be posted later this week.

Did you know that a well-managed program aimed at assuring a low experience modification can produce a significant competitive advantage? In the following section, we will show you why and how.

Previously, we discussed the disproportionate impact that frequency has on an employer's workers' compensation premiums. The first $5,000 - soon to be $10,000 and higher - of each claim (primary losses) is counted dollar for dollar in the calculation of the experience modification. Losses above the primary level are discounted substantially. Therefore, a lot of small claims can raise premiums faster than a single large claim. Once again, for an excellent overview of experience rating, we recommend the National Council on Compensation Insurance's (NCCI) white paper.

When are the numbers actually crunched to determine an employer's experience mod and, ultimately, the policy year premium? Do employers have to obsess about reserves throughout the policy year or is there an optimal time to review losses?

When it comes to determining the experience rating for the next policy year, there is only one day that really counts. About six months after the end of the policy year, the insurer will prepare and submit a summary of losses spanning the prior three years (called the "unit statistical report") to NCCI or the appropriate state rating bureau. For employers with open claims in prior years, it is essential to make sure that the numbers contained in the unit stat report are accurate and reflect an up-to-date understanding of the status and strategy for closure of each open claim. If an employer does not have access to its loss run online, a program deficiency, in our view, then the agent or broker should be tasked with getting it.

When Should you Review Losses?
So when should employers review open claims? Large employers will be doing this pretty continuously, but employers at or below the mid-level of the middle market in premium size are different. Here's a suggestion: If your company has more than a half dozen open claims, you should review the losses at least quarterly. Get a loss run. Schedule a conference call with your claims adjuster and discuss each open claim to make sure that you have a clear and effective strategy to achieve closure.

NOTE: If there are open claims, you should be working steadily throughout the year with your adjuster to return any injured employee to full or modified duty. If, due to the severity of the injury, return to work appears unlikely, you should work toward closure by settling the claim. In the world of insurance, "the only good claim is a closed claim." A quarterly review process ensures that you have an appropriate focus on every open claim.

For employers with few open claims, quarterly reviews are usually not necessary, although being actively involved with your claim adjuster in the management of each open claim is essential. At a minimum, request a loss run three months after the end of the policy year. This gives you plenty of time to review the status of any open claims and take action toward resolution before the unit stat review is submitted. Three months into your new policy, you have fully three months to impact reserves on old claims prior to the submission of that all-important unit stat report. Once that report is submitted, the numbers can only be changed if there is a clerical error.

The Bottom Line
Educated employers and managers don't spend every waking moment worrying about reserve levels for open claims. There is that one time of year, however, when a laser-like focus on open claims can be very helpful in controlling losses. Make note of your policy end date, move forward three months, and place an alert in your calendar to review your loss runs. You will be taking action just ahead of that one crucial moment when reserves really count.

Even more important than all of this is a vigorous, aggressive and continuous procedure to bring injured workers back to work as soon as possible following injury, if not to full duty, then at least to modified duty. Pursuing this goal is the surest way to keep the cost of losses at an absolute minimum and experience modification at its actuarially lowest level.

That's a true competitive advantage!

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January 3, 2013

 

Get back into the news groove with Brad Wright's Health Wonk Review: Baby New Year Edition over at Wright on Health..

2012 Review Roundup
Business Insurance In Focus Video: 2012 Year in Review

Insurance Journal: Events that Topped World Insurance News in 2012

Insurance Journal:10 Insurance Ins and Outs, Ups and Downs of Year of Dragon 2012

PC360: Rebuilding Year: Top 10 Stories of 2012

Joe Paduda: So, how'd those predictions for 2012 turn out?

Bob Wilson: Apparently I Suck At [2012] Annual Prognostications

Jon Gelman: Top Ten Workers' Compensation Fraud Cases For 2012

Terms + Conditions: Annual Tally of Most Ridiculous Lawsuits

Top 10 Developments in California Workers Comp in 2012

Risk Management: Year in Risk 2012

The Largest Natural Hazard Risks of 2012

Top 10: Safety Daily Advisor Year in Review

The Daily Briefing's 12 top issues of 2012

Health Affairs Top 10 List

The Best Of CommonHealth: Our Top Picks From 2012

The Best of Medgadget 2012

Top 10 HR Stories of 2012

Top 10: HR Daily Advisor Year in Review

Top 10 Best Insurance Commercials on TV in 2012

2012 Best Places to Work in Insurance

2013: What's Ahead
Predicting P/C Rates in 2013

Top 5 Trends in Workplace Safety Management for 2013

Top 5: What's ahead for workplace safety in 2013

Deloitte: 2013 Industry Outlook - Trends to watch, strategies to consider

Ernst & Young
2013 US property/casualty insurance outlook
(PDF)

Health Care Predictions for the New Year

9 insurance resolutions to ring in the New Year

10 Best Insurance Stocks for 2013

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January 2, 2013

 

This is Part 3 in 5 part series on Experience Rating changes. See Part 1: The Experience Rating Process: Significant Changes Are Imminent and Part 2 A Basic Review of Claim Losses, the Building Blocks of Experience Rating
Parts 4 and 5 will be posted next week.

Previously, we offered a basic review of workers comp claim losses, the building blocks of experience rating. Now it's time to go deeper.

As we've seen, workers comp claims are made up of what has been paid and what has been "reserved" for future payments throughout the life of the claim. The "total incurred amount" projects total indemnity payments (lost wages), medical bills and expenses estimated to be paid for any given claim. From 1990 through 2012, the first $5,000 (called the "split point") of the "total incurred" amount of each claim is considered "primary," and all of it counts in the experience rating calculation. Any amount above $5,000 is considered "excess" loss, and is discounted in the experience rating calculation by at least 70%. Moreover, any amount above a state-specific rating point (ranging from about $125,000 to as high as $250,000) is excluded from the calculation; it does not count at all in the calculation of your experience rating.

Primary losses going up!
For the first time in 20 years, the Primary Loss split point is about to change. Beginning in Policy Year 2013 (PY 2013), primary losses will increase from the first $5,000 of each claim to the first $10,000. In subsequent years, primary losses will continue to rise, reaching $15,000 by PY 15.

So what does this mean? Experience rating places more emphasis on the frequency of injuries than on the severity. Given the increasing severity of claims over the past decade, NCCI has decided to make experience rating more sensitive to severity.
Under the current rating system, only the first $5,000 of each claim is primary; this means that one big claim will have a limited impact on the experience mod: the first $5,000 enters the calculation dollar for dollar, but all the losses above $5,000 will be sharply discounted.

The new rating system has been adopted by all NCCI states for 2013, and it will become effective concurrently with each state's approved rate/loss cost filing on or after 1 January 2013. NCCI has published a chart detailing the split point changes effective dates for each state (PDF).

Under the new system, the first $10,000 of each claim will be primary and, as in the current (and soon to be old) system, all primary losses will enter the experience rating calculation dollar for dollar. For employers with individual losses above $5,000, the experience mod is likely to run higher than under the current rating system. (And keep in mind that the primary loss split point will continue to rise to the level of $15,000 by 2015.)

Here is a simple comparison of the current and pending rating systems in action:

Employer 1:
1 claim at $20,000 / Current Primary = $5,000 / Pending Primary = $10,000
Employer 2:
2 claims at $5,000 / Current Primary = $10,000 / Pending Primary = $10,000

Under the current system, all other things being equal, Employer 1 would have a lower experience mod than Employer 2 for two reasons, even though total losses are $10,000 greater than Employer 2's total losses. First, Employer 1 has $5,000 less in primary losses. Second, Employer 1's excess loss of $15,000 would be discounted by 70% to $4,500 in the calculation making total calculable losses of $9,500, compared to Employer 2's total calculable losses of $10,000.

Under the new rating system, Employer 1 would be the one with the higher mod, because its primary losses would be equal to Employer 1's, but Employer 1 would also have $3,000 of excess losses included in the calculation (10,000 - [10,000 x 70%]).

The split point change will lead to some interesting, as yet unaddressed, developments. For example, consider a loss that happened in PY 2010 to a driver for ABC Limo. The loss would first appear in ABC Limo's Mod calculation for 2012. Let's say its total incurred value at that time was $15,000. In 2012, before the split point changes, $5,000 would be primary and $10,000 excess. Fast forward to the Mod calculation for 2013, and let's suppose that the claim was closed during 2012 for a total of $10,000. The 2013 Mod calculation, with the split point having been changed, effective January, 2013, will show $10,000 primary and $0.0 excess. Consequently, the closed claim of $10,000 will affect ABC Limo's mod more adversely in 2013 than the open claim of $15,000 did in 2012. This will happen to many employers, and their advisors would be well-advised to advise them beforehand.

Medium-sized Employer, Big-sized Trouble
Here's the worst-case scenario for a lot of medium-sized employers (premium in the $20-$100,000 range): if they have a frequency problem (a lot of relatively small injuries) and a severity problem (a few relatively big losses), the new split point for primary losses will more than likely increase their experience mod, perhaps substantially.

If you find yourself in this position, with an experience modification well above 1.0, you need to learn more about the intricacies of the rating process itself. There are opportunities for minimizing the impact of your losses. All of which are the subject of our next Experience Rating post.

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