Employer's School - Take Control Part 6

Saturday, July 31, 2004 | 0

The following is the sixth in a lengthy series of articles that, when pieced together, comprise the "Employer's School" developed by Brent Heurter, Founder and Chief Solutions Officer of ClearComp. The article series presents an "employer's school" on workers' compensation, how to examine your work injury strategy and ensure a "best practices" environment designed to lower your workers' compensation expenses. This article continues the "school." Earlier articles can be accessed by clicking on a title in the right side bar.

12. Hold Your Carrier Accountable
Know your rights according to California law when it comes to working with insurance carriers.

The Employer's Bill of Rights
"...the insurer shall discuss all elements of the claim file that affect the employer's premium with the employer and shall supply copies of the document that affect the premium at the employer's expense during reasonable business hours."

Your insurer must be willing to discuss with you all the elements of your claim files that affect your premium. Is that the type of service you are getting now? If you are like so many employers we talk with, the answer is no.

Let's look at just one example at how a proactive broker saves you money. You can reduce your workers' comp rates to the lowest the law allows by qualifying for the maximum premium discount your insurance company offers. Premium discounts represent big money that can be saved-or lost-depending on how proactive your broker is.

A proactive broker knows what each carrier is offering in discounts, and presents your company to the carriers in the best possible light to achieve the full discounts. That involves staying up-to-date on the thousands of pages of information regarding payroll audits and premium audits generated each year. And if there are areas where you are lacking or deficient and would fail to qualify for a discount, a proactive broker will provide the solution to those problems.

For example, unless State Fund clients specifically request to be placed in a Group Association program, they will not be offered this option even if they qualify. This one discount alone saves members 6% of their premiums plus an additional dividend.

Ask Yourself:Learn the ins and outs of insurers' rates, filings, underwriting, discounts, credits, debits, and premium audit procedures.

Learn...
* What discounts your carrier offers
* How much the discount is
* What key elements go into their matrix for determining the level of discounts

But don't stop there. The timing of carrier-directed, documented correspondence is crucial to reserve certain rights and ensure optimum cost-containment. Keep up to date on claims status during the claims life cycle and flag critical points in which action should be taken to hold accountability on all open claims.

13. Attend Unit Stat Claims Review Meetings and Analyze Your Experience Modification
The most important date is the unit stat date, which happens six months after the expiration of each policy.

Most employers are under the impression that the most important date affecting their workers' compensation premium is the policy expiration date. This is incorrect; the most important date is the unit stat date, which happens six months after the expiration of each policy.

Why the unit stat date is so important.

It is on the unit stat date that the carriers writing coverage for the three previous policy years, known as the experience rating period, take a "snapshot" of the total incurred costs for each claim. They then submit this information to the WCIRB. Total incurred costs equal the paid amount plus the reserved amount for each of the claims that fall in the experience rating period.

You can see why this can be a problem:

1. Reserved amounts count the same as paid amounts.
2. Whatever that total happens to be on the unit stat filing date is the amount that is used. Anything that happens after the unit stat date, bar special circumstances, doesn't matter; you are stuck with the mod for the whole year.

Letting this event go by unchecked each year is like leaving the preparation and filing of your tax return up to the IRS. This is an area where big differences can be made.

Reserves are what the insurance company's claim adjuster estimates the claim will ultimately cost over the lifetime of the claim. Since claims can remain open for years and costs are incurred over the same period of time, the claims adjuster establishes a reserve to cover these costs. Overworked claims adjusters may not spend the time necessary to properly calculate the reserves for a claim, regardless of whether the reserves are correct, incorrect, or overstated. And reserves are usually never reviewed externally because very few employers and brokers ever question them.

Ask Yourself:One way to combat this and drive down your mod is to conduct a unit stat claims review meeting with the carrier(s) writing coverage during the experience rating period. Claims review meetings are a right that employers are afforded (in California, it's through the Employer's Bill of Rights) and typically are arranged by the broker each year. If you have not had such a claims review meeting, you should find out why, and insist on this.

Your ex-mod factor has a major effect on the rising costs of your workers' compensation insurance premiums. Errors in your experience modification have an adverse effect on your premium rates for at least three years.

Experience modification ratings, or ex-mods, are the only truly controllable cost factor in your premium. Our expert analysis service ensures that your premiums are accurate and corrects prior miscalculations to ensure that you pay the lowest cost possible.

The ex-mod calculation is critical and yet little understood because it is so complex. Let's take a look at some examples. (Workshop Leader shows how ex-mod is calculated.)

14. Catch Errors and Know the Rules
Don't pay more than you are legally required to.

It's unlikely that your in-house staff has developed the expertise to be genuine masters of the multidisciplinary field of workers' compensation. The area is constantly evolving as a result of legislation, interpretations, and litigation.

National statistics reveal insurance carriers overcharge employers 64% of the time!

Ask Yourself:Let's look at how overcharges can add up for an average employer who is paying $300,000 this year and has paid that for the past three years?

* Policy Year 2003 or 2004 (current): $300,000 premium x 8% avg. overcharge=$24,0000 savings
* Policy Year 2002 or 2003: $300,000 premium x 8% avg. overcharge=$24,0000 savings
* Policy Year 2001 or 2002: $300,000 premium x 8% avg. overcharge=$24,0000 savings
* Policy Year 2000 or 2001: $300,000 premium x 8% avg. overcharge=$24,0000 savings

Saving money on these types of overcharges has the potential of putting $96,000 into your pocket within 30 to 45 days!

Are you classified correctly?

There are more than 600 job classifications. That's one reason why misclassifications are common in the workers' compensation system, and it is unfortunate that your company typically pays for all the mistakes. The audit process is prone to many other errors and omissions in addition to misclassifications.

An overcharge can occur when your company assumes that all classifications by your insurance carrier are correct. Agents and carriers bidding on your insurance will miss previous mistakes in identifying classification codes, and it is in their financial interests to keep rates high, so there is little incentive to change the misclassifications. Classification codes are almost always simply copied from year to year, even when your business has changed or grown. Unchecked, this perpetuates overpayments.

An area that can often be successfully challenged is when the classification codes concern companies that have different business entities insured under the same classification code. Separate-and lower-classifications may be available to different business entities. If a part of your operation is separate and distinct from the rest of your operation, and not a normal part of your primary business, you may be able to achieve a different and lower classification. That can save tens-or hundreds-of thousands of dollars every year.

Reserves are another area of concern. Insurance companies may hold cases open longer than necessary or reserve too large a sum of money for the actual settlement.

Nobody's perfect-including insurance carriers and rating bureaus. Errors in ex-mods, reserves, and classification happen all the time and can lead to years of higher premiums. Such substantial savings are worth fighting for. Take an active approach to capturing them!

The final article in this series will review obtaining the best insurance broker you can, and a wrap up summary of best practices.

Article series by Brent Heurter.
Brent Heurter is the Founder and Chief Solutions Officer of ClearComp, a workers' compensation alternative for companies that desire to control and reduce their workers' compensation costs. Brent can be reached at 888-CLEAR-89 or email brent@clearcomp.com.

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.