WORKERS COMP- A Premium Issue For Technical Services Firms
by James B. Conant, CLU, National Insurance Application Systems
|The key to keeping down workers’ compensation insurance premiums is the ability to track and verify the accuracy of the premium components, especially open claims reserves, with an information management system.|
Workers’ Compensation premiums are increasing at an alarming rate for most employers nationwide. The causes are well known: medical over-utilization, lenient attitudes towards claimants by the various Industrial Accident Boards, a generally litigious environment, outright fraudulent claims, aggressive claims reserving practices on the part of the insurance industry, and finally automatic premium increases tied to poor loss experience.
In addition to the normal frustrations which all employers face when the subject of workers’ compensation arises, the technical services industry is particularly vulnerable to increasing workers’ compensation premiums. This is because the issue of workplace safety cannot be controlled by the “employer.” Instead, personnel are assigned to work on the customer’s premises under the supervision of their customer’s managers and supervisors. Safety programs are therefore determined by the customer, rather than the employer.
In spite of these facts, there are three practical and preventative steps that the technical services industry can take to reduce workers’ compensation premiums and keep them at their lowest possible point, year after year.
First, each employer should have a system in place for tracking and verifying the accuracy of the five workers’ compensation premium components: namely the experience modification rate calculation, the audit worksheet and audit statement, claims, plan design, and finally the policy itself. Each of these plays a major role in terms of final cost. If left unverified year after year, workers’ compensation premiums can drift higher and higher out of control. As an example, the table below reflects NIAS’ experience over the past ten years when dealing with each of the five premium components on behalf of our clients, together with their corresponding premiums impact:
ELR/D ratios incorrect
Reserves not properly set
Worksheet technique improper
Rates improperly applied
Poor plan design
Lack of tracking experience rating
Rates improperly applied
Rating plan inappropriate
Poor policy construction
Second, there is the issue of claims reserves, another critical component necessary for controlling workers’ compensation premiums. You may have participated in “claims status” meetings with your insurer or third party administrator and discovered that for every argument you put forth questioning the size of a particular reserve, the insurance representative had as many or more reasons for increasing it even further, or at best, leaving it where it was. Because reserves are considered “judgmental” by the insurance industry, they really are not “negotiable.”
The technique used to lower reserves involves analyzing the factual base upon which a particular reserve is set, rather than initially attempting to negotiate down the reserve itself. By developing factual evidence starting with a copy of the first report of injury and tracking the claim from inception to ultimate resolution through an intricate seven-step process, certain evidence is developed which can be presented to the claims supervisor of the insurance company. This data then becomes part of a new factual base upon which alternate reserves are established. These alternate reserves are typically considerably lower than the original reserves. The seven steps are:
|1. Verify accuracy of reserves using first reports of injury and review the circumstances that lead to the injury;|
2. Review claims investigation procedures, including whether subrogation and Second Injury Fund are appropriate;
3. Review attending physicians’ reports and independent medical reports;
4. Review the potential for returning the claimant to either full or light duties, medical rehabilitation, and if using medical or vocational rehabilitation, review the appropriateness of this service;
5. Request activity checks and surveillance by the insurance company, or third party administrator, if appropriate;
6. Determine whether the insurance company has requested appropriate DIA hearings, including discontinuance, earning capacity, vocational rehabilitation, fraudulent claim(s), impartial physician(s) and non-compensable claim(s); and
7. Review the lump sum demand and advise on the appropriateness of a settlement.
Third, timing is of the upmost importance. NIAS has seen countless examples of ineffective claim reserve and premium verification activity because the “cut off” dates for bureau filing were unknown. Cut off dates are controlled by policy anniversary and if they are overlooked, you could end up paying needless premiums for as long as three years. On the other hand, clerical errors, non-compensable claims and subrogatable claims are correctable retroactively oftentimes developing substantial refunds.
For those employers without a workers’ compensation cost control program, National Insurance Application Systems, through its “turn key” claims tracking system entitled AcuComp, offers an attractive solution. NTSA member John Cogliano, Jr., president of S&C Technical Temporaries, experienced a $143,850 reduction in claims reserves within forty-five days of initiating the AcuComp program. Another member of NTSA, National Engineering Service Corporation, is using AcuComp to verify employer classification, rates, and future experience modifiers. On the whole, premium savings over the past eleven months alone exceed two million dollars among the companies currently enrolled nationally in the AcuComp program. By implementing preventative measures centering around this program, dramatic workers’ compensation premium reductions become reality.
NIAS would be pleased to conduct a confidential, no cost feasibility study to determine whether the AcuComp program could affect savings similar to those experienced by NIAS’ participating NTSA member firms. For further information, contact James B. Conant, President, National Insurance Application Systems, at 561/697-4500, or write to NIAS at 5725 Corporate Way, Suite 102, West Palm Beach, Florida 33407.
Mr. Conant has over thirty years’ experience in the insurance industry and is the founder of National Insurance Application Systems, headquartered in West Palm Beach, Florida. He has authored several publications, is active in many associations as a guest speaker, and is an NTSA Associate Member.
REPRINT from the NTSA Reporter
National Insurance Application Systems, Inc. has only one mission – to create as many measurable differentiators as possible for our member agents – resulting in higher policy counts, profits, closing ratios and spectacular growth.
AcuComp® improves loss ratios an average of 30 percent and permanently lowers experience modifiers together with premiums an average of 27 percent over time.
National Insurance Application Systems, Inc.
5730 Corporate Way, Suite 230
West Palm Beach, FL 33407
Toll Free: 800-883-5600