Work Comp: Simple Tactics to Control a Complex Cost
- 1. Work Comp: Simple Tactics to Control a Complex Cost ABC- HR Council Meeting 9/14/11 www.cwpowellins.com Brian R. Sivillo, ARM CIC CRM CWCA Account Executive, Commercial Lines
- 2. Now, more than ever, each dollar is individually important. What can you be doing to mitigate the leakage of work comp premium dollars and to minimize the cost of risk at your organization? LEARNING OBJECTIVES • Learn how work comp acts more like a line of credit than like a risk transfer mechanism • Implement simple injury management strategies both before and after a loss • Understand and manage your work comp experience mod factor • Identify and measure the true cost of risk to your organization • Learn how to control your costs in all market cycles • Identify emerging risks to your most important organizational asset- your human capital The best do ordinary things better than anyone else
- 3. Agenda • True Cost of Risk • EMR and Your Control Points • Simple Injury Management Strategies • Emerging Risks and Threats
- 4. True Cost of Risk
- 5. True Cost of Risk • Direct Costs (Premium) – FL is an administered pricing state • Proper class codes • Rates- set by NCCI/FL • Experience modification rate (EMR) • DFWP (5%) • Safety (2%) • FCCPAP • Premium Discount (Volume) (PR/100) x Rate X EMR – DFWP – Safety – Discount = Premium
- 6. True Cost of Risk • Direct Costs (Risk Financing Programs) • Guaranteed Cost • Dividends- profit share (slider or flat) • Retrospective Rating or Retention • Deductibles • Self-insurance, captives, ART programs
- 7. True Cost of Risk • Indirect Costs- damage beneath the surface $1 $4 to $10
- 8. True Cost of Risk • Indirect costs not covered by insurance • Lost efficiency of injured employees • Impact on other employees at the accident site • Cost of hiring and/or training replacements • Overtime of other employees to make up for lost production • Extra supervisory time
- 9. True Cost of Risk – Impacts an organization’s competitiveness – Affects an organization’s profitability • Per OSHA Statistics: One $2,300 claim costs your company $12,650 • Assume a 10% profit margin – Additional sales required to offset one $2,300 claim: $126,500 The Real Cost of Accidents Can Be Measured and Controlled
- 10. EMR and Your Control Points • Influence over premium – Better than average experience <1.0 – Worse than average experience >1.0 • Lost Business Opportunities – Many municipalities, general contractors and other businesses require a contractor to maintain an EMR of 1.0 or less to bid on jobs or contracts – In fact, you many not even be allowed to compete for business, if your Experience Mod is > 1.0 • Increases job costing and bid prices – ↑ EMR = ↑ Cost of Risk
- 11. EMR and Your Control Points • Generally uses 3 years of payroll and loss information – The most recent policy year is not used – 2011= 2009, 2008, 2007 • Frequency vs. Severity – Greater weight is given to claim frequency than to claim severity – <$5,000 (primary); >$5,000 (excess) • Incurred (Paid + Reserve) Medical and Indemnity Only – Experience Rating Adjustment (ERA)- medical only claim costs are reduced by 70% for experience rating • Valuation Date – The date the Insurance Company reports your loss data – Usually, 6 Months following the expiration of the most recent policy
- 12. EMR and Your Control Points • EMR Transforms Your Work Comp Policy into a “Financing” Mechanism like a Line of Credit – With few exceptions, employers will pay for their workplace injury costs – In many instances, employers will pay back more than the actual injury cost • Medical Only vs. Indemnity
- 13. EMR and Your Control Points Financing of Injury Costs How Generous! ERA
- 14. EMR and Your Control Points • Garbage In-Garbage Out – Policy Years, Payrolls and Losses • Correct • No ALAE (Expenses) – Valuation Date • Correct • Aggravated Inequity – 5% change after valuation date • Know Minimum Mod ($0 in losses on EMR) and Develop Action Plan to Obtain It – Loss Prevention and Safety • Necessary, but not exclusively sufficient – Simple Injury Management Strategies
- 15. Simple Injury Management Strategies You can improve injury outcomes with awareness, knowledge, and processes.
- 16. Simple Injury Management Strategies
- 17. Simple Injury Management Strategies
- 18. Simple Injury Management Strategies Exclusively, basic safety and health is not enough. Time to go above and beyond Caution: Prescription without diagnosis is malpractice. Always assess first!
- 19. Simple Injury Management Strategies 1. Hire employees fit for the essential functions of the job – Functional job descriptions – HR best practices – Pre-employment background checks and FL DFS Claims Database • Don’t buy a claim • https://apps.fldfs.com/claimsweb – Beyond our scope of discussion- ADA and Reasonable Accommodation • Conditional offers of employment • Post-offer, pre-employment physicals and medical questionnaires • Helps with major contributing factor provision of FL work comp law- 51% related to on-the-job injury
- 20. Simple Injury Management Strategies • Consult with an employment attorney • Job accommodation network http://askjan.org • US EEOC www.eeoc.gov/policy/docs/preemp.html – Drug-Free Workplace • An Employer’s Guide to a Drug-Free Workplace http://www.myfloridacfo.com/wc/pdf/DFWPman.pdf • Exclusion of indemnity payments • Higher quality workforce = lower frequency of claims
- 21. Simple Injury Management Strategies National Institute on Drug Abuse Study found that drug using employees are: » 2.5 times more likely to have absences of eight days or more » 2.2 times more likely to request early dismissal or time off » 3 times more likely to be late for work » 5 times more likely to file a work comp claim
- 22. Simple Injury Management Strategies 2. Train Front Line Supervisors – Front line- communication and relationships – Accident reporting and investigation procedures • Timeliness of reporting – Statutory- 7 days of notice, 24 hours of death
- 23. Simple Injury Management Strategies • Incident/Accident report – Causes – Observations – Documentation and witnesses
- 24. Simple Injury Management Strategies 3. Selection of medical provider who works for you – Partnership- understands and assists employers • Protocol and service expectations interview • Evidence based treatment • Proper assessments and effective, efficient treatment • Stay at work/Return to work • Narcotics and Physical Therapy – Board certified in occupational medicine – Screening work to supplement injury management program – Facilities tours (theirs and yours)
- 25. Simple Injury Management Strategies 4. Specific personnel to manage cradle-to- grave process – Direct medical treatment and send medical provider packet • Employer authorization form • Fitness for duty disposition form • Copy of functional job description
- 26. Simple Injury Management Strategies – Ownership of the file – Players • Employer • Supervisor • Employee • Adjuster • Medical provider • Agent – Intervention on file
- 27. Simple Injury Management Strategies 5. Stay at work- Prevent Indemnity – Indemnification waiting period • 7 days • Retroactively paid if disability ≥ 21 days 6. Return to work- Mitigate Indemnity – According to the 2009 National Return to Work Week press release: • 4.1 million employees experience work-related injuries or illnesses in America each year. • 1.1 million have lost work days as a result of their injury or illness. – According to the Bureau of Labor Statistics (BLS), the average time away from work per injury was eight days. • Employees who are off work for more than 16 consecutive weeks rarely return to work.
- 28. Simple Injury Management Strategies • Employer Benefits – Boosts morale – Keeps injured employees productive – Discourages abuse – Reduces financial impact • Employee Benefits – Maintains full earning capacity – Maintains productive mindset – Prevents them from becoming dependent on a disability system – Reinforces management’s commitment to employee’s well-being
- 29. Simple Injury Management Strategies Another Study Stresses the Correlation Between Length of Disability and Chance of Returning to ANY Work WORKERS’ COMPENSATION Return to Work Projection 100% C a c o R tu in to A y W rk o 75% h n e f e rn g n 50% 25% 0% 6 months 12 months 18 months 24 months Time Away From Work
- 30. Emerging Risks and Threats • Regulatory – FL Rates • NCCI- +8.9% effective 1/1/12 – EMR Split Point • 1/1/12- $5,000 • 1/1/13- $10,000 • 1/1/14- $13,500 • 1/1/15- $15,000 – Federal Healthcare Reform – 2003 Reforms- Challenge to Constitutionality • Emma Murray vs. Mariner – 2009 Supreme Court Decision Regarding Hourly Attorney Fees – FL Legislature Modified It
- 31. Emerging Risks and Threats • Carrier Performance – 2010 = First Operating Loss since 2002 • Medical Cost Inflation and Prescription Drug Costs • Investment Income • Lower Insured Payroll Levels – Economy and Competition – Claims Frequency- Increasing for first time in 13 years in 2010 – Audit alert- uninsured subcontractors • Workforce – Aging Employees • Frequency, Severity • Medicare Set Asides – Obesity – Musculoskeletal Injuries – Disgruntled Employees
- 32. Brian R. Sivillo, ARM CIC CRM CWCA *** Certified Work Comp Advisor *** Certified Risk Manager Honesty – Integrity – Accountability 904-256-0095 bsivillo@cwpowellins.com THANK YOU! - Brian is a Certified Work Comp Advisor, a Certified Risk Manager and a Certified Insurance Counselor. He has been in the commercial property and casualty insurance business since 1998, and he spent over a decade with the nation’s leading provider of workers’ compensation insurance. - Brian is also: - A member of The institute of Work Comp Professionals - A certified partner of The Work Comp Advisory Group, and provider of the Employer’s STEP Advantage Injury Management Program - An Associate in Risk Management - Currently working on his Construction Risk Insurance Specialist professional designation - Cecil W. Powell & Company has been serving the insurance and risk management needs of First Coast employers since 1935.