The Accuracy of Workers Comp Experience Mod Factors

I’m sure there are many companies, who at some point have questioned the accuracy of their WC experience mod.  Analyzing a mod worksheet can be quite an exercise, especially for the uninformed.

Next time you look at your experience mod, get the actual worksheet.  The first page of the mod worksheet gives you the formula for how they promulgate the mod.  Talk about a brain freeze!  You have to be a math major to figure out what they’re talking about. 

In my unscientific analysis, at least 50% of all mods I look at have some kind of inaccuracy.  Don’t believe me?  I just happen to be looking at a mod sheet now, and want to bring your attention to a disclaimer at the bottom of the mod worksheet.  It states:

“….NCCI makes no representation or warranty, expressed or implied, as to any matter whatsoever including but not limited to the accuracy of any information, product, or service furnished hereunder  …..”

Believe me, the NCCI or MA Workers Comp Bureau, are not intentionally making mistakes, and not all mods are incorrect.  Typically, the mistakes are related to the data these rating bureaus receive from the various carriers; we normally see inaccuracies in payroll or loss data. 

So, next time your agent tells you your mod is going up (or down), have him/her sit down with you and explain the reason for the change.  Hopefully your agent is educated enough to actually explain it to you.   It’s shocking to me how many of them aren’t.

This information brought to you by Chris Sheppardof Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

Curbing the Abuse of Pain Killers

Kudos to Blue Cross Blue Shield of Massachusetts for trying to curb the abuse of prescription pain killers.  I read in today’s Boston Globe that on 7/1/12, BCBS will “allow patients to fill a 15 day prescription and one additional 15 day supply of the most common opiod drugs…..”  If there is a need to continue to use of the drugs, there will be a review by BCBS to do so.

There will be certain requirements that must be met in order to continue the use of these drugs, including: patient counseling on the risk of addiction, and drugs can only be refilled by the same physician and pharmacy that originally provided the script.  There will be certain conditions that won’t be subject to the rule – like cancer patients.

As I had written in a previous blog, prescription pain killer abuse is on the rise, and they’re part of the problem in the workers comp system.  These drugs do have a place, but all too often, they’re over-prescribed, and abused, and lead to much greater problems than the initial injury.   Not only are we treating a WC injury, but now we have all the problems that go along with addiction.

It’s not a perfect solution, but certainly one in the right direction; let’s just hope other health insurers take a similar approach.  The problem is only going to get worse unless we face it head on, and it’s nice to see someone has taken the first step.

This information brought to you by Chris Sheppardof Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

Is a GC’s Requirement For Having An Experience Mod Under 1.0 Fair?

For some time now, many GC’s require subcontractors to have WC experience mods at or below 1.0 in order to work on a specific job(s).  Is that really the best judge of how safe a sub is?  I think I can make a good argument that it doesn’t paint a completely accurate picture on subcontractor safety.  Sure, some sub’s have a horrible WC loss history (which is reflected in their mod), and many of them truly don’t care about what they have to do to improve.

I’m part of The Workers Comp Advisory Group, and there was a recent post in the LinkedIn group talking about this subject.  So, is it fair to disqualify a sub for having an experience mod over 1.0?  I’ve never thought it was a good qualifier, only because the mod doesn’t paint the whole picture.  For many sub’s, even just one loss in a 3 yr period could push their mod over 1.0.  Would you say a company that’s only had one loss in 3 yrs is unsafe?  I hardly think so.  Additionally, even if they had only one loss, there are many other things to consider.

The post gives many areas of consideration.  They are:

1.  Is the loss open, or closed?  If open, is the reserve overstated (a lot of them are)?
2. Is this injury the result of someone else’s actions?  Subrogation can take a while, but while it’s playing out, it’s still on your mod.
3. Perhaps the older losses happened before significant changes were made to your companies’ safety programs.  Maybe you now have a safety director, when in the past you didn’t.
4. Was the claim fraudulent? 
5. Perhaps the claim was handled poorly from a medical standpoint, and outcomes are bad due to a bad doctor.
6. A significant decrease in payrolls can have the opposite affect on your mod.  Payrolls go down, mods can go up.

Occasionally I’m asked by a sub to write a letter to the GC explaining why their mod is over 1.0.  In most cases, the letter suffices, and they are allowed to bid on the job.  However, there are some GC’s in which having a mod under 1.0 is a condition precedent to bid;  they won’t even allow a letter of explanation.  Is that fair?  I hardly think so.

So, what to do?  Unfortunately, at this point, it’s the system we have.  The Work Comp Advisory Group is going to be doing some work in this area to see if there is a better, more equitable way to qualify subcontractors. 

Keep in mind, there are things on the horizon that could have a significant impact on experience mod’s.  First, the proposed WC rate increase for MA companies on 9/1/12, and secondly, the change to the experience mod formula for interstate (NCCI) rated risks on 1/1/13.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource

Is Pet Insurance Worth Buying?

I’m going to veer off from my usual weekly blog on all things contractors, and talk about something a little more on the lighter side – dogs.  Like many people, I have a dog. To be specific, an 11 ½ yr old chocolate lab named Bailey; to say he’s an extension of my family would be putting it lightly.

Like most labs, he eats everything, and his appetite isn’t limited to just food, but “objects” as well.  Over the 11 ½ yrs he’s been with us, he’s had multiple surgeries, ear infections, and an ever present “allergy” condition.  To say he’s cost us a small fortune would be an understatement, but I wouldn’t have it any other way.  He’s worth every penny.

When he was a puppy, like most insurance people have a tendency to do, I bought pet insurance.  At about 4 months old, he had to have surgery to remove a sock he had swallowed.  Not to worry, I have pet insurance; boy was I wrong.   It wasn’t until I had to use it did I realize it was a waste of money.  I believe they paid about $500 of a $2000 bill.  Let’s just say I didn’t renew.

Why am I talking about Pet Insurance?  I read an article in today’s Standard (insurance publication), about whether or not pet insurance is a good idea.  It talked about policies in general and what they do/don’t cover, and to make sure understand what you’re buying, because the devil is in the details.

Things to consider: pre-existing conditions, hereditary conditions, age, annual caps , co-pays, and deductibles – to name a few.  They make an interesting comment that most people would be better off putting aside, in a savings acct, the money they would have spent on premiums.  Over the life of the average pet, this would more than pay for the majority of pet care needs.  They ended the column by saying that Consumer Reports does not recommend pet insurance.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

 

Insuring Temporary Workers from a Workers Comp Standpoint

I’m a member of a lot of various groups on LinkedIn.  For me, the best, and most informative is the IRMI group (International Risk Management Group).  There is an interesting discussion going on now about temporary workers, and some of the language in temporary staffing company contracts. 

So, you’ve thought about using a temp agency?  Temporary workers do create a bit of a coverage issue because they are not considered “insureds” under the CGL policy, but they are “insured’s” under a standard WC policy.  It would behoove any company using a leasing company, to read, and understand the insurance requirements – make sure you know what you’re getting into.

The focus of this post will be from a WC standpoint.  Craig Stanovich, CPCU, of Austin & Stanovich, wrote a great article back in 2007 regarding the “leased” or “temp” employee conundrum.  To summarize (again just from a WC standpoint) his article, if you are going to be using temp workers in your business, it’s necessary for the temp agency to make sure they have the Alternate Employer Endorsement (WC 00 03 01 A) added to their WC policy.   Not only do they need the endorsement, your company needs to be specifically listed on the endorsement to provide the proper coverage.

The purpose of the Alternate Employer Endorsement (WC 00 03 01 A) is that it extends the leasing companies’ WC and employers liability coverage to the company listed on the endorsement. 

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

 

QLMP’s Back in Vogue?

I can’t believe we’re beginning to have the QLMP discussions again.  As the MA workers comp market begins to tighten, and some companies again head back to the assigned risk pool, QLMP’s are back on the table.

What is a QLMP?  A QLMP is a Qualified Loss Management Program.  QLMP’s were quite popular back in the 90’s when a large number of employers had their WC coverage in the assigned risk pool.  A QLMP credit is only available for insureds who are currently in the assigned risk pool, and have, at no point in the past, participated in a QLMP.

The program is designed to help a company improve their overall safety, and get them in a position to be more attractive to a standard market WC carrier.  As some companies are now finding out, it’s not always loss history that dictates being dropped by a voluntary carrier.  More and more carriers are using “class of business” as the determinant.

The program provides credits to your WC policy on an annual basis, for up to 4 yrs.  The credit typically is the same in yr’s 1 &2, but declines in yr’s 3 & 4.  Some QLMP carriers have been approved for the maximum credit – 15% of your premium.  You must be in the program for at least 6 months in any policy period to be eligible.

I have been working with a QLMP provider recently, so feel free to reach out if you’re interested in exploring.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

 

Safety Incentive Programs for Employees

On March 12, 2012 OSHA issued a memorandum on Employer Safety Incentive and Disincentive Policies and Practices.  The timing was uncanny, in that I was, at that very moment talking to a client about safety incentive programs.

Many contractors utilize some sort of safety incentive program as part of their overall safety program.  They’re designed to encourage safety through some sort of awards program (something as innocuous as scratch tickets, for example).  The idea is, if they can reward safe behaviors or actions, their company will be better off; the primary driver is to keep insurance costs down.

After reading the OSHA memorandum, many contractors who utilize safety incentive programs, may want to rethink how they’re structured.  Their concern is that employees may feel discriminated against if they report a claim, for fear of retaliation by the employer, or fellow employees.  Therefore, they would be reluctant to get proper medical attention, or put in a workers compensation claim.

OSHA gives four examples of workplace policies or practices that could discourage reporting of claims, and could be the grounds for discrimination.  Their all worth reading, but I’m going to summarize just point #4, that specifically deals with incentive programs.

OSHA doesn’t think employers are doing anything malicious, they just think other methods would be more effective, and less discriminatory.  They give examples of winning a prize in a drawing, or team prizes or bonuses for maintaining a safe work environment. 

OSHA says: “However, there are better ways to encourage safe work practices, such as incentives that promote worker participation in safety-related activities, such as identifying hazards or participating in investigations of injuries, incidents or “near misses”. OSHA’s VPP Guidance materials refer to a number of positive incentives, including providing tee shirts to workers serving on safety and health committees; offering modest rewards for suggesting ways to strengthen safety and health; or throwing a recognition party at the successful completion of company-wide safety and health training.”

So, is it time to re-think your safety incentive program?  It may be.  The last thing any company needs is a potential OSHA violation.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

 

Treatment of Subs on a Contractors WC & Liability Policies

Many subcontractors will sub out a portion of their work to another subcontractor.   The question I often get is:  How do I get charged for subcontractor’s labor on my workers comp and liability policies?  There are really two ways to look at this. 

The critical piece is to know if the sub is insured or uninsured.  Each situation will be handled differently.  From a WC standpoint, if the sub is insured, and you have a certificate of insurance, there will be no charge on your WC policy.  However, if the sub is uninsured (maybe a one man shop, or someone who elects not to cover themselves), you will be charged additional premium.  The sub would be classified in whatever trade they perform, and that rate will be applied to YOUR policy.

Now it’s important to know what the auditor will use in determining the payroll.  If your records don’t break out the payroll vs the contract price, then the entire amount will be used.  Therefore, it’s very important to make sure you keep track of the payroll separately.

Things work a little differently from a general liability standpoint.  Unlike workers comp, you will be charged for subcontractors; whether they’re insured or uninsured.  Insured subs are charged at a very low rate, compared to uninsured subs, which will be charged according to what trade they’re in.  Another difference is how the premium is charged.  The premium is based on the total cost of subs, which will include wages, material, and equipment.

It should be noted, it is never a good idea to use an uninsured subcontractor.  Not only do you get charged additional premium, but more importantly, you’re on the hook for their injuries, and for any bodily injury or property damage they cause to third parties.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

Massachusetts Workers Comp Rates on the Rise

I hate to say I told you so, but, I told you so.  For months I’ve been talking about the pounding the workers compensation market has been taking, and we’re finally going to feel it here in Massachusetts.

On March 2, The Workers Compensation Rating & Inspection Bureau of Massachusetts asked the state for an average WC rate increase of 19.3%, starting on September 1, 2012.

The increase is spurred by the rising costs of claims, and the failure by the Bureau to get smaller rate increases over the last few years.  They feel that without the rate increase, we’ll have fewer carriers willing to provide workers compensation insurance to Massachusetts companies.

As we all know, there will be some give and take with the 19.3%, and it’s highly unlikely we’ll get 19.3%.  What this does mean is there will be a negotiation, and the increase will fall somewhere in between.  It’s impossible to guess accurately, but it wouldn’t be unreasonable to expect a 10% increase in rates.  We’ll know more in the weeks and months ahead.

So, what does this mean for Massachusetts contractors insurance?  No need to state the obvious, but your costs are set to increase.  It’s also important to keep in mind the changes to the experience rating formula taking effect in January 2013 (interstate risks) – for some, costs may go up even more.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

Workers Compensation Market Continues to Deteriorate

Standard & Poors (S&P) recently released their outlook for the Workers Compensation Market.  The title says it all: “For the US Property/Casualty Industry, Making Workers’ Compensation Profitable May Be Mission Impossible.”

I have talked about the deterioration of the workers comp market in previous blogs, but we’re really starting to see it in action.  Whether it’s decreasing deviations, no deviations at all, stricter underwriting, or a return to the assigned risk pool for many risks, the firming of the market is now upon us.  S&P states there are years of unprofitability ahead for the workers’ comp market, and they attribute it to:

1.  Continued high unemployment
2.  Potential for higher inflation – which leads to higher claims payouts
3.  Adverse reserve developments
4. Volatility of the investment market

A key ratio used in the insurance industry is the combined ratio (losses and expenses – compared to premiums).  Contrary to what many may believe, since 1991, there have been only 3 yrs in which the workers comp market realized an underwriting profit (combined ratio under 100%).  The industry was able to offset the underwriting loss through their investments.  No more!

There are interesting days ahead.  In Massachusetts, the WC rates are OK through Sept 1., but the consensus is that we’ll be in for rate increases after Sept 1.  For those with NCCI mods, the rating formula will be changing on 1/1/13, and for many, mods will be increasing.  Implementing cost control measures on the WC side, is going to be even more important going forward.

This information brought to you by Chris Sheppard of Smith Buckley & Hunt Insurance Agency, your Massachusetts contractors insurance agent and Massachusetts business insurance resource.

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