October 12, 2012
As we have all witnessed over the last few years, it is getting harder and harder to successfully secure contracts. One of the latest obstacles in securing contracts has been the emergence of prohibiting contractors to bid jobs if their workers’ compensation experience modification factor (experience mod) is greater than a 1.00. The experience mod has become a common metric to determine if the contractor runs a safe operation. While this methodology is fine in theory and creates a benchmark that all contractors are compared to, there are too many factors that determine your experience mod, such as, injuries to workers, fluctuations in payrolls, and classifications of employees, to name a few. The question is, what happens when your experience mod is impacted by regulatory authorities that are beyond our control? What should a contractor do?
Beginning on January 1, 2013, the governing body for Worker’s Compensation known as the NCCI is changing an important variable that can significantly affect everyone’s experience mod. They are changing the current “Split Point” of $5,000 to $10,000 on medical claims, which can potentially have a negative impact on your organization in 2013. NCCI has also earmarked the “Split Point” to increase to $13,500 in 2014 and approximately $15,000 in 2015. In the years following 2015, it will increase based on a claims-based inflation calculation.
WHAT’S CHANGING?
In the experience rating process, each loss is divided into a primary and excess portion. Currently, the first $5,000 of every medical loss is allocated as a primary loss, with everything over and above considered an excess medical loss. For example, a $3,000 loss has no excess value. On the other hand, a loss of $15,000 would have $5,000 in primary losses as well as $10,000 in excess losses. Primary losses are used as an indicator of frequency, and are counted in full as part of the mod calculation. Conversely, excess losses receive partial weight in the mod calculation. This means that primary losses affect the mod more than excess losses do. The rationale behind assessing primary and excess loss amounts is that “severity follows frequency”, or in other words, an organization that displays a continual pattern of loss has an increased chance of a severe loss in the future. Thus, a company with a large number of primary losses will have a higher mod than a company with the same amount of losses split between primary and excess. Whether your mod will increase or decrease will depend on whether you have an above or below average number of losses under the split point. If most of your losses are under $5,000, you are likely to see a decrease in your mod. If many of your losses exceed $5,000, you should prepare for an increase in your mod.
The truth is, contractors know that if they have injuries, their experience mod will go up. If they limit or reduce those injuries then their experience mod will go down. The most obvious solution to these regulatory changes is to strengthen your safety program. Certainly, safety programs and safe working environments are essential to running a good business, but those efforts alone are far from sufficient in reducing your risk and improving your experience mod. There is much more that you can do to control your experience mod, we affectionately call this the P4 Process, which will safeguard your company regardless of changes within the regulatory environment. While this is not the entire P4 Process this should provide you with foundation you need to get started.
Effective Pre-Hiring Practices
Hiring employees who are mentally and physically fit for the job is critical. No matter how much attention you give to safety and safety programs, if the potential new employee is unable or unwilling to perform the job to your organization’s standards, then the probability of a workers’ compensation claim increases drastically. Some effective pre-hire screening standards are: job descriptions with physical demands, integrity testing, background checks, and drug testing.
Post Offer Medical Exams
Once the employee has passed your rigorous pre-hire screening process, they must now qualify to perform the actual duties of the job. A post offer medical exam will allow you to properly qualify the potential employee’s ability to perform the job. By providing the medical professional with job descriptions that have both the physical and mental functions, you are protecting both the employee and your organization from potential loss. Some other effective post offer standards are new hire orientation and basic online safety training with testing.
Pre-Claim Practices
Once you have hired the employee, the first phase of reducing your claims is to ensure your employees know exactly what your safety culture is and what your expectations are with regard to safety. Once your employee has a strong understanding of this, they need to begin to train on how to safely perform their job. This is something that needs to be constantly reinforced to your employees. The best ways to continually train your employees is to set up a regimented training platform using the following tools: tool box messaging, web based training, OSHA certifications, and one-on-one training. Another critical part of the pre-claim process is supervisor training. In our practice group we often see the break down in the workers comp claim often comes because the supervisor does not know what to do in the event of a claim. Some other effective pre-claim standards are effective safety campaigns, incentive plans, and claims kits.
Post Claim Practices
No matter how much time you spend making sure you are hiring and training the best employee, the reality is that accidents can still happen. When the claim occurs, have a goal of reporting the claim in less than 24 hours. Once reported, the key to managing your experience mod is for YOU to handle the claim to the best of your ability. It is important to working hand-in-hand with the claims adjuster, and the medical community is critical to getting the claim closed as quickly as possible, and keeping the number of zeros following that claim to a minimum. Too many times employers look solely to the insurance company to manage the claim. The reality is that those claims managers have 100+ claims on their desk at any given time and they cannot possibly give your claim the time and attention needed. It is imperative that your company drives the results of those claims. This can only be done with a strong understanding of the claim process, a systematic approach to get those claims closed, and a partnership with your agent to help you in this process. One other effective post-claim standard is an effective return to work program with employees. Remember, if you do not have light duty, then you may be able to send the employee to a charity to do light duty, discuss this with your adjuster first.
Preparing for Change
While no one knows exactly what their future mod will be, it is important to understand how and why your experience mod is changing. It is also important to understand that your experience mod is still being used to qualify you for future contracts. By understanding this, you must ask yourself two questions about controlling your experience mod: Are we willing to change our philosophy to ensure we are hiring the right people, training them properly and implementing strong pre-claim and post claim strategies? You must also ask yourself, are we partnered with the proper professionals; legal, financial, HR and insurance/risk management firms to help us implement the above mentioned strategies?
Bruce Eades and John McGarvey lead the way for Insurance Office of America and their Telecommunications Division. To learn more about IOA, and their unique approach to Telecommunications Insurance and Risk Management, you may contact either Bruce or John at 800.535.4305 or bruce.eades@www.ioausa.com or john.mcgarvey@www.ioausa.com.
