The Assigned Risk Pool Is Not Just For Risky Employers

I have often heard this expression - ABC Company is in the Assigned Risk Pool.  They must have had a high E-Mod or a really bad Workers Comp accident.   Nothing could be further from the truth.  There are many employers with an E-Mod less than .9 (a good risk) and/or  have had no serious claims  that are in the Assigned Risk Pool.   

Often, there are just no Workers Comp insurance carriers that will write a certain type of employer in a certain state at a certain time.  We have seen trucking companies, staffing agencies, and other companies not being underwritten by the regular insurance market.  There is sometimes no rhyme or reason to why  a workers comp insurance market for a certain type of employer dries up almost overnight.    

One of my main concerns about the Assigned Risk Pool  is the overwhelming cost of being in it. The assigned risk rates can be up to 700% more expensive than in the regular insurance market. No matter how safe an employer is, being in the Assigned Risk Pool will result in a much larger insurance budget.   The Assigned Risk Pool is a very necessary evil.  Without it, there may be many companies that could not acquire Workers Compensation coverage for their employees.  

How Can I Question My Premium Audit Without Filing A Dispute?

This is a question that came in from a few of the blog readers over the last two weeks.  Most Workers Compensation premium auditors are very reachable if you have questions about your audit.  Calling or emailing them with a question does not violate any rules.  I always recommend emailing the questions as premium auditors are very busy and are usually overloaded with audits on their schedule. 

This is the main reason that we always advise our clients to ask for their Workers Comp audit workpapers that are filled out by the premium auditor.  The workpapers can sometimes explain the thought process of the auditor.  Filing a premium dispute is the last thing that should be done if your company simply has questions about the premium audit.  There are a few premium auditors that only want premium disputes if you have a question.  I do not understand why certain auditors require premium disputes.  As I mentioned previously, emailed questions will usually suffice.  

Emailing a question or disputing the fact that your premium audit bill just seems high may only muddy the waters as you need to be very specific in your questions.  Then again, we see so many companies just writing a check when they receive a premium audit bill without even questioning the basis of how the premiums were calculated.  The premium audit bill is like any other account balance.  It should be reviewed thoroughly before any payments are made on the policy. 

If you feel there is something wrong or are in over your head, please consult with a non-agent expert.  I have posted very often that when CFO's, Risk Managers, Owners, etc. have a gut feeling that something is wrong they are usually correct. Please do not just set the premium audit bill aside as there are time limits on making a payment or filing a dispute.     

Large Deductible Programs Can Be Reviewed for Premiuim Overcharges

We often hear from very large companies that they are in a large deductible program and that examining the Workers Comp Audit (by the insurance carrier) is an exercise in futility as there are no premiums that can be recovered. 

This is simply not the case.  Without going into the intricacies of certain Workers Comp agreements, there are other areas of the Workers Comp policy and audits that can be examined for mistakes and overcharges.  As long as an Experience Modification Factor (E-Mod/X-Mod) is promulgated (calculated) and a premium is charged by a carrier, the policy and workers comp audits of large deductible programs can still be analyzed for overcharges.  

The % of recovery may not be as large as on a regular Workers Compensation agreement.  The larger  premium amounts will usually balance out the smaller %'s of recovery.  The bottom line is that unless a company is fully self insured, there is always a possibility of premium recovery.         

A Quick Apology To Our Readers

We have been informed by Blogger that some of the previous and archived posts may not be or may not have been accessible.  This may have resulted in a 404 Error, especially if you are using Google, Yahoo, one of the search engines, or our search box to find one of the blog posts.  If this happened to you, please excuse the inability to find that certain blog post. 

We also send out the posts in a newsletter every Tuesday.  If you wish to receive our blog post newsletter on Workers Comp, please use the sign up button in the right margin.  Thanks.

In Defense of AIG - The Insurance Part

I had written this post a few weeks ago.  I was just not sure that I wanted to take the heat of defending one of the most hated companies in America. 

I am not defending the investment part of AIG that was their downfall.  The property and casualty arm of the company has done/will do very well in the future.  AIG's management of their insurance division is very strong and forward-thinking.  Their property and casualty marketing, underwriting, and claims departments have all performed at or better than the competition.  

AIG has become very assertive on their workers comp audits.  I have noticed this trend over the last two years.   This is not out of line with most of their competitors.   

One of the questions I have heard very often lately is "Will AIG survive?"  AIG is now changing their name to AIU.  This may be a good strategy.  However, people will associate AIG with failure for years to come.   I read an article today where AIG insurance personnel were glad to get the crisis behind them.   They were unfairly associated with the failures of other parts of the company.  I know quite a few AIG employees on the insurance side of the business that are at the top of their game. 

I do not think that AIG will completely fail.  I also think that AIG will pay back what has been lent to them by the US government.  The payback period may be over 20 years.   I do not think that AIG can keep their investment companies going very much longer.  Any company that could come up with credit swaps as a way to hide losses should not be allowed to survive. 

I disagree that the AIG bailouts did not allow them to make lower bids and to underprice the competition.  I have seen that first-hand.  The NAIC study that was performed on this subject made the assumption that they did not have an advantage.  Being a statistician, I can tell you that if you make a presumption, you can always find certain statistics that will prove your point.       

Workers Comp Audit Workpapers - What Are They?

The Workers Compensation Audit Workpapers are the auditor's complete calculations that were created during the audit.  They are very important to understand what calculations, payroll, and other information were used to produce the final calculations on the policy.  

If you receive an audit billing, you can trace back to see the audit trail of the auditor.  Some of the audit workpapers can be very complicated.  Most audit workpapers are computer generated.  There are a few workers comp auditors or audit companies that may still use paper forms to perform audits.  There will very likely only be computer based audits very soon as this allows the auditor to share their findings much more easily.  

We recommend NEVER paying a bill unless you fully understand the workers comp audit results. If you do not, the audit workpapers can sometimes easily point out how the bill was calculated. As I have said many times in this blog, the policy, policy audit, and anything to do with your Workers Comp policy should all be available to you as it is your Workers Comp policy that you are paying for with your company's hard-earned money. 

Most auditors will leave a copy of their audit workpapers with the employers when they do the audit.  It may be a good idea to ask the workers comp auditor for a copy of their workpapers while they are performing the audit.                   

A Workers Comp Estimated Premium Audit

Question from one of our readers - We just received an estimated Workers Comp premium audit and billing. Why did this happen?

Was the premium auditor able to make an appointment to perform the payroll audit? If not, the auditor only has so many days after a Workers Comp policy expires to perform the audit. The audit is estimated in order for the billing to be produced and mailed to you. If you wish to dispute the estimated premium audit, you must still pay any undisputed premiums by the due date on the audit billing. Do not ignore the estimated audit and bill. It could lead to cancellation of your policy.

Was the premium auditor able to access all the records they need to see to be able to perform the workers comp premium audit? The auditor has the right to see any of your records. I had posted on this a few weeks ago. If the auditor is not able to review the applicable records that you have in your possession, they will have no choice but to do an estimated audit and bill.

All of the rules on Workers Comp audits and the employer dispute process must be in your policy. Most states are very picky about what the insurance carrier includes in the policy. The insurance policy may be a boring read. I recommend it before signing any policies.

27% Premium Increase Recommended For California Employers

In my last post, I blogged my thoughts on how the California Workers Comp rates would increase in the coming years.  I had thought there would be an increase of a few percentage points per year.  

The California Workers Compensation Insurance Rating Bureau (WCIRB) just released a recommendation for a 27% increase to the current base Workers Comp insurance rates for employers in California.  This is for all policies after 7/1/09 and forward. That came as a shock to me. 

I read further into their analysis.  The WCIRB press release said that 7% was due to recent court decisions and rulings.  That made sense to me as the hard stance taken by Senate Bill 899 was likely to be softened.  The other 20% is astounding to me.  

I decided to examine their 06/30/08 and 09/30/08 Workers Comp Insurance Experience reports.  These do show some increases in the Ultimate Losses in the medical area.  I am trying to comprehend where the 20% came into play and I just do not see it.  Forecasting rates can be a very difficult task.  However, a recommendation of 27% seems excessive to me.  I may not have available to me all of the statistics the WCIRB have in their possession.   

Insurance Commissioner Steve Poizner has to approve any increases or decreases to the base rates for Workers Comp premiums.  He has taken a more conservative tact to the increases or decreases the WCIRB has recommended.  

I think one thing that can be taken away from this recommendation for a large increase is that there are upward pressures on Workers Comp reserves due to the current environment in California.  The medical treatment is becoming more expensive in most states.  The Medical Provider Networks (MPN's) were put into place to control medical treatment.  I am wondering if the MPN's were ignored in their recommended increase.  

Between now and July 1, 2009, the Insurance Commissioner will adopt a rate change.  This will be the final numbers for 2009.  One thing to remember is the insurance carriers can all deviate from the recommended rates as they see fit as long as the Department of Insurance approves the deviations. The deviations are usually increases to the recommended rates.                              

             

Upcoming Possible Changes To The California Workers Comp System

California has performed well in finding ways to control their runaway Workers Compensation system.  As I predicted a few years ago, the California Workers Compensation system would see the return of insurers once the environment stabilized enough that carriers would be able to underwrite Workers Comp policies at an anticipated profit.  

The State Compensation Insurance Fund (SCIF) went from being the insurer of last resort to practically the only insurer of Workers Comp in California.  That is not a good situation when one carrier is writing coverage similar to a monopolistic state fund. 

As I mentioned two blog posts ago, the average premium paid per $100 of payroll for California employers was reduced almost 70% from 2003 to 2009.  Senate Bill 899 allowed the employers and insurance carriers to exercise more control over Workers Compensation claims including the all important medical provider networks (MPN's). 

My opinion is that the Workers Compensation rates in CA will increase steadily over the coming years due to the medical costs associated with the claims.  The rating bureau for CA - The WCIRB has said that the upcoming medical costs will rise 13% per year.   I think there will be a loosening of the physical medicine guidelines such as physical/occupational therapy and chiropractic.  How I came to this conclusion was in a study that I performed for a large physical medicine provider group late last year.  I forecasted that the state of CA will allow more chiropractic and physical therapy visits per patient after examining all the data.  

However, I do not think that the permanent disability rating system based on AMA guidelines will change.  I do not think there will be an increase over the 104 week maximum for temporary total disability benefits.    

Even if the premium rates grow a small amount each year, anything will be better for California employers than the incredible increases in Workers Comp rates from 1999 to 2003.         

                   

Best's Recommended Expert Service Providers

We have just been named to the 2009 list of Best's Recommended Service Providers.  Best's Review requires that providers must go through a rigorous approval process to be listed in their online and printed directories.  

We have worked very hard to provide the Worker's Compensation industry with a source for employers and risk managers to discover or review alternative opinions on the general market.  Last year, we were named to the LexisNexis Top 25 Blogs for Workers Compensation.  We now have over 35,000 new users  accessing the blog for information every month.  That number is growing rapidly.  As we are a specialized blog, that is a great number.   

Tomorrow I will post more on the California Workers Compensation situation.  I left my notes on the changes in California's Workers Compensation system  at work and wanted to be as accurate as possible.   

Did you notice something that is very rare for blogs or web pages?  We do not have any advertising for other companies in our blog.  Why?  We do not want any outside companies to influence our blog.  Another thing you may notice is that all posts have been written by me.  That may need to change to give a wider view of the Workers Compensation subjects that we cover overall.  If you would like to post to this blog, please contact me at jmoore@cutcompcosts.com     

Thanks to everyone for their readership.  If you are an employer and you have had a bad Workers Comp audit experience and have that "gut feeling" that something is wrong, or need any other advice on Workers Compensation, my email address is in the previous paragraph.                       

An Amazing Turnaround in California's Workers Compensation System

While reading through a few on the online publications I receive every day, I came upon a statistic in the California Workers Compensation reform that astounded me.

The rating bureau for California (WCIRB) measures and posts various statistics on the Workers Comp system in California every six months. In 2002 and 2003, the WCIRB published Workers Comp advisory rates read like a horror novel. Senate Bill 899 was enacted and the Workers Comp rates fell dramatically over the next five years.

In my opinion, it was due to the medical treatment controls put into place. The medical provider networks (MPN's) controlled the medical treatment by employees that indirectly reduced the indemnity compensation. Let's get back to the statistics.

The average rate paid by employers reduced in this pattern (per $100 of payroll) :

• $6.45 - 07/03 - 12/03
• $5.84 - 07/04 - 12/04
• $4.44 - 07/05 - 12/05
• $3.30 - 07/06 - 12/06
• $2.45 - 07/07 - 12/07
• $2.30 - 01/08 - 09/08

I did not include every six months as the list would have been rather long to read. Using some quick math, that make the reduction in 5 years time $4.05 per $100 of payroll or a reduction of 65%. This is the same as a 4% tax break for all employers in California.

Will the Workers Comp rates stay this low or go even lower over the next few years? That would be difficult to estimate as a few law changes or court decisions could heavily affect the California Workers Comp market.

The California Insurance Commissioner has recommended a 5% rate increase for Workers Comp policies starting on or after 1/1/2009. The WCIRB had recommended a 16% rate increase citing spiraling medical costs as the basis for the large increase. Increases in rates are normal after many years of sharp decreases in the Workers Comp insurance rates. The 16% rate increase recommendation by the WCIRB was a very surprising figure.

I will post more on California the next time as there are quite a few changes coming to the Workers Comp system over the next few months.

The Workers Compensation Claims Adjuster

Many years ago, I started out my career as an insurance adjuster trainee. The adjuster has more to do with your Workers Comp premiums than any underwriter, agent, or premium auditor. I thought I would go over a few interesting and probably unknown aspects of a very tough job in the insurance industry.

The Claims Adjuster

One of the most thankless jobs in Workers Compensation or any other type of insurance is the claims adjuster position. In this blog, I may point out flaws in how file reserves and closings are handled by an adjuster. It is not the adjuster, but the Workers Comp insurance system as a whole that causes overcharges in employers’ premiums. The claims adjuster is the “mediator” between the claimants and the respective insurance companies. The claimants want to be reimbursed or provided with whatever they ask, and the insurance company wants the claim to be settled for the least amount of funds possible, without the costs of litigation.

Most claims adjusters are overloaded with claims. A claims adjuster must be the master of time management or they will quickly drown in their claims load. A usual claims load is from 125 – 300 files. If the claims adjuster has over 200 files, you as the customer, are not having your files handled properly. There are a very few adjusters who can handle more than 200 files. If your files are split amongst numerous adjusters, each of them still needs to be handling 200 files maximum.

Anything that will help a claims adjuster do their job can only help keep your reserves as low as possible. The Four Secrets of Saving Workers Compensation premium that I posted previously will help reduce the amount of time spent by the adjuster on your WC files. An adjuster only has so much time to devote to each file, so any extra time that you can give the claims adjuster will enable the adjuster to spend time on your files trying to reduce your costs, not just working on the files.

What Information Can The Workers Comp Premium Auditor Examine?

We often receive this question in a phone call from an employer has just been through a Workers Comp audit.  The employer is usually frustrated that the insurance company's premium auditor has asked for so much information. 

According to your Workers Comp policy, the auditor has a right to examine all records that are in a  company's possession. The auditor will usually examine various forms of documents that are the norm for a payroll audit.  However, the auditor can ask for any and all documents they need to finish the audit.  

The best way to proceed is pre-audit planning.  Prepare the same documents that the auditor asked for the previous year and provide those along with an Excel sheet or a QuickBooks summary report.  We never recommend having the audit at an off-site location such as the accountant's or bookkeeper's office as these seem to cause many inaccuracies in the audit as the premium auditor is not on-site.  

If you do not remember what was asked for last year during the premium audit , you will need to provide the work comp premium auditor with all the documents (in a very organized manner) that feed into your audit.  Often, the premium auditor will send a letter requesting certain documents.  If you do not understand what is needed or have questions about the audit, it is best to call or preferably email the auditor before they arrive at your place of business.  Providing organized documents is the key.     

Many Insurance Carriers Are Becoming Very Assertive On Their Workers Comp Audits

One of the major trends that we are seeing right now is that quite a few of the Workers Comp insurance carriers are becoming much more assertive on their Workers Comp audits.  In this economy,  one cannot blame the insurance carriers for trying to collect all funds that they are owed by the employers.    However, we have seen where a carrier has performed three premium audits in one year.   This is quite excessive as the year end premium audit would have taken care of any premium underpayments . 

The client called us in asking why there should be so many audits as it basically shut down their offices for one or two days.  That made our client have to shut down their offices for 6 working days per year.  Is this outrageous?  If you check your Workers Compensation insurance policies, the insurance carrier has a right to audit your company's insurance policy anytime during the policy and for up to three years after the policy period expires.  

We are of the opinion that the employer should be audited once per year just after the policy period expires, and only once.  

Next post - We will discuss what you have to turn over to the insurance company's premium auditor during a premium audit - the answer may shock you.          

A Great Call From Tennessee on Workers Comp Audits

Today I received a great call from Tennessee that verified what I had been saying about Workers Comp policies and Workers Comp audits.  

The agent had a question about his client having a bad "gut feeling" about their recent Workers Compensation audit.  The agent then asked me if this sounded like something that we could assist his client with in the near future.  

As I have said many times in this blog,  the #1 indicator that there could possibly be Workers Comp overcharges is that someone in the process (employer, agent, consultant, etc.)  has a feeling that the results were incorrect.  That type of employer is the one that we were the most successful in obtaining Workers Comp refunds.  

Please remember that any dispute that you may have with the workers comp audit has a time limit for questioning an audit or policy.  These are "stamped in stone" and must be followed exactly.  If you check your policy,  the process for disputing your Workers Comp policy is usually on the last few pages.  If you are unable to find it there, please email us or consult your state's Workers Comp regulations.   Please do not let something just sit that may cost your company a substantial amount of money. 

SIC Codes For Employers That Are More Frequently Overcharged Premiums

I have been asked many times which employers seem to be overcharged more than others - by SIC Code, State, Size, Insurance Carrier, Type of Premium Audit, etc.

After looking back through our premium audit reviews that we perform for employers, I have been able to find no certain companies, states, size of employers, insurance carrier, type of premium audit, type of policy or anything else that would exemplify an overcharged employer. Employers that experience premium overcharges cover the spectrum of employer types.

The premium auditor and the premium audit process are more subjective processes than objective. If they were objective processes, I could easily statistically forecast which type of employers or Workers Comp insurance situation would indicate a high degree of likelihood of premium overcharges. Premium auditors register their opinions on a premium audit. It is not stamped in stone.

Most of the time when we find overcharges are actually when the employers call us and have a gut feeling that something is wrong. In my speeches/presentations, I always point out more than once that employers know when something is wrong. It is your business as no one knows it better than you do - no consultant, tax advisor, and so forth.

If you feel there is something wrong with your Workers Compensation insurance program and are not sure what to do next, please feel free to search this blog for help. There are almost 275 posts on how to save on Workers Comp. If you need further information, please click on the Contact Us tab.