Workers Comp Premium Audit - Reserve Reviews For Employers

Workers' Compensation
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May 1, 2010

California Workers Comp Self Insured Mess

I was reading an article on the recent collapse The Contractors Access Program of California (CAP), a self insured group of contractors, is scheduled to be seized by California's Office of Self Insurance Plans.

The complicating factor is that members of self insured groups are jointly and severally liable for each other's claims and for the claims of the group. The 200 plus mostly small employers in this group will be liable for a reserves shortfall through a special assessment of the members for as much as $12M to $60M. Past members are on the hook for the years during which they participated. I find it fascinating that members that are now not participating can be assessed.

Liberty had held the bond, but cancelled it earlier this year. There is a $15.7 million bond in place for the prior years. The bond figure would only cover a small portion when compared to the size of the self insurance group and the liabilities in place.

Not to throw salt in the wound, but agents that recommended participation in the group can also be liable? It was noted that the agents’ E&O excludes self insurance plan recommendations for their clients. I do not think that blaming agents in necessarily a great thing.

I have received the question very often - why do I mention a state on the west coast when we are on the east coast - what happens elsewhere may not apply to me. As I have said often, what happens in a certain state, especially CA, will be coming to state near you. For example, in our home state of North Carolina, there was a similar situation with a company called GRIT (Government Reinsurance Insurance Trust). They went under and the governmental entities were stuck with their own claims. One of my good friends working for a certain carrier said boxes and boxes of files were brought in by a semi truck to their offices when they agreed to handle them.

Everything in insurance repeats itself over and over, with a slight twist.

Apr 30, 2010

IBNR Incurred But Not Reported - Workers Comp Term Of The Day

Incurred But Not Reported (IBNR) - An estimate of the amount of an insurer's (or self-insurer's) liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. The sum of IBNR losses plus incurred losses provide an estimate of the insurer's eventual liabilities for losses during a given period.

I am not a proponent of IBNR as the estimates for IBNR always seem to be somewhat inaccurate. This is especially true for first dollar Workers Comp policies.


Apr 29, 2010

Loss Development Factor - Workers Comp Term Of The Day

The Loss Development Factor also known as LDF is an element used to adjust losses to reflect the Incurred But Not Reported losses (IBNR) under the retrospective method of rating.

Where I have seen LDF's used the most are for Workers Comp Self Insureds. The LDF is somewhat analogous to the Experience Modification Factors (E-Mod or X-Mods). LDF's are usually calculated using the actuarial Triangulation Method. I have calculated LDF's for self insureds for up to 10 years in the future.

If you are a self-insured and do not have an LDF, it is best to have one for future forecasting of the IBNR and existing claims. There are software packages that will calculate the LDF's, but the info to be input may need to be adjusted to your specific Workers Comp situation. One size does not fit all with LDF's.


Apr 28, 2010

Experience Modification Factor - Workers Comp Term Of The Day

There has been much discussion in the last week on E-Mod or X-Mods. My definition is your company's Workers Comp credit score.

From NCCI - Experience modifier (mod) is a multiplier applied to the premium of a qualifying policy and provides an incentive for loss prevention. The mod represents either a credit or debit that is applied to the premium before discounts. If your company’s loss experience is more costly on the average than other company’s loss experience in your industry, the result is a debit mod, or surcharge, on premiums. If your company’s experience is less costly than the industry average, you will receive a credit mod, or discount, on your premium. The acronyms are Mod, E-Mod, or Emod.

From CA's WCIRB - which are expressed as a percentage, compare the loss or claims history of one company to all other companies in the same industry. Generally, an experience modification of less than 100% reflects a better-than-average experience, while an experience modification of more than 100% reflects a worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of your workers' compensation premiums, while an experience modification that is less than 100% usually decreases the cost of your workers' compensation premiums. The acronym is X-Mod or Xmod.

Apr 27, 2010

Oklahoma and The Feds Crack Down On Subcontractors

Oklahoma organizations that misclassify employees as independent contractors are the target of new legislation approved by the Oklahoma House of Representatives.

Senate Bill 1384 would allow the Oklahoma Tax Commission, the Oklahoma Workers' Compensation Court, and the Oklahoma Employment Security Commission. to share information in order to identify employers who fraudulently classify workers as independent contractors instead of employees in order to evade taxes and workers' compensation claims.

The Department of Labor announced that $12 million of its 2011 budget will go towards increasing enforcement of wage and overtime laws involving misclassification of employees. Currently misclassification is not against the law, but its practices often violate labor and tax laws, such as failing to pay employees overtime or minimum wage.

As I have posted often in the past, this does not mean that a company should not dispute the classification codes for their employees if they feel the codes are incorrect. Classification codes have very little to do with the misclassification of employees versus subcontractors. Those are two different subjects.


Workers Comp Term of The Day - Total Incurred

I have posted on this term previously. Total Incurred is the sum of the amount paid and the Workers Comp claim reserves. The Total Incurred figures are included in employers' rating bureau reports. Total Incurred is the most critical part of an employer's E-Mod.

The official definition - which is really the formula Reserves + Paid = Total Incurred. The sum of incurred medical and indemnity benefits and other for lost-time claims is also a definition.


Apr 26, 2010

Workers Comp Acronyms

In one of the LinkedIn Workers Comp blogs today, quite a few of the posters were talking about why an injured employee is called a claimant. I agree that the term sounds like the start of a controversy. A few of the posters had mentioned the need for consistency in acronyms.

Every Workers Comp insurance carrier or TPA has their own list of acronyms. I will provide a list of them. I was trying to figure out who to credit for them. These are so widespread I have no idea who to credit. If any insurance personnel uses an acronym that you do not understand, email them and ask for a list of the acronyms they use in their notes.

Workers’ Compensation Acronyms

ACOEM – American College of Occupational and Environmental Medicine

ADA – Americans with Disabilities Act (Federal)

ADL – activities of daily living

ALJ – Administrative Law Judge

AMA – American Medical Association

AOE/COE – Arising out of employment and occurring in the course of employment

AWL – actual wage loss

AWW – average weekly wages

BRB – Benefits Review Board

CFS – chronic fatigue syndrome

COLA – Cost of living adjustment

CRPS – complex regional pain syndrome

CT – cumulative trauma

CTS – carpal tunnel syndrome

DBE – diagnostic-based estimates

DCO – diffusing capacity for carbon monoxide

DIP – distal interphalangeal joint

DoA – date of accident

DOI – date of injury

DRE – diagnosis-related estimates

DSM-IV – Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition

DVT – deep vein thrombosis

DWC – division of workers’ compensation

EBM – evidence based medicine

E/C – employer/carrier

FAS – functional acuity score

FEC – future earning capacity

FEV1 – forced expiratory volume in the first second

FFS – functional field score

FL – functional limitation

FVC – forced vital capacity

GAF – global assessment of functioning (indicated in Axis V in DSM-IV diagnosis)

HCO – health care organization

IDL – industrial disability leave

IME – independent medical examination

IP – interphalangeal joint

IQR – inter-quartile range

LDP – last day paid

LDW – last day worked

LEC – loss of earning capacity

LEI – lower extremity impairment

LHWCA – Longshore and Harbor Workers’ Compensation Act

LT – lost time

MET – resting/exercise metabolic energy testing (See AMA Guides Chapter 3)

MDT – multiple disabilities table

MMI – maximum medical improvement

MPN – medical provider network

NCCI – National Council on Compensation Insurance

NCV – nerve conduction velocity testing

ND – nonwork disability

NEL – noneconomic loss

NSAIDS – non-steroidal anti-inflammatory drugs

NYHA – New York Heart Association

OCC – occupation

OD – occupational disease

OSHA – Occupational Safety and Health Act

PCR – prevention, compensation, and rehabilitation

PD – permanent disability

PDRS – permanent disability rating schedule

PI – permanent impairment

PIP – proximal interphalangeal joint

PPD – permanent partial disability

P&S – permanent and stationary

PTD – permanent total disability

PTHS – post-traumatic head syndrome

PTSD – post-traumatic stress syndrome

RADS – reactive airways dysfunction syndrome

RAND – Rand Corporation

RFC – residual functional capacity

ROM – range of motion

RSD – reflex sympathetic dystrophy

RTW – return to work

SIADH – syndrome of inappropriate antidiuretic hormone secretion

SIF – Subsequent Injuries Fund or State Insurance Fund

SLR – straight leg raising test

SOL – statute of limitations

SSA – Social Security Administration

SSD – Social Security Disability

SSDI – Social Security Disability Indemnity

SSI – Supplemental Security Income (Social Security welfare benefit payable to disabled and poor person)

SSR – Social Security Retirement

SWAG – scientific wild-ass guess

TD – temporary disability

TPA – third party administrator

TPD – temporary partial disability

TTD – temporary total disability

UEI – upper extremity impairment

UI – unemployment insurance

VA – Veteran’s Administration

VAS – visual acuity score

VFS – visual field score

VR – vocational rehabilitation

WC – workers’ compensation

WD – work disability

WL – wage loss

WLDI – Work Loss Data Institute

WPI – whole person impairment scale


Remuneration - Workers Comp Term Of The Day

This is an archaic word at best. It is still used in Workers Comp vernacular as opposed to payroll, etc. Please note that this is a generic list and may not apply to all jurisdictions. Remuneration is not another Workers Comp term for payroll. After examining this list, one can see why the premium auditors want complete records.

Remuneration consists of gross wages, or other compensation, before withholding taxes or other deductions including:

• Retroactive wages or salaries
• Total cash received by employees for commissions and draws against commissions
• Bonuses including stock bonus plans
• Extra pay for overtime work (with some exceptions)
• Pay for holidays, vacations or periods of sickness
• Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans, such as the Federal Social Security Act
• Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans
• Payment or allowance for hand tools or power tools used by hand provided by employers either directly or through a third party and used in their work or operations for the insured
• The rental value of an apartment or a house provided for an employee based on comparable accommodations
• The value of lodging, other than an apartment or house, received by employees as part of their pay, to the extent shown in the insured’s records
• The value of meals received by employees as part of their pay to the extent shown in the insured’s records
• The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay
• Payments for salary reduction, employee savings plans, retirement or cafeteria plans that are made through employee authorized salary deductions from the employee’s gross pay
• Wages paid to employees as salary in conjunction with the Davis-Bacon Act or other prevailing wage laws
• Annuity plans
• Expense reimbursements to employees to the extent that an employer’s records do not substantiate that the expense was incurred as a valid business expense
• Payment for filming of commercials, excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in print or is broadcast.


Apr 23, 2010

Premium Audit - Workers Comp Term Of The Day

Premium Audit - A methodical examination of an insured's operations, records and books of account. The audit is performed to determine the actual insurance exposures for the coverage provided and concluded with a report of the findings.

A premium audit will be conducted on your Workers' Compensation or other commercial insurance policy. The primary function of the audit process is to determine the actual payroll, sales, subcontract cost, or other exposure used in calculating the final premium on your policy. Your premium will be adjusted as a result of the audit. If exposures have been underestimated, an additional billing will result. If exposures have been overestimated, a billing credit will result.

There are three types of Workers Comp premium audits - mail, telephone, and physical. Polices with large premiums will usually require a physical audit. Premium audits are usually completed 30 - 60 days after a workers compensation policy expires.


Apr 22, 2010

Premium Auditor - Workers Comp Term Of The Day

Workers Comp Premium Auditor – an individual who performs the audit of remuneration at the end of a policy period. The premium auditor may be an employee of the insurance company or a contractor hired by the insurance company.

He or she contacts the insured, on behalf of the company, to determine the actual exposure that occurred during the policy period. The determination may include viewing the appropriate business records either at the insured's or accountant's office, or they may request verification through the mail.

The premium auditor has the right to view all business records. It is recommended that an employer run full payroll reports and a summary report for the premium auditor. Any subcontractors should be pointed out on the reports and verified by a Workers Compensation certificate of insurance.


Apr 21, 2010

Schedule Credits - Workers Comp Term Of The Day

Schedule Debits/Credits - discretionary premium adjustment based on underwriters evaluation of special characteristics of a risk not reflected in the E-Mod.

I have seen where the Schedule Debits/Credits can cause a 25% increase or a decrease to an employer's premium. Most of the credits involve safety issues such as housekeeping, guards in place, etc. The Schedule Credits can offset part of the premium increase caused by a higher E-Mod. Each state has its own specific set of criteria.


Apr 20, 2010

Workers Comp Term Of The Day Starting Tomorrow

After receiving a few emails from Investor Word Of The Day, I thought that I would publish a Workers Compensation word of the day. I will try to vary the topics to cover all aspects of Workers Comp such as premium audits, claims, self insurance, etc.

When we send out the weekly newsletter, we will group them together at the bottom each time.


North Carolina Statewide Conference May 11-14, 2010

The North Carolina Statewide Safety Conference, Inc will be held on May 11-14, 2010 at the Joseph Koury Center in Greensboro. This is a FREE, yes FREE Conference. You will rarely see a free four day conference nowadays.

This is the 80th year for the conference. I have been attending the conference for over 20 years. As I have always said - the way to lower your insurance Workers Comp E-Mod and/or your self-insured claims payments is to not have repetitive accidents. Safety programs are the easiest way to accomplish this task.

You may register at until April 30th. There is more info at Please copy and paste these into your browser window.


Apr 19, 2010

California's WCIRB Says No Mid Year Rate Change

The Workers Comp rating bureau for California has decided to not recommend a July 1, 2010 overall pure premium rate increase. In a memo to the California Insurance Commissioner's office, The WCIRB basically said the claims cost benchmark showed an overall claims cost increase of 21.1%.

I am a little confused over why the WCIRB did not at least make a recommendation for an increase if the overall cost of claims increased over 20% for 2009. Did the WCIRB realize that they will be turned down once again by Commissioner Poizner's office?

In analyzing the data at the WCIRB website, unless I am mistaken, the medical part of the claims costs in CA is spiraling upward.

In my last post, I said that I would comment on what might happen to the California's Workers Comp insurance environment if increases are needed in the pure premium rates, but instead are held steady. I will comment on this in my next post.


Apr 18, 2010

California Workers Comp Rates Stay Low

The Workers Compensation Insurance Rating Bureau of California (WCIRB) recently released the December 31, 2009 Summary of Insurer Experience. One of the most interesting statistics was the Average Insurer Rate per $100 of Payroll.

The average of $2.35 per $100 of Payroll was the lowest rate for employers since 1999 which was before the recent California insurance crisis. The highest amount during the last 15 years was $6.45 per $100 at the end of 2003.

These rates are the advisory rates. Any Workers Compensation insurance carrier can vary these rates greatly if the WCIRB approves the deviation. The WCIRB almost always approves the insurance companies' rates.

The WCIRB has recommended increases of over 20% over the last few years. The California Insurance Commissioner has decided to not approve the recommended increases. Is this bad for the California Workers Compensation insurance environment?

I will cover that next time.


Apr 16, 2010

The Federalization of Workers Comp - A Senator Thinks So

I have been told by many in the insurance industry how I was so far off the mark in coining the phrase the Federalization of Insurance including Workers Compensation. As you read this please remember that the House has already passed a bill creating the Federal Insurance Office. (FIO)

I read a great article in the National Underwriter that Sen. Ben Nelson, D-Neb., is withholding support of financial services regulation. He fears it could unnecessarily regulate insurers. He said he is not backing the bill in its current form believing that certain provisions could regulate insurers on matters unrelated to the financial crisis.

For insurers, the Senate bill creates an Office of National Insurance (ONI), makes systemically risky insurers subject to federal oversight and contains provisions similar to the House financial services reform bill that would modernize and streamline the surplus lines and reinsurance industry by facilitating regulation of such insurers by the state they are domiciled in.

Under the bill, federal oversight, in addition to current state oversight, would be applied to non-bank financial companies that are determined by a two thirds majority vote of the Financial Stability Oversight Council to be subject to prudential supervision by the Board of Governors of the Federal Reserve System.

Under the bill, the Office of National Insurance created would have limited powers, such as authority to seek information from state regulators about the health of the industry and particular insurers. The ONI would also have the authority to recommend to systemic risk regulators that a particular institution is insolvent or needs stronger oversight.

The bill would also require that a person with expertise in insurance issues be appointed to the Council by the president.

Is this not the House and Senate agreeing on federalizing the oversight of the insurance industry? If I am not correct, please email me and let me know.

A quick thought - what would be a systematically risky insurance company - all insurance involves an element of a possibly proportionally high risk. Would the National Flood Insurance Program not be a very risky program?


Apr 15, 2010

Premium Auditor Conference in Nashville TN

I recently attended an insurance premium auditors' annual conference in Nashville, TN. The group is called the National Society of Insurance Premium Auditors (NSIPA). The conference was very informative. Their website is There are also local insurance premium auditor organizations that are too numerous to list. One of the main things I liked about the conference is most of the presenters also covered auditing liability policies.


Apr 14, 2010

The Death Of Workers Comp - Five Final Ways To Prepare

No, I am not saying that Workers Comp is coming to an end due to the health bill. However, the way that we all are involved in the Workers Compensation process is going to change greatly - in my opinion. The following are five more ways to be prepared for a wave of Workers Comp changes in the coming years.

1. Monitor everything the CMS (Centers for Medicaid/Medicare Services) does in relation to Workers Comp. I think they are going to be a major game changer in the future.

2. Keep abreast of all the changes in Workers Comp in all states. I often receive the question - How does what happens in another state affect me in the state in which I operate? The answer is no one has reinvented the wheel. For example, the huge legislative changes a few years ago in California were modeled after Florida and other states.

3. An employer needs to increase their level of job safety for their employees. If and when everything begins to inflate, the market will harden and insurance carriers' underwriting departments will become very picky about which companies they will cover for Workers Comp. A claim that never happens is the best loss control possible.

4. As in #1, keep track of what the Federal Insurance Office (FIO) is doing, especially if they begin expanding their role in insurance. I think they will become a major warehouse for insurance data on a national basis including Workers Comp.

5. Join an Association or Trade Group where you can share ideas and receive feedback from like-minded individuals. There are many associations and groups that charge little or no fees to join. There are also many free conferences that can be a great place to see what is occurring more globally than just your niche. A great upcoming free conference on safety in North Carolina is It is a free three day conference.


Apr 13, 2010

Workers Comp Subrogation - A Risk Management Diary

A few posts ago I analyzed the Workers Compensation adjuster situation in handling third party liability claims. In defense of the Workers Comp adjuster, a requirement for the job is NOT a background in liability claims. That is an understood fact.

What can a Risk Manager or company officer do to possibly track the outcomes of an accident where a third party may be liable for a reimbursement for all or part of a Workers Comp claim? I would suggest setting up a subrogation diary to track the outcomes of a liability claim against the third party. As I said in the last post, we have noticed in our file performance reviews that subrogation or subro is/has not been properly handled in the claims.

The subro diary can be easily interfaced with any of the diary programs such as Microsoft Outlook(r). The main thing is to track if and when the subrogation claim is being pursued and how the funds have been handled along with how the insurance carrier has reported the reimbursement to the rating bureaus.

I try not to do very long posts. I will stop there. If you have any more questions on a subro diary, please drop me an email at


Apr 11, 2010

Workers Comp Large Deductibles And The Rating Bureaus

We have a large deductible. Our Company is basically self insured. We have heard this comment often lately as larger employers seek to control their Workers Compensation costs by entering into large deductible arrangements. Self-insuring for Workers Comp can be a way to cut comp costs if done properly. However, when you are insured with a large deductible, the rating bureaus still promulgate your Experience Modification Factor which can be accessed by almost anyone.

A self insured employer will “drop off the radar screen” with the rating bureau. As no insurance carrier is covering the employer, there is no UniStat report filed with the rating bureau. Quite a large number of our current clients are shocked when I tell them that I can pull their E-Mod even while they had or have been in a large deductible program. Your company’s E-Mod will not revert to 1.0 if you decide to end your large deductible program. Companies that are fully self insured will not usually have an E-Mod.

Many companies have signed on with a large deductible program thinking their high E-Mod will fade away. We recently had a manufacturing client contact us as they decided to end their large deductible program and go back to the open market with a regular Workers Comp insurance policy. After examining many variables, we had advised them if they ended their large deductible program, they would start with an E-Mod of 1.45.

Our client would have ended up being put into the risk pool with much higher rates then before they began their large deductible program. They decided to stay with the large deductible and we are now working with them to see if they can be fully self insured. Their bottom line savings on becoming self insured even from a large deductible is about 19%.


Apr 7, 2010

Subrogation - Workers Comp Money Left On The Table

I have covered subrogation a few times in prior posts. I am bringing it up again due to our recent Workers Comp file reviews. One area that we have noticed a lack of training or knowledge in Workers Comp files is subrogation. One of our trucking clients had left $240,000 on the table due to the TPA not pursuing subrogation before the statutes tolled. Many of my readers will likely know the definition of subrogation. I will not use the classic definitions as they are confusing.

An example of subrogation is when a delivery driver is rear-ended in an auto accident while making his/her deliveries. He/she suffers injuries and files a Workers Comp claim for benefits. The driver of the other car is responsible for reimbursement of the benefits to the Workers Comp carrier. The Workers Comp carrier has the responsibility to protect their client's interests and to pursue subrogation. This is an easy example.

There are many instances that we find in files where the situation is more complicated, or the initial notice letter to the responsible party is sent, but then there is no follow-up. We also see where the subro check is received by the carrier, but is not properly credited to the file. This can cost an insured many times over as their E-Mod would be affected.

Why does this happen? I think it is that Workers Comp adjusters have such a hybrid job to do from a regular liability adjuster. How often does a liability adjuster have to make sure that an injured employee's weekly check made it to them? The volume of communications or mail is huge for a Workers Comp adjuster.

The bottom line is that they are so busy,it is just part of the file that cannot be tended to in their normal job duties. I have also noticed that liability adjusters receive a large amount of training in subrogation while the Workers Comp adjuster does not receive that much training in third party liability.

I think that I may have come upon a solution. Check back with me on the next post. I try not write posts that are too long as insurance is not the most exciting subject.


Apr 5, 2010

Montana Is Second Most Expensive State For Workers Comp

I have not posted for some time on the state funds. One article that caught my eye was on the Workers Compensation situation in the state of Montana. Montana had been off the news radar for a long time.

Now, Montana has been ranked as the second most expensive state for Workers Compensation in the nation. I thought that I would look at what would cause this increase in rates when compared to other states.

One main consideration for high rates is that there exists a state fund such as Montana that writes a majority of the Workers Comp policies. The State Fund writes work-comp insurance, which insures businesses against on-the-job injuries, for 68 percent of Montana companies. This is a major percentage. Montana is not what one would call an open-market system. When the market is written by a State Fund that has more than 50% of the market, the usual insurance market system is not balanced.

Montana put the state fund's actuary on the job to see what he could find as a reason. Only 9 percent of claims are permanent partial disability, but they account for 70 percent of overall work-comp costs, he said. The actuary said that PPDs in Montana occur at a rate 50 percent higher than the average in other states and that medical costs for such claims are twice as much as other states. If the number of PPD claims and their medical costs in Montana were at national averages, work-comp rates would be 30 percent lower, and Montana would fall to 20th-highest in the nation.

We shall see whether changing the PPD laws will have any effect. I think changing the Workers Comp market dynamics would help greatly.


Apr 2, 2010

The Death of Workers Compensation - Five Ways To Prepare

I have waited to return to this subject due to another blogger's opinion who claims to be a health and Workers’ Comp expert. I never said that the health bill would result in the disappearance of Workers Comp.

I was compared to a tea leaves reader; a black swan; and even the teller of urban legends. I do not outwardly claim to be a guru on Workers Comp as the song says "If I claim to be a wise man, it surely means that I don't know." (Kansas - Point of Know Return). The expert/guru moniker is up to the reader, not the writer.

I think that I touched a nerve in the Workers Comp community. That is fine as I will now cover how to be prepared if Workers Comp is completely federalized. As I have said often in the past, there are steps that the federal government has taken to federalize a state-run Workers Compensation system (Federal Insurance Office; CMS having a database of all Workers Comp data by January 2011; the Health Insurance bill, etc.) To say that the forest does not exist when the trees are already there could be a mistake.

OK, enough about the past, how does one prepare for the future if their career is centered around Workers Comp?

1. Further your designations and degrees. I know of at least five good friends that started their ARM, CPCU, AIC, etc. but have not finished. This would be a great time if you are reimbursed by your current employer.

2. Your boss is your main customer. I will leave that one alone as it is very obvious.

3. Join a Workers Comp based association and make it to conferences. You can never network too much. A very easy way to network is by joining LinkedIn. One of the groups that I am in can be joined at You will have to sign up for free if you are not already a member.

4. Subscribe to and read all Workers Compensation publications. I subscribe to over 20 different ones. Knowing the environment you work in can never hurt.

5. Realize that the Federalization of Workers Comp does not mean that your job will change that much overall. The variables might change, but it is very unlikely that the process will change.

I have more to add to the list next week. As always, if you have any ideas, drop me an email.


Mar 30, 2010

Five Areas For Workers Comp Jurisdiction

As I posted last time, Mr. Walsh is going to help us out with Workers Comp jurisdiction. See my last post for the original question. I was taught this many years ago.

If an employee is injured that has a multi-jurisdiction problem, the WALSH test is a great one to evaluate the jurisdiction. WALSH stands for Worked, Accident, Lived, Salaried, and Hired. I have seen a Workers Comp judge actually use this test.

W - where does the injured employee work most of the time?
A - where did the accident occur?
L - where did the employee live?
S - where was the employee paid from - where was check cut?
H - where was the employee originally hired?

The W carries the most weight. The H carries the least.

Yes, I know the test is not foolproof and does not work in all jurisdictions. It is a great starting point.

If one applies this test to the original question - the premium auditor would have been correct - from a possible claims standpoint - to ask for premium for coverage in another state for the subcontractor. There are many complications to making the statement that the premium collection was correct. This is when a company may want to contact a premium consultant. I am not advertising our services.


Mar 27, 2010

Workers Comp Subcontractors Jurisdiction Question

I received this question from one of my peers in the Workers Comp world.

A client of ours uses subcontractors as a part of their construction contracts. The subcontractors have provided valid certificates on insurance for Workers Comp coverage for any of their employees. The subcontractors sometimes cross state lines into another state to take materials to a landfill and to pick up materials.

The premium auditor has billed the client for a large sum of $ as they have said that part of the job involves another state that is not on the certificates of insurance. Can the carrier charge the client premium for their subcontractors as they are operating out of state for part of their job? Who would have the responsibility if a claim was filed in the other state if there was an injury?

I will answer this in two parts - one today and one tomorrow. There are many variables to examine to see if the premium should be charged to the client or to the subcontractors. If there are no out of state provisions on the certificates of insurance then a premium auditor will charge the main contractor for Workers Compensation insurance in another state. I am not inferring that the auditor would be correct, but one could not fault them for adding in a risk premium.

However, there are many particulars such as in which state the certificates cover and what state are they crossing over into to dump and obtain materials. This is definitely one for a premium review for the employer.

I will address what would likely happen if there was an injury in the non-covered state. Trucking companies have to address this very often. We have to thank Mr. Walsh for the next post.


Mar 25, 2010

Six Signals = Workers Comp Major Changes

The Death of Workers Comp was our most popular blog post since I started it. I have heard from many readers that say "no way."

Below is a list of things to make one think further about the changing WC landscape.

1. The Feds will have all Workers Comp data from the CMS database soon. They can analyze it to their advantage.

2. Senator Byrd from WV - very powerful - has twice tried to add 24 hour coverage amendments to different bills.

3. The Federal Insurance Office (FIO) was quietly created in a finance package.

4. At a major rating bureau conference, the main presenter said "They may not get all they want now, but the Feds will keep expanding their powers into WC every year."

5. Twenty years ago, no one would have thought that we would have a nationalized health care system - but we do now.

6. It was a river to cross to have 24 hour healthcare coverage in the past, now it is a small stream to step over. The AFLAC model is the best example.

Workers Comp is not soon going away. If anyone believes it will not change quickly - six letters - CMS MSA.


Mar 24, 2010

Pinnacol - A Different View

One of my blog readers that is an agent in Colorado disagreed with what I had said about Pinnacol in one of my recent posts. The verbatim quote is in the next few paragraphs. I may or may not necessarily agree with everything, but it was well thought out and written.

Pinnacol has no plans of expanding outside the state of Colorado, which allows them to keep a federal tax exemption. They will also stay as the insurer of last resort. This portion of the business would be exempt from state premium tax. The premium tax on the remaining business is insignificant, 1%. That would translate to less than $4 million for the state based on Pinnacol's current book.

Pinnacol already has more than 50% of the Colorado WC market (that number fluctuates depending on the metric). This includes many of the best accounts in the state along with the business they have to write. They do have the ability to place other states coverage through a cut-through deal, currently with Argonaut (soon to be with Zurich).

I was confused by your statement that, "Cherry picking the good accounts that are just in Colorado would not enable Pinnacol to stay in business very long." Pinnacol has been very successful in not only writing the very best the state has to offer, but also the risks that nobody else will touch.

Even though the discussion on Pinnacol may not directly apply to your state, I have posted on it many times as along with West Virginia, Nevada, Oklahoma, and other states the Workers Comp market is quickly changing overall. These and other states along with the health care debate should be looked at as bellwethers for your Workers Compensation situation.


Mar 22, 2010

The Death of Workers Comp - Have We Seen The Beginning?

I have posted many times on the term that I coined - The Federalization of Workers Compensation. The recent House vote on healthcare could be the first step to 24 hour health coverage. Traditional Workers Comp insurance would not survive if the federal government decided to experiment with covering individuals under a modified health plan that would also pay monetary benefits.

Is that possible? It exists today and is known as AFLAC. The AFLAC model could be applied to health insurance and therefore alter the Workers Compensation markets greatly. I am looking at a 7 - 10 year time frame.

If anyone does not feel that the federal government could move into the Workers Comp space so quickly, one only has to be reminded of how fast CMS and the Medicare Set-asides have changed the Workers Comp landscape.

I do not necessarily think Workers Comp will be wiped out completely. However, I think that anyone that has Workers Compensation at the core of their career should remain very flexible over the next 10 years.


Pinnacol Wants To Become A Mutual Company

One of my devout blog readers has asked why would Pinnacol offer so much $ for its autonomy. I did leave that part out of my last few posts Pinnacol.

Pinnacol wishes to become a mutual company. They want to have a board of directors that is not beholding to the state of Colorado. In my opinion, the request for the change is due to their book value. Pinnacol's value is very likely much more than the $330 million that was offered to the state.

As I said in my last post, Pinnacol would have to pay taxes if they become a mutual company. I am not sure they have stressed that enough with the state government. I have not seen a high level of concern that the switch would cause employers in Colorado to pay more premium. This concern was shown when CompSource Oklahoma was considering the same issue. The bottom line is Pinnacol will become a mutual insurer. The question is when and how much will they pay Colorado.

A Mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders.