HGI Risk Report

risk report with Henriott Group, Inc.

mack2happy

February 2012

Workplace and Risk Management topics aimed at business owners, managers and other organizational leaders.

“Yesterday’s bullet won’t kill you. Tomorrow’s bullet just might.”

~ Bernie Provan Introduction to Workers Compensation Discussion

Workers Compensation

Henriott News & Updates

Discussing largest line of business within Commercial Insurance.

Checklist of best practices & the impact of reporting claims on a timely basis.

Did you miss previous Risk Report issues? Have you read our C’Mon blogs?

Workers’ Compensation

T

his will be the first of several Risk Reports dedicated to topics related to Workers Compensation, the largest line of business within Commercial Insurance representing 15-20% of all commercial insurance premiums and a coverage that almost every business owner or manager knows all too well. Although we could fill up the Risk Reports for the rest of 2012 on this topic, we’ll try to keep it relevant and informative as usual. We’ll start with a discussion on the state of the industry, what that might mean for your organization and a few best practices you should implement to help control your costs going forward.

Later, we’ll dive into the workers comp modification factor, how it’s calculated and what it means.

We’ll also touch on the indirect cost of claims so you can evaluate the true impact of claims on your organization, beyond the medical and indemnity costs incurred during the year.

By the end, our goal is to give you a better understanding of this critical line of coverage - one that is oftentimes a significant cost driver to organizations of all sizes – so that you can implement strategies to keep your employees safe and your costs low!

The State of the Market We won’t spend a ton of time on this, because I’m not sure you care, but when work comp rates and pricing start to go up, you might be interested to know why! The Standard & Poor’s chart on the next page plots the insurance industry data for the past 20 years of the Combined Ratio for work comp carriers. The Combined Ratio is the industry’s key profitability metric. It basically measures how much an insurer pays out

for each dollar it takes in. The lower the combined ratio the better! Of course, we all know that insurance companies get to invest your premium dollars until they pay them out in claims, which usually helps offset higher combined ratios.

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As the chart shows, the industry as a whole has had a Combined Ratio in excess of 100 for 17 of the past 20 years and I can tell you that 2011 will likely be worse than 2010. Several factors have led to this poor performance, including among other things: Investment gains have been very difficult to come by over the last several years The economic environment caused premiums to drop significantly as jobs were lost Another thing you’re all painfully familiar with – medical costs continue their steady increase Extremely competitive pricing industry the past several years – particularly in states like Indiana

What does this mean for my organization?

In short, the only way for insurance companies to return this line to profitability in the short term is through controlling expenses and holding tight on their underwriting standards on an account by account basis. In other words, organizations with a good loss history and sound safety and workers comp management practices will still be able to attract competitive pricing in the market. Those without these things…well, not so much. Not only will they likely face price increases, but also fewer options to choose from.

Checklist of Best Practices By no means is this list all-inclusive, but I selected what we see consistently among the best performing companies related to safety and workers compensation:

TOP MANAGEMENT BUY-IN

OCCUPATIONAL MEDICAL

Include written safety policy authored by them, putting safety first on the agenda for top management meetings and committing resources, time and money, to keeping employees safe.

PROVIDERS

ACTIVE & FUNCTIONING

SAFETY HAZARD INSPECTIONS Regular site inspections conducted using both internal and external (i.e., insurance company loss control) resources.

At least in Indiana, employers can direct medical care to an Occ Med provider who knows your business, the type of work you do and how you manage worker injuries.

SAFETY COMMITTEE

ONGOING SAFETY TRAINING

Representatives from throughout the organization, meeting regularly, reviewing results, assessing exposures, etc.

No one is exempt. Have employees conduct the training. Use pictures/visuals where possible.

COMMUNICATION WITH

ACCOUNTABILITY Safety is seen as a responsibility of everyone, not just Safety Director or Committee. Supervisors, line employees, office employees…you name it…have to be engaged.

RETURN-TO-WORK PROGRAM The program should be documented, functioning and communicated to employees.

CARRIER David Castillo Dominici

CLAIM REPORTING Accurate and timely reporting of claims, with information to perform root cause analysis (shift, supervisor, line, location, day of week, cause, body part, etc.)

Review open claims with claim adjustors regularly.

Provide insight and feedback.

KEEP SCORE Know where losses are coming from. Know your work comp mod and how it works. Track key metrics like incident rates, # of days away from work, etc.

Although this isn’t a complete list of “best practices”, it sure is a good place to start! For those of you already on top of these, congratulations and you’re likely seeing the benefits in your claim experience, your mod and most importantly, the safety of your employees. You’ll also be much less impacted by the changing market conditions I mentioned earlier. For those who aren’t as far along, it’s not too late to start!

Sidebar … It Pays to Report Timely!

Several studies have shown the impact of reporting work comp claims late…!!!!

Report claims early for a better bottom line!

Impact of prompt reporting on workers comp claim costs As the graph shows, workers comp claims reported >7 days after a workplace injury typically average nearly $3,000 more than those reported within 1-5 days.

Impact of claim costs on workers comp premiums … and overall financial performance Now, let’s say your business— Company A—has 10 workers comp claims in the coming year, and you report them all within 1-5 days.

Company B, on the other hand, files 10 similar claims—but it takes them >7 days to report each one.

Here’s what you’ll find at the end of the year …

Your total medical costs will be less than Company B’s by nearly $30,000.

Your experience modification may be significantly lower than Company B’s.

Your annual premium for the coming year may be significantly lower than Company B’s.

Because of the positive impact of your lower medical costs during the year, your annual premiums for the next 3 years will likely be lower than Company B’s.

All other things being equal, because you’re paying significantly lower workers comp premiums than Company B, your company’s bottom line will be significantly healthier than theirs.

The Latest …

Henriott News & Updates Check out our website blog series for reallife claims or lawsuites that we hear about in our work and make us sit back and say…C’Mon Man…Really?! Rick Davis’s recent post is right on topic with this month’s newsletter titled Facebook to the rescue of a Work Comp claim! Seriously, you have to read these things to believe them!

For previous Risk Report issues, click here!

See you next month!

Henriott Group’s Milestone Risk Management program is aimed at helping your company lower its Total Cost of Risk. Talk to your Henriott professional for more information about this proprietary process.

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