Be on the lookout!

Have you ever noticed a scheduled credit on your policy?  Ever wonder why it’s there?

Often times brokers are able to negotiate these on  your behalf, but sometimes the scheduled credits are adjusted based on the experience MOD changes.

Picture this…

It’s 2017 and you’re at the last year of your debit experience MOD of a 1.25.  Your current WC policy for that year has a scheduled credit of .80, easing some of the pain of your current debit MOD rating.  Your renewal policy comes in for 2018 with a new MOD of .78 and low and behold your scheduled credit is now a scheduled debit of 1.10.  What gives?   Virtually all of the premium savings you were expecting is gone!

Continue reading Be on the lookout!

Insurance Definitions and Terms

I sound like a broken record on this, but you can’t manage what you don’t understand! Insurance terms and policies are far from commonplace for most of us.

For those of you that don’t live and breath insurance, here’s an in depth list of insurance terms and what they mean to you.

Continue reading Insurance Definitions and Terms

Big Changes with non-compliant Audits!

Ever thought of not complying with your work comp insurance audit? In years past failure to comply with an audit might have caused an estimated audit with exposures inflated by 50% and some carriers were forgiving enough to process non compliant audits with no additional payroll increases.  With the new changes you may want to reconsider unless you’re ready for a potential 200% increase in exposures!

Does your policy have the endorsement WC 00 04 24?

 

2016-14:  Audit Noncompliance Charge for WC Policies

NCCI has established an Audit Noncompliance Charge Endorsement (WC 00 04 24) that will be included on all new and renewal workers’ compensation policies effective January 1, 2017.  The endorsement enables an insurance carrier to apply an Audit Noncompliance Charge to a workers’ compensation policy if the policyholder does not comply with the annual premium audit of their records.  When attached to policies, the endorsement will include the estimated annual payroll (in the Basis of Audit Noncompliance Charge section) and the annual premium multiplier that may be applied for noncompliance (in the Maximum Audit Noncompliance Charge Multiplier section).

Injury Types- What is Permanent Partial?

When reviewing your loss runs or mod worksheet you’ll run into the codes or following descriptions.  A quick overview of the common injury types are outlined below.

  • Fatal—Death claims ƒ
  • Permanent Total—Claimant expected to never be able to return work ƒ
  • Permanent Partial—Claimant expected to return to work but with some permanent impairment or disfigurement ƒ
  • Temporary Total—Claimant expected to recover fully ƒ
  • Medical Only—No benefits for lost wages are expected to be paid

MOD Quick Check

You’ve got your MOD Sheet and you already know how to read it.
A quick review of key pieces of information and areas we’ve discovered over the years that can be addressed quickly.

  1. The Policy Dates are Correct!  (It sounds simple, but changes in renewal dates, wrap-ups, mergers, sales and even asset purchases can lead to mistakes or not getting the full credit for you actual exposure!)
  2. Were any claims under subrogation?  Even partially?
  3. How do the claims compare?  Do you see any significant discrepancies between your losses and your MOD sheet?  If so, dig deeper and understand why and where the differences are!
  4. Do the payrolls for every policy period match your audited payroll figures?  If you paid additional premium one year in an audit, you want to make sure you’re getting credit for that additional payroll and premium on your EMR!

If red flags go up as you’re checking your MOD sheet, take notes, send your agent a quick email and make sure you KNOW and UNDERSTAND you’re getting rated correctly!

Loss Runs, How, When, and Why

While nearly every business owner is familiar with their “loss runs” it’s surprising how many companies aren’t reviewing their claims data on a regular basis.  Loss runs are a snapshot of all your claims, open and closed, for a given period of time.

Listen to this scenario and ask yourself if this is how you operate.  60-90 days out of your insurance renewal your receptionist or office managers are fielding call after call from agents and brokers looking to quote your insurance.  Maybe you “shop” every year or maybe it’s been a few years now and reluctantly you decide it’s time to bid out your insurance.  The new agent comes in and before he can give you the pricing, he needs to get a hold of your loss runs.  The meeting is over and your current agent or carrier reluctantly release the information, knowing very well, you’re making the request for competing agents and brokers.  Maybe when you get your loss runs you notice a claim or two that surprises you, either by a larger payout than you expected or were aware of or perhaps one that’s still open that could be closed.  A quick phone call to your broker and things are fixed or at least you get a good explanation of what happened to make the claim spiral the way it did.

Regardless whether you changed carriers, brokers, or otherwise, this is how many business owners only experience with their loss history.

I’m sure we can all agree there’s a better way to handle this.  At the same time, what if your company isn’t large enough to have a full time risk manager or safety manager who can review the claims on regular basis.  Let’s suppose the burden of reviewing the insurance and claims history is on a CFO, office manager, or owner.  Take it a step further that whoever that individual is just doesn’t have time to review claims on a regular basis.

So what should you do?

  1. Have a policy and procedure in place to handle claims when and if they happen
  2. Make time to check your claims prior to your valuation date- not just when it comes time to market your insurance

These two simple steps can have an immediate and drastic impact on your market rates when you shop the insurance, as well as the price you’ll pay for years to come.

Next post we’ll review the dollar impact with some claims examples.

Wait, I don’t have an Experience MOD?

So what if you don’t have an experience rating?  In order to qualify for a rating with NCCI, you need to meet certain criteria.  These qualifications can and do vary by state, but you first need to meet the states minimum premium level for experience rating.  If your premium was $6750 but that was including a MOD rating of 1.5, you don’t actually qualify for a MOD since your standard or manual premium is actually only $4,500 if your state had a $5,000 manual minimum premium limit to qualify.  In this instance, having a manual minimum premium below the eligibility requirements actually saves you from a debit experience rating!

Experience Rating Eligibility in Maryland.

A risk is eligible for intrastate experience rating when the payrolls or other exposures developed in the last year or last two years of the experience period produced a premium of at least $10,000.  If more than two years, an average annual premium of at least $5,000 is required.

 

As I mentioned, the eligibility amounts vary by state.  As of 10/4/2017 the NCCI requirements are listed below.

2. State Subject Premium Eligibility Amounts

(Exceptions: MA, TX)

(Additional Rules: OR)

A risk qualifies for experience rating when its subject premium, developed in its experience period, meets or exceeds the minimum eligibility amount shown in the State Table of Subject Premium Eligibility Amounts in Rule 2-A-2-c. Refer to Rule 2-E-1 to determine a risk’s experience period.

a. A risk qualifies for experience rating if its data within the most recent 24 months of the experience period develops a subject premium of at least the amount shown in Column A.
b. A risk may not qualify according to Rule 2-A-2-a. If it has more than the amount of experience referenced in Rule 2-A-2-a, then to qualify for experience rating the risk must develop an average annual subject premium of at least the amount shown in Column B. Refer to Rule 2-A-3 to determine average annual subject premium.
c. A risk’s rating effective date determines the applicable Column A and Column B subject premium eligibility amounts required to qualify for experience rating. Refer to Rule 2-B for rating effective date determination.

State Table of Subject Premium Eligibility Amounts

State Rating Effective Date Column A ($) Column B ($)
AK 7/1/17 and after 5,000 2,500
6/30/17 and before 5,000 2,500
AL 9/1/17 and after 10,000 5,000
8/31/17 and before 10,000 5,000
AR 1/1/18 and after 8,000 4,000
12/31/17 and before 8,000 4,000
AZ 7/1/17 and after 6,000 3,000
6/30/17 and before 6,000 3,000
CO 7/1/17 and after 8,500 4,250
6/30/17 and before 8,000 4,000
CT 7/1/17 and after 11,500 5,750
6/30/17 and before 11,000 5,500
DC 5/1/18 and after 7,000 3,500
4/30/18 and before 7,000 3,500
FL 7/1/17 and after 10,500 5,250
6/30/17 and before 10,000 5,000
GA 9/1/17 and after 10,500 5,250
8/31/17 and before 10,000 5,000
HI 7/1/17 and after 5,000 2,500
6/30/17 and before 5,000 2,500
IA 7/1/17 and after 8,000 4,000
6/30/17 and before 7,500 3,750
ID 7/1/17 and after 6,000 3,000
6/30/17 and before 6,000 3,000
IL 7/1/17 and after 10,500 5,250
6/30/17 and before 10,000 5,000
IN 7/1/17 and after 5,000 2,500
6/30/17 and before 5,000 2,500
KS 7/1/17 and after 8,000 4,000
1/1/16 to 6/30/17 6,000 3,000
12/31/15 and before 4,500 2,250
KY 4/1/18 and after 10,500 5,250
3/31/18 and before 10,000 5,000
LA 11/1/17 and after 10,500 5,250
10/31/17 and before 10,000 5,000
MD 7/1/17 and after 10,000 5,000
6/30/17 and before 10,000 5,000
ME 10/1/17 and after 9,500 4,750
9/30/17 and before 9,000 4,500
MO 7/1/17 and after 7,000 3,500
6/30/17 and before 7,000 3,500
MS 9/1/17 and after 9,000 4,500
8/31/17 and before 9,000 4,500
MT 7/1/16 and after 10,000 5,000
6/30/16 and before 5,000 2,500
NC 4/1/16 and after 10,000 5,000
3/31/16 and before 8,000 4,000
NE 8/1/17 and after 6,000 3,000
7/31/17 and before 6,000 3,000
NH 7/1/17 and after 11,500 5,750
6/30/17 and before 11,000 5,500
NM 7/1/17 and after 9,000 4,500
6/30/17 and before 9,000 4,500
NV 9/1/17 and after 6,000 3,000
8/31/17 and before 6,000 3,000
OK 7/1/17 and after 10,500 5,250
6/30/17 and before 10,000 5,000
OR 7/1/17 and after 5,000 2,500
6/30/17 and before 5,000 2,500
RI 2/1/18 and after 10,500 5,250
1/31/18 and before 10,000 5,000
SC 3/1/18 and after 9,000 4,500
2/28/18 and before 9,000 4,500
SD 1/1/18 and after 8,000 4,000
12/31/17 and before 7,500 3,750
TN 9/1/17 and after 9,000 4,500
8/31/17 and before 9,000 4,500
UT 6/1/18 and after 7,000 3,500
5/31/18 and before 7,000 3,500
VA 10/1/17 and after 7,000 3,500
9/30/17 and before 7,000 3,500
VT 10/1/17 and after 8,000 4,000
9/30/17 and before 8,000 4,000
WV 5/1/18 and after 9,000 4,500
7/1/08 to 4/30/18 9,000 4,500

 

Experience Rating Plan Manual should be referenced for the latest approved

 

Experience Rating Formula

Some of you have asked about the actual formula.  Here it is!

The experience rating modification formula:

Is used to determine the experience rating modification for all risks eligible for experience rating.
Includes the data of all states in a risk’s experience period to produce an experience rating modification.
Primary Losses Stabilizing Value Ratable Excess Totals
Actual Primary Losses + (1 minus Weighting Value)
x
Expected Excess Losses
+ Ballast Value + Weighting Value
x
Actual Excess Losses
= Total A
Expected Primary Losses + (1 minus Weighting Value)
x
Expected Excess Losses
+ Ballast Value + Weighting Value
x
Expected Excess Losses
= Total B

For the experience rating modification, divide Total A by Total B, then round to two decimal places.

Should You Know Your Carriers LCM?

 

Your carriers what???

LCM, or Loss Cost Multiplier.

Should you know your carrier’s LCM? How does this affect your company, or your client? First let’s see what an LCM is.

Below is a good description of an LCM and how it applies. This was taken from the 2012 Report from the Maryland Insurance Administration to the Joint Committee on Workers’ Compensation Benefit and Insurance Oversight Committee.  (feel free to skim through the jargon until you get to the “what exactly does this mean?”)

In Maryland, workers’ compensation insurance is a blend of prior approval and competitive rating. In this line, all insurers, with the exception of IWIF, are required to subscribe to a group known as NCCI. NCCI is a licensed rating and advisory organization which files pure premium loss costs with the Md. Insurance Administration or MIA. Pure premium loss costs reflect actual claim information submitted by insurers to the NCCI. Claim information includes lost wages and medical costs. NCCI then aggregates this claim information for use in its pure premium loss cost filings. Pure premium loss costs do not, however, include any other costs associated with writing workers’ compensation insurance, such as profit, commissions, taxes and the expenses associated with providing the benefits to the injured worker (known as loss adjustment expenses). No insurer may use NCCI’s pure premium loss costs until those costs have been approved by the MIA. The rates usually are effective beginning January 1 of each year.

Once the MIA has approved the NCCI’s pure premium loss costs, insurers submit independent rate filings. These filings adopt the NCCI pure premium loss costs and then include the insurer’s expense multiplier. The expense multiplier consists of the following elements from an insurer’s expense and profit information: (1) commission; (2) general expense; (3) taxes, licenses and fees; and (4) profit. In addition, since the NCCI does not include loss adjustment expense in its pure premium loss cost filings, companies modify their expense multiplier to include a component for loss adjustment expense. The insurer’s rates are derived by multiplying NCCI’s pure premium loss costs by the insurer’s calculated expense multiplier. These rate filings are made under competitive rating, which means that insurers may begin to charge premiums based on the specific expense multiplier as soon as it has been filed with the MIA.

Link to Document Here

So what exactly does that mean?  Well, if you don’t live and breath insurance,  rates are estabished in states at a level to cover claims according to statisistical data for the particular state.  Carriers then take this loss cost and add a surcharge to it to cover things like profit, expsenses, agent commissions, etc.  The higher the loss cost multiplier, the higher the base rate you’ll see on your workers’ compensation policy.  The lower LCM you see a carrier files, the lower the rate is going to be for your work comp insurance.

Let’s see an example.

You’re a Virginia based business and your carrier is Erie Insurance.  Carriers files different rates for different “carrier companies” or tiers.  Take a look at this breakdown of different Erie companies in Virginia.  Depending on which company your policy is written with, your rates with essentially the same carrier can vary widely!

VA_Rate_LCM

Now why on earth would a carrier do this?  Well, not all companies are created equal!  Let’s say you’re a drywall contractor with $10,000,000 in payroll.  You’ve had an excellent claims history over the last 15 years in business and really deserve to be paying insurance with the lowest rates available in addition to a very low experience rating.  Then compare that company with another drywall company which uses uninsured subcontractors, casual labor, and a terrible 5 year loss history.  Let’s take it a step further to say this same company is too small to even qualify for an experience rating.  In this case, if a carrier were to insure this business they might want to put the highest or higher rated tier until they had more experience with the risk.

So do you as a business owner need to worry about your carrier’s LCM?  Not really.  If you’re shopping the marketplace for the best carrier based on price, the rates you see on the quote or proposal are probably the easiest way to gauge the pricing, but it certainly won’t hurt to know where you stand.  If you are shopping your agent, you could always ask- why aren’t I this tier or that tier with my carrier?  If you have a good relationship with your broker, and don’t shop, it certainly might be in your best interests to ask about your carrier’s LCM.

As an agent or broker, you should absolutely be paying attention to LCM’s. Not only will it help you do the very best job for your client, but it could save you tremendous time and resources on the marketing side of your business.

 

 

 

 

You can't manage what you don't understand.