Prequalifying your business can be money in the bank

Companies are constantly looking for ways to give themselves a competitive advantage. Often times, it’s their Experience Modification Factor (MOD). It’s easy to overlook since employers tend to be somewhat uninformed when it comes to Workers’ Compensation. Although it’s certainly a significant employee benefit, on one hand, it’s also a powerful business benchmark that is carefully scrutinized by possible business partners.

The MOD is the biggest driver of a company’s workers’ compensation rates; the lower the MOD, the lower the rates. Therefore, companies with lower modifiers have a lower productivity cost structure, which makes them more competitive and profitable by securing more jobs. The exact opposite is true as well; a higher MOD leads to higher costs, and makes it more difficult to compete. However, there are more dire consequences for those with high MOD’s – no work.

Let’s face it. Companies and risk managers are using the MOD as a significant determining factor to disqualify firms from bidding on projects. If an experience modifier is over 1.00, the company may be viewed as unsafe, and, therefore, does not get the job. Companies know they must do something about their MOD, but don’t know what to do. The good news is that the MOD is as manageable as any other business function, as long as people are motivated to do so.

Here are a few examples of what we’re talking about:

  • A machine shop with a 1.3 MOD six years ago has seen it drop to 0.745, which is the third-best in PA within its classification, out of 228 companies. Before implementing changes to improve their MOD, they were unable to receive a multi-million-dollar contract, even as the low bidder, since the purchasing company’s risk manager viewed them as an unsafe company and questioned the quality of their work. They now have been able to win that contract and have grown from 58 to 110 employees.
  • An asbestos abatement and insulation contractor had a 1.02 MOD, barely above 1.00. Despite being low bidder, they were unable to receive 11 jobs in a three-year period because they were “disqualified” as “unsafe”. The contractor could not qualify for private work and, therefore, had to try and compete in the very low-profit margin, highly competitive government arena. Working with the owner to implement a “zero-accident” safety culture and adding processes to address lost time injuries, within three-years, the contractor had one of the best modifiers in the state. Recently, they were even asked to take over a job from a contractor who was thrown off of it because the contractor’s MOD went over 1.00. The company went from barely surviving, to thriving.
  • A 55-employee cable and fiber optic line installer with a 1.65 MOD was informed by the telecommunications company that they had two years to be in compliance with their safety guidelines, which included a requirement of a MOD less than 1.00. Since the telecommunications company represented 90% of their work, losing the contract most likely would put the company out of business.

    Step one was working with the contractor and the telecommunications company. The contractor was given an extension to four-years, but they had to hit benchmarks in terms of number of injuries that would be verified through loss runs from their insurance company and their OSHA logs. The second step was putting in an aggressive behavior-based safety program as their injury frequency had to be cut by 60% to be in compliance in the first year, and 80% in two years. Based on their results, they were compliant and actually went 19 months without an injury. They will be in compliance with a MOD below 1.00 in three-years as well and are looking forward to bidding on work from other telecommunication companies now.

Each of these companies is far better positioned to compete by improving its Workers’ Compensation performance.

With such striking results, what keeps companies from achieving stellar performance? Our experience points to two primary factors:

  • Lack of owner support and commitment to improving the organization’s operations. This includes difficulty in scheduling training sessions, meetings consistently being canceled and an overall company culture that is driven primarily by the owner’s unwillingness to change, focusing on productivity issues only, or having “too many irons in the fire”.
  • The insurance company’s reluctance to support an appropriate claims management process. Claims adjusters often feel threatened by a consultant’s claims management staff and avoid communicating with them. Unfortunately, any insurance company can have “unseasoned” adjusters, who don’t fully understand the Workers’ Compensation laws and don’t have any “skin in the game”.

But it doesn’t need to be this way. Things can go right under the right conditions:

  • Obtaining the full support of owner and executive management staff to implement cultural changes within an organization.
  • Appropriate consultants are given the time necessary to conduct specific training programs with front-line supervisors and implement necessary policies and procedures.
  • Conducting a comprehensive loss trending analysis to identify those losses that are driving the company’s claim frequency and severity. Then, with an evaluation of the findings, develop and implement processes to change the negative culture that is driving both claims frequency and severity.

There are a number of significant factors that help transform a company’s culture:

  • Management commitment is the most important factor in changing the attitude of the workforce. Management commitment is the first and most important thing.
  • Next is installing the necessary elements to achieve the desired results. Usually, business owners fail to recognize the impact accident costs have on the business. This is why they need to see the data to understand that injury prevention and injury management are 100% controllable expenses. Since these are employee costs, it starts with hiring, training, and monitoring employees for continuous improvement: Plan, Do, Check, Act.
  • Since companies differ, it’s critical to gain an understanding of how to formulate a plan that produces the desired results.
  • Another important consideration in the whole process is that all companies are different, both culturally and functionally. Identifying these differences in the early stages of engagement is important in order to formulate an effective plan to achieve the desired results. This includes developing standardized operating procedures and then conducting training in hiring, accident investigation, workplace inspections, audits, etc.

All of this is anything but an academic exercise. It’s the process of creating a happy, productive and injury-free workforce, along with a business that is successful because it has a competitive advantage that makes it attractive to customers.

And behind it all is the Experience Modification Factor. The MOD is used rather than OSHA Recordable and DART (Days Away, Restricted Time) rates by risk managers as a benchmark. Unlike the OSHA log, third parties promulgate the MOD, such as the state Workers’ Compensation rating bureau and insurance companies that create and provide the data, which are viewed as reliable sources.

Unfortunately, however, the MOD is subject to the severity of claims or even a single large claim, where frequency (the number of injuries adjusted for individual size for comparison) may be a better indicator as to safety performance. However, many risk managers view these records as unreliable, feeling that they can be altered by a company. As a result, the modifier is viewed as a reliable basis for review.

The bottom line is clear: making a diligent effort to get a company’s Experience Modification Factor to the lowest allowable level may determine whether a company gets a job or not.

For Cutting-Edge Strategies on Managing Risks and Slashing Insurance Costs visit www.StopBeingFrustrated.com

What employers should expect from an insurance agent

My fellow Institute of WorkComp Professionals educator wrote this article to summarize items that an employer should expect from their insurance agent when it comes to helping the employer to manage their workers compensation insurance program.

By Kevin Ring
Institute of Work Comp Professionals
Editor’s note: Kevin Ring, CWCA, CWCA, MWCA, is Lead Analyst at Institute of WorkComp Professionals, Asheville, NC of which we are a member. It trains and certifies independent insurance agents and their support staff to navigate the complicated workers’ compensation system and act as advocates operating between employers and their insurance companies.
Most workers’ compensation discussions focus on the roles of four active players: injured worker, physician, employer, and insurance company. But what about the insurance agent? Far too often, agents step into the background. There is something wrong with this picture. Workers’ compensation is one coverage area in which insurance agents can effectively demonstrate their value.

Here’s how we work to make a difference for the employers we serve:

Ensure the employee classifications are correct
With an average of 500 to 600 available job classifications, it’s easy for mistakes to occur. For example, a clerical employee (low workers’ comp rate) can be misclassified into one with a higher rate, which increases the cost. This is just one; many others can occur.

In fact, it’s even easier for mistakes to perpetuate themselves. An insurance agent calls on a prospect and asks to submit a quote and the owner agrees, thinking it’s a good idea to shop around. To get the necessary information, the agent asks to see the existing policy, copies the information, and goes back to the office to prepare the quote. If there are mistakes, they keep showing up.

Who is responsible for finding mistakes and correcting them so the employer only pays what is owed? Frankly, it’s the insurance agent who has the account. We’re trained how to find and correct mistakes so employers are not exposed and pay more than necessary.
Help employers develop a physician relationship
When it comes to reducing workers’ comp costs, particularly medical expenses, the importance of employers having a relationship with physicians with work-related injury and illnesses expertise cannot be overstated.

Too often, when an injury occurs, injured employees are sent to their personal doctor, an emergency room, or a nearby walk-in clinic. This can lead to higher costs, delayed return to work, and an increase in the experience mod, which lasts for three years.

If this is to change, it starts with having the right physician relationship. We can help an employer identify physicians with expertise in occupational medicine, go with the employer to interview doctors, develop options for alternate duty, help make sure the selected physician understands the business, the types of work performed, and any other employer expectations so that the physician is prepared when injuries occur.

 

Help an employer develop a process of what to do when employees are injured
What happens when an employee suffers an injury? Depending on the extent of the injury, in many cases employees are sent home and told to take it easy for the day, go to their own doctor, to the emergency room, or walk-in clinic. When you think about it, this is the only time employers give workers a blank check and tell them to go where they please without vetting the vendor.

It’s not good business because the employer has no control over the quality, cost, or outcome of the service. To change this, our task is to help the employer create a process that assures injured employees will receive proper care so they can return to the job as soon as appropriate.

Such a process may come as a surprise to employers who assume the insurance company is in charge. Actually, it’s more like opening the door and letting the fox in the hen house. Since employers are writing the check for their workers’ comp, they need to take charge of the process.
Analyze data to understand and foresee injuries
There’s a wealth of information in workers’ comp loss run reports, as well as OSHA reporting forms. Proactive agents work with employers to identify problem areas, which are often indicators that a larger, costly injury will occur, if changes are not made.
Serve as an effective conduit between the employer and the insurance company
When it comes to insurance, most employers are ill-equipped to have informed conversations with insurance companies. So, they reach out to their insurance agent when there’s a problem.

Today, insurance companies are all about reducing risks. It’s the agent’s role to position the employer in the best possible light with the insurance company to ensure competitive pricing and policy offerings.

Since the insurance agent knows both the employer and the carrier, it’s the agent who is best able to serve as the intermediary between the employer and the insurance company.
Help employers understand the technical nature of insurance language
Like the law, words have meaning in insurance. No one can feel comfortable with insurance unless they learn its language. Therefore, employers immediately file away insurance policies without even looking at them. They drag them out only when there’s a loss.

It doesn’t take a cynic to suggest that some insurance agents may like it this way. It gives them more control. But we recognize that a “secret language” is a barrier in the client relationship. It’s also an opportunity to help employers understand insurance by communicating its complexities simply and clearly. And, it’s worthwhile. No employer wants to be blindsided because they didn’t understand something, particularly when high costs are involved.
Help employers prepare for the workers’ comp premium audit so they pay only what they owe
Employers tend to view a workers’ comp audit as a minor inconvenience. The big question can be where to put the auditor. All of which suggests the annual audit is a low involvement event.

Now, compare this with an IRS audit, when all the stops are pulled out weeks in advance, and carefully choreographed by the accounting firm. No responsible business owner would go into an IRS audit the way most approach a workers’ comp audit that involves substantial sums of money.

It’s in an employer’s best interest to expect the insurance agent to help them prepare for a workers’ comp audit, particularly since auditors work for the insurance company. The agent understands the insurance language and knows the rules. During the weeks leading up to an audit, the agent can review the payroll records, check for incorrect job classifications, determine whether severance pay is excluded from comp, among others. If they find mistakes, they can correct them before the audit takes place.
Review information on employee injuries prior to the “magic moment”
This is the date the insurance company reports the employer’s information to the rating bureau for inclusion on the experience mod. It occurs 18 months from the inception of the account and every 12 months thereafter. Here’s what the report includes:

  • What has been paid thus far on employee injuries
  • What the insurance company has “reserved” (the estimated funds needed to ultimately resolve an employee injury.)

It’s important to review this data carefully. For example, if the reserves are higher than they should be, the employer’s experience mod will go up, which increases the company’s workers’ comp expense. Higher mods can render a business less competitive or, in the case of construction firms, ineligible to bid on certain jobs. The goal is also to make sure cases are not opened that should be closed, and that the reserves are relatively accurate.
Help the employer build a “recovery-at-work” program, so injured employees can be at work, rather than sitting at home
This is also known as “light duty,” “transitional duty,” or “return-to-work.” However, the term recovery-at-work more accurately describes what should happen and lets the injured worker know what to expect.

The recovery-at-work model sends injured employees the message that they are both valued and they can still be productive. Aided by transitional duty job descriptions, the physician can determine if the employee can return to work, along with job restrictions.

If the injured worker is back to work before lost time wage benefits begin, there is less negative impact on the experience mod. This can be a significant cost savings since the average lost time claim in 2016 was $53,000. But it’s also true that injured employees recover faster if they are at work.

Some managers still say, “Give me a whole man or no man.” But, happily more recognize the value of recovery-at-work. The insurance agent can help employers make it work best by identifying appropriate work activities based on physician restrictions, if any.

For Cutting-Edge Strategies on Managing Risks and slashing Insurance Costs visit www.StopBeingFrustrated.com