Corporate Consulting Services, Ltd. Workers Compensation in Today s Environment

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1 Corporate Consulting Services, Ltd. Workers Compensation in Today s Environment 2014 Corporate 2014 Corporate Consulting Consulting Services, Services, Ltd. Ltd.

2 Forces Impacting Workers Compensation Today Factors affecting your company Assessments Rating Increase Expected Losses & Loss Cost Multiplier Split Point Level Change NYSIF Discounts Understanding your Mod Factor Cost Management Strategies for mitigating costs Classification Code Analysis/Payroll Audits Claims Reporting and Management Group / Program Participation Loss Control / Prevention Return to Work 2014 Corporate Consulting Services, Ltd. 1

3 Workers Compensation Insurance OVERVIEW Workers Compensation Coverage pays benefits to employees injured on the job, including medical care, partial lost wages and permanent disability. Death benefits are also included for death due to a work related accident. Except for Texas, WC Benefits are mandated in all states. Employer s Duties and Compliance: 1. Provide Coverage to all employees regardless of status (FT vs PT). 2. Pay premiums and provide the carrier with audit payroll numbers. 3. Provide a safe workplace environment. 4. Notify carrier as soon as possible after reported injury. 5. Investigate Injuries, particularly if fraud suspected. 6. Encourage prompt Return to Work, where possible Corporate Consulting Services, Ltd. 2

4 Workers Compensation Insurance ASSESSMENTS The New York State Workers' Compensation Board is a Revenue Agency within state government. No funding through general tax revenue. The Workers' Compensation Board must recoup all costs in the delivery of services through its own revenue sources. Assessments against carriers are passed to employers through surcharge on annual premiums. Surcharges are based on a percentage of premium. Losses and liabilities rise and fall, so do the assessments charged to insurers and self-insured employers Corporate Consulting Services, Ltd. 3

5 New York State Regulation Changes BUSINESS RELIEF ACT In the 2013 State Budget, Governor Cuomo amended the assessment methodology under the Business Relief Act. Title 12 NYCRR is amended to implement this change. Mandate requires NY Workers Compensation Board (WCB) to create single assessment methodology to fund NYS Workers Compensation System for all NYS employers. NY State Insurance Fund (NYSIF) policyholders had enjoyed a low average assessment ranging from 8-10% for the past five years. For 2013 specifically, the assessment was 9.2%. Employers with Private insurers typically paid an 18-20% assessment charge. This previous assessment system was deemed too cumbersome & expensive. Employers charged differently depending on provider - private carrier, the Insurance Fund, and/or self-insured. Effective January 2014, the rate is 13.8% of standard premium or equivalent for self-insured employers Corporate Consulting Services, Ltd. 4

6 New York State Regulation Changes NYCIRB RATE INCREASE In addition to the assessment adjustment, New York State reform will increase the NYC WC Rates by an average 9.5%. NYSIF will see an increase of 9.6%. This will have varying effects based on class codes. Originally proposed increase was 16.9% Rejected by the New York State Department of Financial Services (NYSDFS). Since NYSDFS had denied rates increases for the past 2-3 years, some classification codes are harder hit than others Corporate Consulting Services, Ltd. 5

7 New York State Regulation Changes LOSS COST MULTIPLIER CHANGE The Loss Cost Multiplier is the second component of your rate. This component is based on the company s own operating expenses, taxes and profit provision. Although insurers may start off with the same base loss cost published by the rating bureau, their individual LCMs will vary greatly. Effective November 1, 2013, NYSIF announced it was increasing it s Loss Cost Multiplier (LCM) from 1.43 to The LCM is multiplied against the Loss Costs (expected claims) for each classification. All renewals after December 1, 2013 will have new multiplier applied. The State Fund stated that this increase was consistent with the market place, as commercial carriers were filing for increases or denying classes of business Corporate Consulting Services, Ltd. 6

8 New York State Regulation Changes NY STATE FUND INSURANCE FUND (NYSIF) ADVANCE DISCOUNTS November 1, NYSIF reduced the advance discount to policyholders. The Safety Group discount was reduced from 25% - 20%. While the State Fund still maintains up to a 35% advance discount in the General Group program, on a policy by policy basis, it has begun to reduce this discount as well Corporate Consulting Services, Ltd. 7

9 New York State Regulation Changes NCCI CHANGES PRIMARY-EXCESS SPLIT-POINT CHANGE IN EXPERIENCE RATING FORMULA National Council on Compensation Insurers (NCCI) and most of the States bureaus that govern rules of workers compensation independently of NCCI have implemented a change in methodology for the Experience Rating Modifier (ERM). Although NCCI proposed the change, many independent rating bureaus including N.Y. have adopted this change. New York adopted this change as of October 1, Experience Rating Modifier (ERM) is a weighting system to assign a debit or credit to your workers compensation premium based upon your specific loss experience in your peer group. Employers with lower losses than expected for their peer group receive a credit modifier. Employers with higher losses than expected for their peer group receive a debit modifier. Claims are segmented into two parts: The Primary Loss and the Excess Loss Corporate Consulting Services, Ltd. 8

10 New York State Regulation Changes NCCI CHANGES PRIMARY-EXCESS SPLIT POINT Primary losses are indicators of frequency and fully counted as part of the mod calculator. Excess losses receive partial weight in the mod calculation. Rationale behind assessing primary and excess loss amounts is Severity Follows Frequency Employers with consistent primary losses have an increased chance of a severe loss, causing that employer to have a higher mod. The current split level has been in use for over 20 years. The rating methods used by California, Delaware, New Jersey and Pennsylvania differ widely from NCCI s approach, so similar changes in those states are not anticipated Corporate Consulting Services, Ltd. 9

11 New York State Regulation Changes NCCI CHANGES PRIMARY-EXCESS SPLIT POINT PRE 2014 Currently, the first $5,000 of every claim is allocated as a Primary Loss. Everything over $5,001 is allocated as an Excess Loss. e.g. A claim for $3,000 has no excess value whereas a claim of $15,000 would have $5,000 in primary losses and $10,000 in excess losses. Primary Losses Excess Losses < $5,000 > $5,000 $5, Corporate Consulting Services, Ltd. 10

12 New York State Regulation Changes NCCI CHANGES PRIMARY-EXCESS SPLIT POINT 2014, 2015, 2016 The New split point level will increase from $5,000 to $15,000 over a three year period. Proposed Split Point Transition Plan: Year 1: The split point will initially be increased to $10,000 to become effective with each state s approved rate/loss cost filing on or after January 1, Year 2: A state s next effective year filing can further increase the split point to $13,500. Year 3: A state s third effective filing year may further increase the split point to $15,000, plus two years of inflation adjustment (rounded to the nearest $500). Primary Losses < $10,000 $10, $13, Excess Losses $15, ??? Corporate Consulting Services, Ltd. 11

13 New York State Regulation Changes UNDERSTANDING YOUR EXPERIENCE MODIFICATION FACTOR The Experience Rating Modifier (ERM or MOD) is a weighting system to assign a debit or credit to your premium based on your specific loss experience compared to your peer group. The Expected Loss Ratio is provided by the NYS Rating Board and equated to a FACTOR of 1.0 (Unity Mod). Employers with losses lower than expected for their peer group receive a credit modifier, which is any factor less than 1.0. Employers with losses higher than expected for their peer group receive a debit modifier, which is any factor greater than 1.0. The Mod is calculated using loss and payroll data for an experience rating period which includes the three prior policy years, excluding the most recent year Corporate Consulting Services, Ltd. 12

14 New York State Regulation Changes UNDERSTANDING YOUR EXPERIENCE MODIFICATION FACTOR (MOD) Experience modification (mod) factor calculations are complex, but underlying theory and purpose are straightforward. Actual losses are compared to expected losses by industry type. The formula contains adjustment factors that take into account for company size, large losses and the difference between loss frequency and loss severity to achieve fairness and accountability. Your experience modification factor will be influenced more by small frequent losses than by large infrequent ones. < 0.75 Credit Modifier 1.0 Unity Mod > 1.25 Debit Modifier 2014 Corporate Consulting Services, Ltd. 13

15 Creating a Workers Compensation Strategy 2014 Corporate Consulting Services, Ltd. 14

16 Creating a Workers Compensation Process Policy Reviews and Payroll Audits 2014 Corporate Consulting Services, Ltd. 15

17 Creating a Workers Compensation Process WORKERS COMPENSATION CLASSIFICATION CODES The classification system, based on job descriptions, is a fundamental component of pricing development for Workers Compensation premiums. Incorrect classification codes of workplace exposures are common mistakes both insurers and employers fail to address. Conducting an internal audit of your classification codes can be a simple and effective way to manage your Workers Compensation costs Corporate Consulting Services, Ltd. 16

18 Creating a Workers Compensation Process PREPARING FOR A PAYROLL AUDIT Estimated premiums are often used at the beginning of the policy year. There can be vast differences between the estimated and actual premiums. Developing a Checklist to assist with the Audit process can be beneficial. Step 1 Collect Financial, Insurance, and Payroll Data. Step 2 Employee Information (classification codes). Note new or revised job descriptions Step 3 Corporate Officer Information. Step 4 Note Excluded Remunerations (Executive payroll caps, tips, etc). Please refer to the CCS handout for more details on developing a Workers Compensation Process Corporate Consulting Services, Ltd. 17

19 Claims Reporting Protocols and Management Process 2014 Corporate Consulting Services, Ltd. 18

20 Workers Compensation Claims Process CLAIMS REPORTING PROTOCOLS AND MANAGEMENT PROCESS Employees must take the first step in the claims process by reporting to their employer within 30 days of when an injury takes place. An injury qualifies for workers compensation coverage IF the damage or harm an employee suffers is the direct result of an accident from exposure to a hazard in the course of employment. Employers should notify insurers as soon as possible thereafter. Develop a standard first notice of claim form for each location Corporate Consulting Services, Ltd. 19

21 Workers Compensation Claims Process REPORTING CLAIMS Act within the first 48 hours Studies show that the faster you initiate the workers compensation process after an injury, the lower the ultimate cost of your claim. After 48 hours of the incident, the injured party (your employee) may forget crucial details about what happened. Recollections may become skewed from opinions of outside parties, such as co-workers or even an attorney. Key Steps to take: 1. Refer the employee for medical attention. 2. Perform an assessment or accident investigation. 3. Immediately take steps to ensure the injury or accident will not happen again. 4. Report the injury. 5. Inform the employee about your company s policies on returning to work. 6. Submit the workers compensation claim. 7. Maintain regular contact with employee. 8. Study trends in your reporting to reduce lag time Corporate Consulting Services, Ltd. 20

22 Workers Compensation Claims Process CLAIMS REPORTING PROTOCOLS AND MANAGEMENT PROCESS Employees MUST bring a claim for benefits within two years of the injury. Failing to meet these deadlines can result in delayed claim payment or outright denial of the claim. Exceptions: Employer had knowledge of the injury or death. It was unreasonable to expect employee to give notice. Employer will not be adversely affected by lack of notice. The notice must: Be in writing. Contain employee s name and address. In plain language describe the time, place, nature and cause of injury. Be signed Corporate Consulting Services, Ltd. 21

23 Workers Compensation Claims Process CLAIMS REPORTING PROTOCOLS AND MANAGEMENT PROCESS Employers must post a Form Notice of Compliance (Form C-105) Posting Notice The Workers Compensation Board requires that the Form Notice include the name, address, and phone number of the insurer. The policy number must also be clearly identified. Notice must be conspicuously posted in area(s) where employees regularly congregate (e.g. breakroom, payroll office). Violations of this requirement can result in a fine of up to $250 per violation. Please refer to the CCS Handout for model notices and other NYS WCB requirements Corporate Consulting Services, Ltd. 22

24 Preventing Workplace Accidents / Safety Development 2014 Corporate Consulting Services, Ltd. 23

25 Promoting Safety BUILD A PROGRAM USING OSHA GUIDELINES Occupational Safety and Health Administration (OSHA) standards require Employers to: Inform employees about hazards through training and visual guides Keep accurate records of work-related injuries and illnesses Perform tests in the workplace, such as air and water quality Provide hearing exams or other medical tests Post OSHA citations, injury and illness data openly Notify OSHA within 8 hours of fatality or serious injury to 3 or more employees Display OSHA poster describing rights and responsibilities 2014 Corporate Consulting Services, Ltd. 24

26 Promoting Safety BUILD A PROGRAM USING OSHA GUIDELINES Who Does OSHA cover? Private Sector Workers State and Local Government Workers are not covered by Federal OSHA, but have OSH Act protections in 21 States and 1 territory. Four additional states have OSHA-approved plans for public sector employees only Federal Government Workers must have same standards as private employers Please refer to the CCS handout for more details on developing a Workers Compensation Process Corporate Consulting Services, Ltd. 25

27 3rd Party Vendors and Safety Groups 2014 Corporate Consulting Services, Ltd. 26

28 3 rd Party Vendors and Safety Groups ACCESSING A 3 RD PARTY VENDOR There are a variety of vendors who can perform a no obligation audit of your policies and audits. These services include reviewing current and up to 3 prior policy periods: Experience modification Losses and reserves Class Codes Payroll allocations Audits and Credits Working with incumbent carrier and the compensation bureau to correct errors (sometimes for prior year) Corporate Consulting Services, Ltd. 27

29 3 rd Party Vendors and Safety Groups JOINING A SAFETY GROUP Discounted Premiums for approved employers. Minimum guidelines for best practices and safety protocols. Benefits of ideally favorable experience for well managed groups. Insights from Group Manager for improving losses Corporate Consulting Services, Ltd. 28

30 Impact of Return Work Programs 2014 Corporate Consulting Services, Ltd. 29

31 Developing a Return to Work Program FIRST STEPS Step 1 Know the Facts: Provide upper management with loss data evidencing trends in loss types where action will generate likely savings. Step 2 Gather Data: Research your company culture, management and employee attitudes regarding light duty or moderate workloads during recovery. Seek opportunities where possible. Step 3 Demonstrate a Commitment to Early Return to Work: All levels of employees should understand the goals, purpose and background of the program Corporate Consulting Services, Ltd. 30

32 Impact of Return to Work Programs RETURN TO WORK PROGRAM ELEMENTS Step 1 Create Goals Step 2 Create a Return to Work Team and Define Responsibilities Step 3 Develop a Work Flow Chart Outlining the Return to Work Process Step 4 Develop and Maintain a Job Bank Step 5 Create a Communication and Education Plan relative to benefits to employees and company as a whole Corporate Consulting Services, Ltd. 31

33 Creating a Workers Compensation Strategy Steps you can take to lower your Workers' Compensation Costs: 1. Inspect your insurance policy to make sure that all job classifications and payrolls are correct. 2. Develop thorough claims reporting protocols, regular reviews and management process. 3. Invest in workplace safety. Avoid accidents to improve claims history and reduce overall costs. 4. Contemplate the value of using a 3 rd Party Vendor and/or Safety Group to help mitigate costs 5. Create a modified duty / return to work program to help injured employee return to work sooner. Provide emotional support after an accident Corporate Consulting Services, Ltd. 32

34 Consider CCS Property & Casualty Retirement Planning Employee Benefits Human Resources CCS keeps you current and in compliance via: Seminars Webinars Management Training Series Newsletters CCS Alerts CCS Guidance CCS Updates CCS Website Corporate Consulting Services, Ltd. 33

35 Thank You It was a pleasure speaking with you. We look forward to continuing our dialogue. Please feel free to contact us with any questions. Chantal Raineri Senior Vice President ChantalR@CCSstrategies.com James Shea Senior Vice President JamesS@CCSstrategies.com Margarita Petranovskaya Property & Casualty Insurance Consultant MargaritaP@CCSstrategies.com 2014 Corporate Consulting Services, Ltd. 34