Minimizing Workers’ Compensation Costs Information for Businesses and Business Interests

1. Minimizing Workers’ Compensation Costs Information for Businesses and Business Interests

2. What we will cover • Workers’ compensation basics • Coverage basics • Policy basics • Experience modification • Classification code • Avoid audit premium • Know your legal duties • Workplace safety • Return to Work • Know your legal duties • Frequently asked questions

3. It’s complicated…….. • The Law is complex • The Insurance line is complex • There are multiple parties are involved

4. This mandatory insurance program arose out of the industrial revolution due to increase in work injuries Workers’ compensation was created as a compromise No fault coverage Statutory and limited benefits Work injuries presented uncertainty Worker uncertainty over medical treatment and wage loss Employer uncertainty over potential law suit and outcome If no work injuries, no need for workers’ compensation. The key to minimizing costs is safety Workers’ Compensation Basics

5. Employers are keenly aware of the costs of workers’ compensation but not the benefits Limited liability Injured worker is limited to workers’ compensation recovery Employer is immune from most law suits for a work injury Benefits that are paid out are limited by law No worker recovery for non-economic loss such as pain and suffering No punitive damages The Employer

6. Not all injuries at work are covered An injury must arise out of and in the course of employment “Arises out of” requires the claimant show that the conditions of the workplace or some significant exertion caused the injury (“actual risk” test) “In the course of employment” refers to the time, place and circumstances under which the accident occurred Virginia law’s on coverage are somewhat narrower than compared to other jurisdictions Requiring the “actual risk” test Limited view of “overuse” and ergonomic injuires Covered Injuries

7. Basic premise in workers’ compensation Either party may be negligent – claim is still covered Employer may be negligent in providing negligent working conditions, inadequate training, poor or inadequate equipment or supervision Claim is still covered Injured worker negligence may be the cause of their own injury; not following instruction, careless, sleepy, or disregard of obvious hazard Claim is still covered No Fault Coverage

8. Law provides for denial of certain claims The burden of proof is on the party claiming wishing to deny the claim (the employer and insurance carrier) Willful misconduct Intentional self-injury Intentional injury to another Intoxication Use of non-prescribed controlled substance Willful breach of employer’s reasonable rules or regulations Must prove one of the above was in play and the cause of the injury Claims Can be Denied

9. Learn the basics to understand who needs coverage and avoid audit premium or fine Many employers know coverage is required for 3 or more workers…but learn additional factors to consider When counting workers be sure to understand the broad definitions of “employee” and “employer” Contractors or businesses that subcontract out work are responsible for the workers’ compensation for their subcontractor’ employees Coverage Basics

10. “Employee” is broadly defined under Virginia workers’ compensation law There are few employee exceptions under the law “Employee” includes all of the following: Corporate officers * LLC managers Family members Minors Aliens Seasonal workers Ministers, Pastors and other church employees *Many business owners are unfamiliar with this provision Employee

11. “Employer” under Virginia law is broadly defined The Statutory Employer law requires that a business that hires a subcontractor to perform the same work or trade as the business or to fulfill a contract of the business is responsible for the workers’ compensation liability of the subcontractor’s employees Requirement applies even if the subcontractor has coverage Many business owners are unfamiliar with this provision Employer

12. Consider insurance options Employers have four means of coverage: Obtain a policy from a carrier licensed in Virginia Apply to the Commission for approval as an independent self-insurer Become a member of a group self-insurance association licensed by the SCC; or Enter into agreement with a Virginia registered PEO Consider which option is of interest and what it costs Coverage Options

13. Policy Basics • Learn basics for calculating premium • Type of work - classification code • Payroll • Estimated payroll in each class x rate for that class = total for all classifications = estimated annual manual premium • Experience rating (safety) – modifies premium +/- • 1.0 is neutral / based on experience prior 3 years • Adjustments • Schedule credit rating • Premium credits or discount • Expense constant • Final audited premium

14. Employer has greatest control here Experience rating analyzes the employer’s loss data over a period of time, usually 3 years For renewal 1/12, would use loss experience that occurred for policies effective 1/08–1/09, 1/09–1/10, and 1/10–1/11 Experience Mod of 1.0 is neutral / average Experience Mod of less than 1 is desirable Experience Mod of greater than 1 is undesirable More information: ABC’s of Experience Rating https://www.ncci.com/Documents/abc_Exp_Rating.pdf Experience Modification

15. Understand your losses Loss total is not the bottom line Claim frequency (number of claims) your business has matters more than severity (expense of claim) Ten $10,000 claims count worse in experience rating than one $100,000 claim Experience rating imposes a cap on losses Medical only claims have minor impact - reduced 70% if the insurance carrier files them as a “Minor” Safer employer will have fewer claims Loss Comparison

16. Classification of workplace exposure A primary pricing component for a policy Codes are established by NCCI Virginia has 640 classification codes Each code carries a specific rate: A clerical worker (code 8810) has a significantly lower rate than the code for a roofer (code 5545) Most businesses assigned 1 code, construction multiple Clerical rate may be $0.40 per $100 of payroll while roofer rate may be $40.00 per $100 of payroll Make sure you are properly classified, not overcharged Classification Code

17. Seek Expertise Take time and effort to seek out more than one opinion and obtain insurance expertise Ask business associates for good agent referrals Agent expertise is variable in workers’ compensation insurance underwriting Workers’ compensation law is complex Underwriting is complex Agent skill can impact policy application, premium calculation, credits and audit premium Shop Around

18. No shortage of insurance carriers Virginia has a hundreds of licensed workers’ compensation carriers writing policies in the state Currently writing coverage at less than they are paying out on Many carriers provide Schedule Rating, Dividends and reductions beyond what appears profitable Consider this: For each $100 carriers collected in 2010 they paid out $109 in losses Insurance Market

19. Prepare for your insurance agent Take time to learn workers’ comp fundamentals Know your policy history, cost and experience mod If you are a corporate officer – ask about exclusion Review your class code(s) for accuracy Ask questions, ask how you can save now and in the future Keep good business records, payroll records and subcontractor’s certificates of insurance Your Insurance Agent

20. Ask what communication you will have in the event of a claim and what resources are available to you as a client Carrier may offer on-line tools or no involvement Does carrier invite employer involvement; offer on-line tools to view losses? Request claim settlement / closure where possible Reduces your experience modification Make sure your carrier reports minor claims as minor Ask for positive characteristics of your carrier Licensed adjusters Lower caseloads than average Your Insurance Carrier

21. Officer Exclusion • Form 16A excludes WC coverage: • Corporate officers or LLC managers can exclude themselves from coverage • Useful in reducing premium • Requires a valid insurance policy to exclude from • File with the Commission and with insurance carrier • Exclusion is in effect unless termination (17A) filed • For a very small corporation, if all employees are excluded it can eliminate future need for a policy

22. Avoid Audit Premium Audit premium can be costly and unexpected May be more expensive than original policy Keep good business records For a contractor, keep records of subcontractor’s coverage and verify it on VWC website One cause: statutory employer liability Contractor that hires a sub is responsible for subcontractor’s employees Subcontractor’s certificate may not be valid Contractor is required to cover nevertheless

23. Know Your Legal Duties Employer legal obligations Maintain coverage when required by law Report work injuries to your carrier May not deduct cost of coverage from wage Post workers’ compensation poster Workers’ compensation penalties Civil penalty is $500 - $5000 for each instance of failure to comply

24. Insurance Coverage Search Check coverage using the free insurance search tool located on the VWC website Verify coverage of subcontractor that you are in business with NCCI database, current and past data https://www.ewccv.com/cvs/ roughly 16,000 insurance searches are performed monthly

25. Bureau of Insurance • Bureau of Insurance in SCC manages: • Audits and audit disputes • Policy underwriting • Rates and premium adjustment issues • Loss Cost Multiplier List • Classification codes • Insurance credits E-mail: bureauofinsurance@scc.virginia.gov BOI Phone: 804-371-9741

26. Workplace Safety Accidents occur but most are preventable Make workplace safety a priority High hazard business should make it higher priority Use free OSHA or insurance worksafe consult services Provide workplace safety training where needed Monitor and enforce safety practices Claims that occur where enforced safety rules were not followed can be denied

27. Safety Rules Failure to follow employer’s safety rules or procedures or use safety equipment is a common reason for claim denial However, this often does not hold up at hearing Employer and carrier’s burden to demonstrate: Safety rule was reasonable Rule was known to employee Rule was for employee’s benefit Employee intentionally undertook forbidden act Lesson: Employer must train, monitor and enforce rule

28. Workplace Review Review prior workplace injuries Review your Employer Accident Reports What is the cause of your workplace injuries? Identify patterns; equipment, location, people… Are there are recurring hazards? Identify any training needs? What can you do to make workplace safer? Ask employees to report workplace hazards

29. Return to Work Create a “Return-to-Work” program Can reduce policy cost and earn premium credit In the event of work injury, an employee’s return to work sooner reduces claim costs Do not require full duty, without restrictions Offer light duty work for employee with limitations Return to work reduces indemnity pay out Reduced claim costs translates into better experience The longer a worker is out of work the more likely it is they will neverreturn to work

30. Health and Wellness Health and wellness efforts can reduce claim costs Healthier, more fit employees will recover more quickly if injured Consider support or reimbursement for: Health club membership Weight reduction efforts like Weight Watchers Smoking cessation Cost of claims increases with obesity NCCI study demonstrates rise in claim costs with rise in BMI “Healthy BMI claim costs per 100 workers: $7,500 Moderately obese claim costs per 100 workers: $23,300

31. Other Cost Savers Training – especially for new employees Younger workers and new workers have a higher incidence of injuries so putting extra effort into new employee training can reduce injuries Avoid Overtime Higher incidence of work injuries with overtime Extended hours of work leads to overuse injuries Preventing injuries is preferable to treating them

32. Frequently Asked Questions I am a contractor and I only hire subcontractors that have their own workers’ compensation insurance. Do I need coverage? Answer: Yes, a contractor that hires one or more subcontractors to assist in the work of the business is responsible for the workers’ compensation liability for its subcontractor’s employees, regardless of whether the subcontractor has coverage. Isn’t it double coverage for a contractor and a subcontractor to both have coverage? Answer: No. Under Virginia law, statutory employers and employers have different obligations and some subcontractors are not required by law to have coverage.

33. Frequently Asked Questions I have tried to obtain insurance coverage with an insurance agent but have not been able to. How do I get coverage in the Assigned Risk market? Answer: The Assigned Risk carrier for Virginia is NCCI (National Council on Compensation Insurance). You can reach NCCI by phone at 1-800- 622-4123 and their website is: https:// www.ncci.com I heard Virginia has a premium discount for a drug-free workplace program, is this true? Answer: Yes. Under Virginia law, insurance carriers are required to offer a premium discount of up to 5% for an employer that provides and maintains a drug-free workplace program. Each carrier establishes its own criteria for program establishment and maintenance.

34. Laura K. Collins, Esq. Insurance Manager Virginia Workers’ Compensation Commission 1000 DMV Drive Richmond, VA 23220 Laura.collins@workcomp.virginia.gov (804) 482-5304