Understanding Your Workers Comp Mod…Debunking the Myths

1. Understanding Your Workers Comp Mod…Debunking the Myths Telcom Insurance Group Marilyn Blake, AU, CRM 2010 RMC June 29, 2010

2. Goals of the Session • Understanding the principles of Workers Compensation Insurance • Understanding how your Workers Compensation Modification (Mod) factor effects the premiums you pay • Using Risk Management to identify trends and training needs to reduce your “Mod”

3. Employees are Assets • More than 3.7 million Americans suffered workplace injuries in 2008 (3.9 on-the-job injuries per 100 workers according to Bureau of Labor and Statistics) this is down from 4.2 in 2007 • A typical injury can cost $28,000 in wage and productivity losses, medical and administrative expenses, insurance expenses, and other costs • Improving workplace safety through training can improve the bottom-line by improving your Workers Comp Mod • Pro-active approach--not wait-and-see approach is essential

4. Development of Coverage Simply defined, workers compensation gives compensation to a worker, one who performs labor for another, for injuries and illnesses caused as a result of that labor. Workers compensation is really more like social insurance, much the same as unemployment compensation and social security. It is however, the oldest form of social insurance.

5. Workers Compensation (WC) Defined • WC: No-fault statutory benefits prescribed by state law which are provided by the employer to an employee (or their family) due to a job related injury (including death) resulting from an accident or occupational disease; • Usually defined as sudden and accidental

6. Who is Covered? With some exceptions, almost all employers and employees are covered by workers compensation. Each state has different definitions of employees and most of the time situations like family-run businesses or employers with only 1 employee are not required to provide WC insurance for their employees.

7. What about Independent Contractors? Independent contractors can raise issues. It is wise to make sure that any independent contractors that you hire to perform work for you have their own workers compensation insurance. Most state laws make you responsible for the payment of WC benefits to or for the injured employees of any uninsured subcontractors. The state legislatures that passed the laws intended them to be construed liberally in favor of injured workers and their families.

8. 3 Major Parts to the WC Policy • Part One- the insurer agrees to pay benefits imposed by the law of the state , also called Statutory. Section 3A of the information page needs to list all states where there is active work. It is intended to be the sole-remedy for the injured employee. • Part Two- protects the insured against liability imposed by law for injury to employees in the course of employment that is not part of Part One. It can include 3rd parties like family members bringing suit. This coverage applies to damages in tort or other liability, as opposed to the statutory liability. • Part Three- provides other states insurance for states not covered by Part One where a worker is injured.

9. Which States’ Benefits Apply? • An injured worker can generally choose the most favorable venue to seek WC benefits from and this includes: • The state of the employer • The state of travel where the claim occurred • The state of residence • If all states are not listed in 3A of the info page coverage can be declined

10. What is an Experience Mod? The Experience Modification Factor is also known as an Experience Modification Rating, EMR, Experience Modifier, or just the Mod. This is an adjustment that is made to the Workers Compensation insurance premium of companies that meet or exceed a certain size threshold. This threshold is measured in manual premium and varies from state to state. But typically, a company that has been paying $5,000 in manual premium for the past few years or has paid $10,000 or more in a single recent year qualifies to be experience rated.

11. WC Mod Simple Definition It is the number used to “fit” the cost of WC insurance to the actual loss experience of an individual employer by rating individual insureds, using past losses compared to every $100 of payroll with similar WC job classifications/codes within your specific state within a specific timeframe.

12. WC Payments Include: • Medical expenses (doctor’s visits, treatments, etc.) • Indemnity (lost wages and disability ratings) • Expenses (paid by the insurance company and NOT a part of the Mod calculation) • Medical costs escalate and affect the costs associated with WC--just like in Group Health Plan

13. WC Rates Determined Experience Modification - Your loss experience based on industry class codes as relates to each $100 of payroll, by state: • 1.0 means your experience is what is expected; • over 1.0 you’ll pay a “surcharge” and • under 1.0 you’ll get a reduction in the filed rates

14. Common Misconception One common misconception is that these factors are calculated by the state. In most states, this is not true. Experience mods are calculated by rating bureaus. A few states have their own rating bureau.  But NCCI is a private corporation, created and funded by member insurance companies. It is approved by the states but is not a governmental agency.

15. Non-NCCI States California, Delaware, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, Texas, and Wisconsin have their own government-run rating bureaus that are separate from NCCI.

16. Rating Formulas • Rating bureaus consider the following: • Size of the company (payroll by class code) • Possibility of unexpected accidents • Differences between loss frequency (how often) and severity (how much does it cost)

17. WC Common Class Codes • 7600  TELEPHONE OR TELEGRAPH CO./ ALL OTHER EMPLOYEES & DRIVERS: Includes operation, maintenance, extension of lines and making of service connection. Not applicable to contractors.   Including installation, maintenance, repair and operation of telephone lines and systems, remote transmission sites, and central office switching equipment—including shop. • 8901  TELEPHONE OR TELEGRAPH CO./OFFICE OR EXCHANGE EMPLOYEES & CLERICAL: The code includes office or clerical operations of these entities. • 8742  is available for outside salespersons.

18. What Data is Used to Generate Your Mod? • The data is based on 3 complete prior years’ (not calendar years, unless that happens to be how your policy year runs) incurred claims amounts, excluding the most recently expired year as it is too new. • Incurred claims amounts are the insurance company’s best estimate, based upon the information known about a claim, as to what the ultimate costs (not including expenses) will be for medical and indemnity costs. • So, one bad year remains on your Mod for 3 years.

19. 2010 Example of the 3 Prior Years

20. WC Mod shows Medical & Indemnity Calculations by Claim Number • Indemnity: lost wages (66 2/3% or 70% up to a maximum per state), temporary and/or permanent impairment ratings as assigned by the medical provider (assumed to be 100% unless previous medical records show otherwise), and vocational rehabilitation (to get a new job if they can’t go back to their old job because of restrictions after they have reached maximum medical improvement). • Some states combine medical claims under $2000 into one blanket total.

21. Excel:Sample Mod Worksheet

22. Terms Defined by Column on the Mod • Column 1 (Code) Also referred to as "classification code," this is the four-digit number that identifies the nature of your business. One or more class codes may apply. • Column 2 (ELR) The expected loss rate is the amount of losses expected per $100 of payroll. This actuarially derived factor is updated with each change in rates in your state. The ELRs are in dollars and cents and, therefore, a decimal point is implied before the last two digits. If the state changes the ELP one year, it affects all 3 years being evaluated by that Mod. • Column 3 (D Ratio) The discount ratio is another actuarial factor updated with each change in rates in your state. It determines the portion of losses that are expected to be primary losses (the first $5,000 of each claim).

23. Terms Defined by Column on the Mod • Column 4 (Payroll) This is the amount of payroll reported by your insurer for each of the class codes on your policy. A payroll total is provided for each policy. • Column 5 (Expected Losses) This is the dollar amount of the losses expected, based on your class code and payroll amount. (Multiply the ELR from Column 2 by the payroll divided by 100). • Column 6 (Expected Primary Losses) This is the portion of the expected losses that are expected to be primary losses (the first $5,000 of each claim). (Multiply the expected losses by the D ratio from Column 3).

24. Terms Defined by Column on the Mod • Column 7 (Claim Data) This column provides the claim numbers for the losses reported by your insurer. Individual claims of $2,000 or less may be grouped together for reporting purposes. These grouped claims are identified by an asterisk in the O/F column, #8, with the number of grouped claims in this column. • Column 8 (IJ) This is an injury code assigned to each claim by your insurer based on the type of injury. For example, 1 represents a death; 6 represents medical only • Column 8 (O/F) This represents the status of the claim, either Open (O) or Final/Closed (F). The designations in Column 8 do not have an impact on the experience modification calculation.

25. Terms Defined by Column on the Mod • Column 9 (Actual Incurred Losses) These are the losses for each claim. These are the dollars spent to pay the claim. For open claims, it includes the money your insurer has set aside for future payments on the claim. • Column 10 (Actual Primary Losses) For losses under $5,000, the entire amount is taken as the primary value. For losses in excess of $5,000, only the first $5,000 is primary. (Please refer to the explanation for Column 6). Near the bottom of the rating sheet is a row of boxes (A) through (I). These figures are both actuarially determined, and based on the information provided above.

26. Which is more important—Frequency or Severity? • Frequency leads to Severity is the premise • Because of their predictability, the Mod is affected probably a bit more by many small losses than one occasional large one. Large losses are usually capped at approximately $125K on the Mod calculation.

27. Economic Trends that Affect the Mod • Major World Events: OKC bombing, 911, BP oil spill • Employment trends • Medical costs escalate • Legislative changes • Political changes • Stimulus $$$

28. Trending Benefits • Basic tenant of insurance is that frequency leads to severity • Accident reports help gather information useful in trending • Time and place of accident • Age of injured employee • Length of time as an employee • Cause code (type of injury) • Identifying trends is key to developing training needs and preventing/mitigating future accidents/injuries

29. Telcom’s WC Trends (2005-2009) • Loss Frequency • 20% contact exposure • 29% material handling • 28% slips/trips/falls • 13% struck by/against • 10% equipment/tools

30. Telcom’s WC Trends (2005-2009) • Incurred $$$ for Losses • 6% contact/exposure • 31% material handling • 41% slips/trips/falls • 11% struck by/against • 11% Equipment/tools

31. Telcom’s WC Trends (2005-2009) • WC Injury Type Frequency • 5% skin disorders • 5o% sprains/strains/contusions • 7% fractures • Less than 1% heart • 19% cuts/punctures/scrapes • 10% cumulative trauma • 9% other

32. WC Claims Management • Employees should report claims promptly (end of shift; w/in 24 hours to appropriate person); telco should report just as quickly to carrier (even if for information purposes/incident only) • The average cost of a claim increases 3% for each day the first report of injury is delayed • 20% increase when report filed after 7 days; 41% increase when filed after 15 days • Accident reports help track information for trending

33. WC Claims Management • Return-to-Work/Light Duty programs • Get the injured worker back to the their “work family” doing something meaningful • Not sitting around feeling more pain/thinking about what they can’t do/watching commercials for TV lawyers • Need detailed job descriptions for the medical provider to determine the specifics of light duty • Reduces the amount of $$ paid for WC as they are back working for you

34. WC Claims Management • Assigning a Nurse Case Manager to all lost-time WC claims is important to Telcom and Great American • Gets important medical and work restrictions related information to your telecom contact within a short period of time following an employee’s visits to the doctor • Helps the injured employee understand better what the doctor is telling them and makes sure they are taken care of

35. WC Claims Management • Promote reasonable rewards • Local gift cards if no accidents within a specific period of time • Make safety part of the evaluation process • Make safety fun—games/trinkets • Do Job Safety Analysis before beginning jobs • Have a safety committee that reviews accidents and near-misses

36. Job Safety Analysis (JSA) • Used to identify existing and potential risks and take corrective action prior to beginning a job • Evaluate the equipment, procedures, and personnel • Steps: • Break down the job into steps • Identify the hazards • Evaluate the hazards • Recommend safety procedures • Revise as necessary

37. JSA Sample JOB SAFETY ANALYSIS Company: Date: Location: Task:  Steps Taken To Perform Job Potential Accidents/Hazards Recommendations to Eliminate Hazard or Reduce Potential Hazard Please check all that apply to this job: Hard Hat/Safety Glasses/Steel Toed Boots/Work Gloves/Fall Protection/Fire Extinguisher/Seat Belts/MSDS Work Permits/LO/TO/Daily Inspections/First Aid Kit/Severe Weather/Backing Vehicles/Other Please check all the potential hazards that apply to this job: Driving/Fire /Explosion/Slip/Trip/Fall/Unqualified empl./Contractor/Power Lines/Back/Lifting/Falling Objects Overhead Object/Unauthorized/Pinch Points/Equipment/Pressure/Other: All personnel attending this safety meeting and all personnel, who arrive during the course of this shift, for the purpose of conducting work for ____________ must read this JSA and sign it before beginning any work. Name (Print) Signature Time of Signing  _____________________________________________________________________________________________________________________________________________________________________________________________________________________ Meeting conducted by: ___________________________________________________________ If you have any questions concerning an unsafe act on the job, please begin by contacting your supervisor. The safety department is at your disposal if your supervisor cannot address your concern. A copy of this form will be kept on file to help management establish the safest working environment possible, so remember to return the completed form to your supervisor or the office at the end of the day.

38. Accident Investigation Process • Immediately or at the end of the shift, all employees should report accidents to their supervisor; where appropriate, the supervisor or designated employee should notify your insurance carrier • Investigate every accident as soon as possible while details are still fresh • Get contact information and interview witnesses • Remember, “A picture is worth a thousand words” • Do drug & alcohol testing, if appropriate • Make recommendations to prevent/mitigate the same accident from happening again

39. Investigation Guide • Who, What, Where, When & Why • Identify the people involved, the conditions, and exactly what the accident/injury/damage consists of • What is the corrective action? • Follow-up and make sure the corrective action is done

40. Sub-Contractors & Your Mod Don’t forget to get Certificates of Insurance from your independent contractors as every independent contractor can be construed as “your employee” if you direct their work, if they use your tools, and sometimes even if they work your hours/under your direction. If they don’t have WC insurance or don’t have enough WC insurance and they have an accident and have an employee injured, it could become your accident and affect your Mod. If they have their own insurance, this helps their injured worker to have a source for treatment that isn’t yours.

41. Risk Management & the Mod In general, the key is to manage the risks and lessen the impact on the WC Mod for both the human sake and for the financial sake of the company. Preventing accidents/injuries and mitigating the ones that do occur, reduces your WC Mod and, therefore, the amount that you pay for WC all the while protecting your employees too.

42. Telcom--NTCA’s Risk Manager • www.TelcomInsGrp.com for free forms on accident investigation, job-safety-analysis forms, etc. • Video library of more than 250 safety, management, and HR training programs • Trending and loss analysis services • Telecommunications-specific business insurance for the modern rural telecommunications company Telcom is a member-benefit of NTCA!