EMOD Changes

Unless you have a strong safety program in place, Experience Mods and Rates Will be Increasing in January of 2013

Employers with a poor loss history will pay even more for their workers compensation coverage starting next year as most states change the way premiums are calculated.  But, policyholders with proven risk management practices and safety programs that reduce workplace injuries will benefit from NCCI Holdings Inc.'s change in the methodology determining an individual employer's experience modification factor, experts say.   

The Boca Raton, Florida-based National Council on Compensation Insurance helps 38 states set their workers comp rates. The ex-mod changes begin with Jan. 1, 2013, policy purchases or renewals.  It marks the first time in two decades that the rating organization has updated the “split point” used in its experience rating plan to more accurately reflect individual employer loss frequency and severity. An employer's ex-mod factor has a significant effect on employer expenses because underwriters rely on them to adjust premiums with credits or debits. NCCI has approved the split-point adjustment, said Peter Burton, NCCI's senior division executive for state relations.   

NCCI's change could have a “material” impact on individual employers' premiums.  What we will see this do is reward companies that have worked hard to improve and maintain their loss profile. Those risks that have better-than-average experience benefit from being better than average.  But, employers with bad experiences are going to see a higher apportionment of debits added to their pricing, while those with a good loss history will see more credits.  So, it really underscores the need for employers to invest in loss control,safety, their people, and have a strong return-to-work program.   

These needs are regardless of (employer) premium size.  But, mid-size employers with guaranteed-cost insurance policies will see a greater impact from the split-point change than larger employers.  This is because larger employers are more likely to employ risk-managers and safety personnel, and they tend to maintain large deductibles, sources said.  But even larger employers will have to beef up their pre-loss safety programs and solidify their post-loss practices, such as modified-duty return-to-work programs to get the best insurance pricing.  If a company is doing a good job before, they need to do an even better job now.  If you are a large employer and (already) have a high-debit mod, you are probably going to have a higher debit mod after these changes.”  

There are other implications as well. Large construction project owners, for example, often choose contractors based in part on the builder's ex-mod, which likely will change.  And, NCCI's ex-mod change comes amid firming pricing for workers compensation coverage, which could accelerate some employers' shift from guaranteed-cost programs to buying loss-sensitive policies in order to pay lower premiums up front, sources say.   

NCCI's ex-mod change calls for increasing the experience rating split point from its current $5,000 to $10,000 in 2013. It will increase to $13,500 in 2014 and to $15,000 in 2015. In future years, it will be indexed for claim-expense inflation.  A workers comp loss up to the split point is known as the “primary loss” and reflects frequency of such claims, according to NCCI documents. The amount of loss above the split point is referred as the “excess loss” and reflects “severity. “   

Under this split-rating method, actual primary losses are given full weight in the experience rating formula while actual excess losses only receive partial weight, according to NCCI.  The biggest impact, therefore, will be on pricing, particularly for employers experiencing high-frequency, low-severity workers comp claims in the states where NCCI helps determine rates.  It is a plan that is heavily leveraged on frequency of loss vs. severity of loss because those are the types of injuries that get controlled by employers through their safety programs.  Yet employers should not lose sight of mitigating high-severity losses. 

The split-point change is needed because the average claim cost has increased threefold since the last update, rendering the current experience rating plan less sensitive to reflecting an individual employer's risk experience, NCCI said.  For insurers, the impact will be revenue-neutral because they will collect more premiums from employers with greater losses and less from those with fewer losses.  But insurers will benefit as accounts will have greater incentive to improve their loss experience, making them more profitable, Employees also will benefit from workplaces that now have a greater incentive to reduce injuries, he added.

New NCCI Changes to Impact Your Workers Compensati​on Costs

If you are not managing your experience modification monthly and you do not completely understand how injuries effect this factor that adjusts your workers compensation premium every year, you might want to pay close attention to what is coming.

The National Council on Compensation Insurance (NCCI) has recently introduced a new methodology for rate-making, the process which ultimately affects the “manual rate” you pay on your workers comp premium. This new rate-making methodology does not impact the actual experience mod formula.  However, for some class codes, significant changes in the filed loss costs, driven by the new rate-making methodology, will lead NCCI to also adjust expected loss rates (ELRs) and D-ratios by class code. This in turn may cause your mod to change, even if all other data (payroll and losses) stayed the same.  Although the overall intent of these changes is to keep most experience modifications – and the premium you pay – at about the same level, the exact impact on your mod – either positive or negative – it won’t be known until NCCI’s filings for the state(s) you do business in are published. Businesses which are required to have a mod of 1.0 (or other value) in order to bid on jobs will want to be especially careful to anticipate this change and minimize any losses that do occur through good injury management and claims management efforts.

Three Sixty safety specializes in helping our clients understand and manage their experience modification.  Please contact one of our representatives to help you get a crystal clear understanding of how your experience modification impacts your business costs and profitability.

Why New Employee Orientation Programs are Failing

It often comes down to this: a personable presenter uses good visuals like computer slides and is enthusiastic about what he writes on the easel. After the presentation, new employees take a guided tour of the company, and go home at the end of the day with their new (if somewhat wordy) employee handbook, securely tucked away for future reference.  These employees leave apprehensive, overwhelmed, and feel dramatically like outsiders.  Of course, the orientation program described here was developed with great intentions, but in today’s hyper-competitive recruiting environment, intentions are not enough to maintain sought-after talent.

Today, attracting qualified workers includes offering higher wages, better benefits, improved training, and
advancement opportunities. With these increased costs, it’s no wonder retention has become the focus of so many companies.   Indeed, orientation efforts have been elevated to a high priority in many companies in an effort to reduce turnover rates that exceed 25% today.

All to often, this process is neglected. Done poorly, the employee orientation program can leave new
employees wondering what on earth they’ve done to themselves. And with far more jobs
available than employees to fill them, it’s likely that the poorly oriented new employee will be out the door in less time than it took to recruit and hire them.

Companies that have effective orientation programs get new people up to speed faster, have better synergy between what employees consider productivity and what the company needs to produce, and they have higher retention rates. Just as importantly, the new employee will enjoy an accelerated learning curve in the new position, increased productivity and a smooth transition into the corporate culture.

The solution comes in welcoming the whole person, rather than just a set of job functions.  This allows people to assimilate into the corporate culture, become inspired and productive almost immediately. What does “welcoming the whole person” entail? The immediate supervisor or manager should review a copy of the employee’s application or resume. They should be familiar with the employee’s experience, training and education. At the outset, the manager or HR representative should review the job description with the employee, including the duties, responsibilities,and working relationships.  It’s important to also discuss with the employee how the company is organized, as well as the organization of the department or division and how the new employee fits in to that structure. After the employee has settled in a bit, the immediate supervisor or manager should find out the employee’s career goals and objectives, and be able to help the employee relate those goals to the goals and objectives of their department and the company as a whole.

This changed approach requires a company to determine the objectives of the new employee orientation program at the outset, basing their measures of success on the idea of the value of human capital. Then, the company must meet those objectives honestly and positively for each and every new hire. Successful integration will happen only if the new employee decides he or she has made a wise decision to join the organization.

The best new employee orientation:

• Has attainable goals and meets them
• Makes Day One a welcoming celebration
• Involves the new employee’s family as well as co-workers
• Makes the new employee productive on Day One
• Is not boring, cumbersome, rushed or ineffective
• Uses feedback to continuously improve

Whatever orientation materials are included in the process, they should encourage participation in creative and entertaining activities that reinforce the necessary skills and information. New employees must also have guidance and assistance throughout the process from a mentor or buddy, as well as their manager.

Workers Compensation Self-Insurance. Are You Ready?

Alternate methods to finance workers compensation exposures become more attractive when the traditional insurance market hardens. Workers compensation in particular lends itself to self-insurance due to several aspects inherent in its nature.

• There is a statutory cap on loss wage benefits paid that brings an element of certainty to the severity of losses to be expected.
• The payment of large claims is spread over time providing cash-flow advantages to the self-insuring employer.
• Typically, workers compensation loss patterns are high volume, low severity, which translates to fairly predictable loss forecasting analysis.

The decision to self-insure cannot be made in isolation by a risk manager or any other individual. It requires careful consideration of all factors, including management's commitment to the program, the financial condition of the organization, the cost and availability of internal and external support systems, and the particular characteristics of your exposure. Unless all of these elements are included in the decision-making process and self-insurance is undertaken with knowledge of the risks and resources it entails, the program's chances of success are small.

Management Perspectives

In a self-insurance program, your organization will trade known risk for unknown risk. Management must understand the risk tolerance necessary for a long-term commitment to self-insurance. Self-insurance should never be used solely as a band-aid to bridge market conditions. Management must also be willing to adopt a hands-on proactive role in claim prevention and management, since the money being spent has a direct and immediate correlation to the organization's financial bottom line.

Financial Feasibility

A second component that must be analyzed in making the decision to self-insure is the financial condition of the organization and the financial resources that will be needed to fund the program at startup and in the future. Financial strength is especially important since self-insurance exposes the organization to larger fluctuations in earnings than it experiences under most insurance programs. Most states have minimum net worth requirements for employers to be eligible to self-insure. Organizations contemplating self-insurance should check state financial eligibility requirements first

Infrastructure Capabilities

Cost savings in workers compensation self-insurance programs are derived from two sources—lower medical and indemnity payments to the employee and lower expenses associated with administering the program—an evaluation needs to be made of the organization's internal resources to determine what components of the program (if any) must be outsourced. Self-insurers must provide a wide range of professional services that insurers previously provided.

• Medical knowledge is required to evaluate and process claims, and to negotiate services with providers.
• Legal judgment will be required to assess the merits and potential cost of litigated claims.
• Actuarial assistance will be necessary to forecast future loss projections for the organization.
• Safety and loss control programs overseen by engineers or other appropriate professionals will also be a vital component in a self-insurance program.

In most cases third-party administrators (TPAs) will be contracted to provide most of the services insurance companies traditionally perform. TPAs assume no underwriting risk, collect no insurance premiums, and have no ownership in loss reserves. They are paid a fee to perform in specific administrative and professional capacities.

Loss Control & Risk Management

Another crucial step in the self-insurance feasibility process is for the organization to review and assess its operations and exposures. Having a firm handle on operational exposures will go a long way in making the program success.

Summary

There is no hard-and-fast rule that dictates when workers compensation self-insurance should be considered. But, when an organization reaches the point where exploring alternatives to workers compensation insurance makes sense, then it becomes essential for an organization to fully evaluate the factors that affect that decision. These include but are not limited to management's attitude toward risk, the organization's financial strength and objectives, the internal risk management capabilities of the organization, and the nature of the organization's operations and loss exposures.

U.S. Workers Continue to Ignore Important Safety Procedures

Why do American workers continue to ignore safety rules and fail to wear their personal protective equipment (PPE) at work, especially in areas where the equipment is required?
     
It is "disheartening" to find workers continuing to take unnecessary chances with their personal safety by not wearing protective equipment when performing hazardous tasks. This is an unacceptable level of noncompliance for safety procedures in the workplace that continues today.
 
In fact, the level of noncompliance has been increasing.  With the high noncompliance level it’s not surprising that at least a third of respondents in a recent Kimberly Clark survey cited the failure to comply with safety procedures as the main workplace safety issue in their companies.
 
At the second rank was the issue of inadequate management support and/or inadequate resources to support health and safety functions (27 percent). This was followed by under-reporting of injuries and illnesses suffered in the workplace (14 percent), training complexities on a multilingual, multicultural workforce (7 percent) and rising compensation costs to workers (5 percent).
 

Is the worsening economy an underlying factor?The worsening state of the economy may partly explain the continued non-compliance. More than a third (34 percent) of the respondents cited the economy for having reduced their firms' ability to allocate budgets for safety resources and worker training programs. But 59 percent did not blame the economy.

  

Among the 34 percent who said the economy had affected their safety programs, further probing showed that:

• 63 percent said their firms had less money for education  and training
• 42 percent said personnel assigned to take care of safety training functions were reduced
• 33 percent said management had to prioritize business imperatives over safety concerns.

Injuries at the workplace cost American companies at least $50 billion a year.  Companies that refuse to enforce safety compliance will lag their competition in the return to increased productivity and profitability.  In 2012, take the appropriate action and don’t let your company fall behind and risk being left in the dust by the competition as the economy recovers.

 

Is Investing in Safety a Sound Business Strategy?

In many businesses the only thing most employers are aware of is that they have to spend money to have an effective safety program.  Successful companies, however, maintain very effective safety programs and continue to pay the expenses involved even when business is slow and times are tough.  Unfortunately, however, the cost of effective safety measures are all too often deemed an “unnecessary” expense. When business is slow, what is the first expense to get to get cut? You already know: the safety program. Normally the responsibility gets transferred to the HR manager, and training and other expenses are cut, which typically leads to disaster, especially for the new employee you just hired or the long term employee, who thinks he can cut safety to increase productivity. If you are not motivated to have an effective safety program by either OSHA, the threat of fines or care for your employees, one thing that will motivate you is the actual cost of a workplace injury to your business. How much do you think it costs?

Statistics and Costs

Every year in the United States there are over 6,000 workplace fatalities. The majority of these fatalities are men ages twenty-five to forty-four.  This does not include deaths related to occupational illness. Another 50,000 workers die every year in the United States from occupational illnesses. In addition to deaths, there are over 6 million U.S. workers that suffer non-fatal workplace injuries with an estimated cost to U.S. businesses of around $128 billion annually. A person’s life or health is obviously priceless, but incidents and injuries carry a tangible cost to business, one quarter of each dollar of pre-tax corporate profits, to be exact.

The actual cost of a workplace accident or illness to your organization depends on a few different variables. Costs depend on the number of employees you have, the numbers of incidents you have and the type of work you do. For any company experiencing a tough time financially, all losses are serious. For a large employer, losing a skilled worker on a job, for even a few days, can have a larger impact on profits than the actual direct costs might suggest. With smaller businesses this is magnified because they often have very little buffer when it comes to accidental losses. A serious incident could not just make it difficult to get by, but put them out of business.

Why should we do anything, our Workers Compensation Insurance pays our claims?

Insurance only covers what is detailed in the policy, and it usually only pays for the direct costs associated with an injury. Most of the costs that are not covered by insurance include lost time, sick pay, damage or loss of product and materials, lost time and failure to keep schedule, extra wages for overtime and temporary labor, investigation time and expenses, OSHA fines, loss of contracts, legal costs and loss of company reputation, just to name a few.

The uninsured costs differ between businesses, the type of work being done, insurance and type injury. No matter how you look at it, though, the uninsured costs are many times greater than the insured costs.  As a general rule of thumb un-insurable expenses often run up to as much as 4 times more than the actual costs covered by insurance.

Hire a third party safety professional to ramp up your program quickly

An investment into an effective safety and health program and/or professional for your business is just that, an investment. Not only is it unethical to risk an employee’s health or safety to save money and cut costs, but in reality, it does just the opposite. It creates unnecessary risks, costs and headaches. A safe company with limited incidents and injuries will not only have an increased profit margin, but will be more appealing to potential clients and good employees. Successful businesses plan for the future, for growth and for potential risks. Safety should play a key role in your strategy and is the reason long-term successful businesses invest so much into their safety and health programs, because as I am sure some of you know, gambling isn’t a good long term, or short term investment. As they say in Vegas, “in the end the house always wins”.  Why wait?  Get started today and implement your safety & health program.

Safety VS. Production

We hear it time & time again -“I don’t have time to meet for safety” & “We need to meet our productions goals” & “I do not have time in my day for safety related tasks."  The question is will safety goals ever be able to coexist with production goals?

Have you ever seen a sign posted in a plant that says, “Production First”?  Of course not, why would anyone post contradictory signs? The signs take other forms such as output graphs, production goals and reward programs that suggest production is the real No. 1 priority.

So when companies post signs at your workplace that say “Safety First,” how can employees still get the impression that production is more important?

Only when employees understand the proper integration of safety and production are they able to make the right choices to make sure it really is “Safety First” at your company.

So how do you get them to do that? It’s all about communication.

Help employees make good choices

It’s clearly not enough to tell them that safety comes first – if that were the case; the signs would be all you need.

Employees have to learn how the consequences of their choices can impact the things they value most. Speak to employees in small groups that have structure and provide plenty of time for open discussion. Include supervisors and managers to show all levels of company employees are involved in this discussion.  Ask co-workers to talk about current perceptions about workplace challenges such as safety versus production and what drives their risk-taking activities.  Discuss the nature of hazards in your workplace. What are the risks associated with them? What are the potential consequences of these risks?  At the end of the day, when management acknowledges hazards and lets employees know how important it is to manage them, better personal behavior and choices will naturally occur.

Get down to a personal level

Have you ever asked your employees about their personal work/life goals and how to reach those goals? What if an employee’s primary goal was to spend more time with or provide well for their family?  How do you participate in helping help them reach these goals? What would be the impact on these goals if the employee had a workplace accident?

The break through occurs when employee’s understand their actions impact their personal lives. Challenge employees to reconsider benefits versus consequences of risk-taking.  To reinforce this discussion, have real-life stories ready about workplace accidents and how they affected the victims and their personal lives.  How are you going to handle the clash between safety and production at your workplace? Get personal and get the results you seek.