Most of us are now aware the Workers’ Comp Insurance Rating Bureau recommended a 24 percent rate increase effective July 1. So what are they thinking? Don’t they know that California has been called the epicenter of the national recession and that our state has the highest jobless rate in a generation? What is this, a death blow?
Probably not, but it is likely a sign that we are on course for a “perfect storm” – a simultaneous occurrence of events that, when taken individually, would be far less powerful than the storm resulting from their chance combination.
These events are:
1. Medical and time-off cost increases – a 10-year history of almost double-digit increases in workers’ compensation claim costs.
2. Permanent disability benefits expected to increase – The 2004 reform adjusted significant abuse in this area but some think it went too far … the pendulum is beginning to swing the other direction.
3. 7.6 percent unemployment rate – making it much harder to return injured workers to transitional or light-duty positions.
4. Soft market – Since the 2004 reforms, a frenzy of competition has taken place and workers’ comp rates have plummeted. The low-price leaders generally don’t make it.
5. Investment returns disappear – Given the current economy, carriers are no longer able to rely on premium investment returns, and there are questions related to the solvency of several of the largest workers’ comp insurers.
6. Obesity is on the rise – This trend could result in increased injury frequencies and longer disability durations.
7. Aging work force – This could result in more pre-existing conditions and slower healing rates.
8. Prescription drug remedies – The increasing use of narcotic prescription drugs to alleviate pain also prolongs a final claim resolution.
Already, political forces are vocal and loud. The governor has encouraged Insurance Commissioner Steve Poizner to reject the increase. Rate-increase opponents believe that companies will go out of business or move out of state if this occurs and that it will be political suicide for our elected officials who let this happen.
It is important to note, however, that even with a 24 percent increase, workers’ comp premium rates would still be on average about 50 percent lower than they were in 2003.
As an employer, you can lessen the impact of the storm by focusing on three things:
1. Injuries – if you have no claims, the impact of any rate adjustment will be measurably less. It’s time to value proactive safety efforts more than ever before.
Workers’ comp claims generally affect your premium rates for three years. And from the moment an injury occurs, you need a clear action plan in place to bring the claim to resolution. The right strategy can save thousands of dollars and involves strong claims management, an effective medical provider relationship and careful internal communication.
For best results, seriously consider outsourcing this effort to a service that will expertly handle the follow-up and coach you internally along the way.
2. Errors – studies have shown that more than 35 percent of experience modifications are incorrect or mismanaged.
The workers’ compensation system is deluged with overwhelming recordkeep-ing with three or four years of payroll, claims classification and date-specific information often reported by several different insurance companies at the same time. Errors when they occur can cost you additional premium for three years.
You can save money by making sure that someone is monitoring the accuracy of your payroll audits, claims information and experience modification calculations.
3. Culture - Every company has its own culture. It is “what is normal” that makes a difference … are the things that are normal in your company normal because that’s the way you want them to be or because that’s the way they have always been?
Often the vision and goals of the organization differ from the actual results. While insurance, human resources and safety provide protection and focus, it’s the company culture that ultimately delivers success.
For example, given the choice, would your injured worker be well and working or home and sick? It often has a lot to do with how he or she feels about being at work. People who enjoy their work have fewer and less severe injuries. This may be easier said than done, but it is an amazing tool to weather a storm. Could it be time to hit the culture “reset” button for your business?
The best strategy begins now … don’t wait until your workers’ comp insurance is up for renewal. A storm is looming. You can either hunker down and hope it passes or engage a plan to stand solid in the months and years ahead.
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Lynne L. Wallace, CPCU, is president of Vantreo Insurance Brokerage and founder of its CompZone division, www.vantreo.com.
List of Insolvent Insurers
Below is a list of insurers that provided employers with CA work comp insurance that became insolvent, bankrupt or liquidated. This list was last reviewed September 10, 2008, by the Dept of Insurance. For the most recent information regarding insolvent insurers, see the Department of Insurance website.
Allstar Insurance Co.
California Compensation Insurance Co.
Cascade National Insurance Co.
Casualty Reciprocal Exchange
Combined Benefits Insurance Co.
Commercial Compensation Casualty Co.
Comstock Insurance Co.
Credit General Indemnity
Credit General Insurance Co.
Fremont Casualty Co.
Fremont Compensation Insurance Co.
Fremont Employers Insurance Co.
Fremont Indemnity Co.
Fremont Pacific Insurance Co.
Frontier Insurance Co.
Frontier Pacific Insurance Co.
Great States Insurance Co.
HIH America Compensation and Liability InsuranceCo.
Legion Insurance Co.
Municipal Mutual Insurance Co.
Pacific Automobile Insurance Co.
Pacific National Insurance Co.
Paula Insurance Co.
Pennsylvania Casualty
PHILCO Insurance Co.
Reliance Insurance Co.
Reliance National Indemnity Co.
Reliance National Insurance Co.
Reliance Universal Insurance Co.
Sable Insurance Co.
South Carolina Insurance Co.
Superior National Insurance Co.
Superior Pacific Casualty Co.
The Home Indemnity Co.
The Home Insurance Co.
United Pacific Insurance Co.
Villanova Insurance Co.
Western Growers Insurance Co.
