Appalachian Steps Network George Brown Ramsey Risk Management Group July 11 2013 Safety An age old concept of insurance is that it is designed to make the insured whole But can it really Ramsey Risk Management Group ID: 258919
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Slide1
Emod: Putting Deflationary Pressure on an Inherently Inflationary System
Appalachian Steps Network
George Brown
Ramsey Risk Management Group
July 11, 2013Slide2
Safety
An age old concept of insurance is that it is designed to make the insured whole. But, can it really?
Ramsey Risk Management GroupSlide3
If an employee loses the ability to hear or see or walk…
Will
any amount of money make them whole?
Ramsey Risk Management GroupSlide4
If an employee is killed in an unfortunate accident
…
Will a lump sum benefit replace the husband,
mother,
brother, sister?
Ramsey Risk Management GroupSlide5
No!
This is why what safety professionals do on a daily basis is so important!
The employee came to work with 10 fingers and 10 toes and that’s the way we want them to go home!
ZERO INCIDENTS!
Ramsey Risk Management GroupSlide6
But, accidents do happen
And when they do, the employee enters the Workers Compensation System.
The workers compensation system, that most of us deal with, is an inflationary system.
Ramsey Risk Management GroupSlide7
An
inflationary system
is one where all the players make more money when it costs the
consumer
more money.
For Workers Compensation’s purposes, the
consumer is the employer.
Ramsey Risk Management GroupSlide8
Think about it:
An employee is injured
Is taken by ambulance
To the emergency room
Referred to the local physician for care
The physician manages the care by setting follow-up appointments
The preferred provider network gets involvedThe lawyer gets involved to see if he can make money helping the employee
Etc….
Ramsey Risk Management GroupSlide9
Who’s making money here?
Not the employer!
Ramsey Risk Management GroupSlide10
Everyone benefits financially,
except the employer
The employee gets paid while rehabilitating.
The physician/chiropractor/etc. gets paid for scheduling appointments and running tests and doing rehabilitation.
The agent gets paid. As premiums go up so does the agent’s commission.
Ramsey Risk Management GroupSlide11
And, yes, the insurance company gets paid…
Indemnity claims costs below the split point are revenue producers for the insurance company.
Over the next few years, the split point will increase from $5000 up to $15000, and then it will be indexed further for
inflation.
The traditional model for WC Insurance does not have the resources to allocate to low end claims management.
Ramsey Risk Management GroupSlide12
“Every dollar in claims cost has a
direct and measurable
impact on the premium you pay!”
Ramsey Risk Management GroupSlide13
Claim Reserves
And yes, Claim Reserves count the same as any other claim…whether they are justified or not.
And, the employer pays increased premiums based on these reserved claims whether justified or not.
Ramsey Risk Management GroupSlide14
Fraud
Fraud costs the employer just like any other claim.
Many employees assume that it is a victimless crime and that they are only taking money from some huge insurance company.
But, what the employee needs to understand is that the employer pays directly for the claims cost through additional premiums and it could be up to 2 1/2 times or more of the actual amount of the claim.
Ramsey Risk Management GroupSlide15
Questions you might ask about your Emod
What is my emod now?
Where would
I
like it to be?
Is an Emod of 1.00 good?
How low can
I
go?
Zero Claims = Minimum
Emod
How can I get there?
Ramsey Risk Management GroupSlide16
Claim Impact
The following slides are examples of how claims impact your Emod which directly impact your premium for workers compensation insurance.
The examples are from an employer with
Workers Compensation Premium = $268,435.
NCCI Emod = 1.30
Ramsey Risk Management GroupSlide17
Typical Emod Worksheet
WORKERS' COMPENSATION RATING WORKSHEET
STATE
WT
SRP
EXPECTED
EXCESS
LOSSES
EXPECTED
LOSSES
EXPECTED
PRIMARY
LOSSES
ACTUAL
EXPECTED
LOSSES
BALLAST
ACTUAL
INCURRED
LOSSES
ACTUAL
PRIMARY
LOSSES
WV-A
0.21
0
170,948
213,640
42,692
363,281
38,500
441,504
78,223
WV-B
0.00
0
0
0
0
0
0
0
0
WV-C
0.00
0
0
0
00000WV-D0.0000000000TOTALS170,948213,64042,692363,28138,500441,50478,223(A)WT(B)(C)EXPECTEDEXCESSLOSSES(D - E)(D)TOTALEXPECTEDLOSSES(E)EXPECTEDPRIMARYLOSSES(F)ACTUALEXPECTEDLOSSES(H - I)(G)BALLAST(H)ACTUALINCURREDLOSSES(I)ACTUALPRIMARYLOSSES0.21 170,948213,64042,692363,28138,500441,50478,223 PRIMARY LOSSESSTABILIZING VALUERATABLE EXCESSTOTALSACTUAL(I)C * (1 - A) + G(A) * (F)(J) 78,223 173,549 76,289 328,061EXPECTED(E)C * (1 - A) + G(A) * (C)(K) 42,692 173,549 35,899 252,140 ARAPFLARAPSARAPMAARAPEXPERIENCE MODFACTORS1.22 (J) / (K)1.30
Ramsey Risk Management GroupSlide18
Minimum Mod
WORKERS' COMPENSATION RATING WORKSHEET
STATE
WT
SRP
EXPECTED
EXCESS
LOSSES
EXPECTED
LOSSES
EXPECTED
PRIMARY
LOSSES
ACTUAL
EXPECTED
LOSSES
BALLAST
ACTUAL
INCURRED
LOSSES
ACTUAL
PRIMARY
LOSSES
WV-A
0.21
0
170,948
213,640
42,692
363,281
38,500
441,504
78,223
WV-B
0.00
0
0
0
0
0
0
0
0
WV-C
0.00
0
0
0
00000WV-D0.0000000000TOTALS170,948213,64042,692363,28138,500441,50478,223(A)WT(B)(C)EXPECTEDEXCESSLOSSES(D - E)(D)TOTALEXPECTEDLOSSES(E)EXPECTEDPRIMARYLOSSES(F)ACTUALEXPECTEDLOSSES(H - I)(G)BALLAST(H)ACTUALINCURREDLOSSES(I)ACTUALPRIMARYLOSSES0.21 170,948213,64042,692363,28138,500441,50478,223 PRIMARY LOSSESSTABILIZING VALUERATABLE EXCESSTOTALSACTUAL(I)C * (1 - A) + G(A) * (F)(J) 0 173,549 0 173,549EXPECTED(E)C * (1 - A) + G(A) * (C)(K) 42,692 173,549 35,899 252,140 ARAPFLARAPSARAPMAARAPEXPERIENCE MODFACTORS1.49 (J) / (K)0.69
Ramsey Risk Management GroupSlide19
Emod Premium Estimates
Premium Estimate
class 1
1403
class 2
167348
EL
2363
manual
171114
Emod
0.69
Emod Prem
-53045
std prem
118069
expense
175
terror
704
catastrophe
704
subtotal
119652
Broadform
13365
subtotal
133017
surcharge
5866
surcharge
10560
surcharge
48
149491
Ramsey Risk Management Group
Premium Estimate
class 1
1403
class 2
167348
EL
2363
manual
171114
Emod
1.00
Emod Prem
0std prem171114expense175terror704catastrophe704subtotal172697Broadform13365subtotal186062surcharge8502surcharge15304surcharge70209938Premium Estimateclass 11403class 2167348EL2363manual171114Emod 1.30Emod Prem51334std prem222448expense175terror704catastrophe704subtotal224031Broadform13365subtotal237396surcharge11052surcharge19895surcharge91268435Slide20
What’s it costing?
1.3 Emod = $268,435 Premium
.69 Emod = $149,491 Premium
Difference = $118,944 Premium
The impact of claims on the premium this employer pays is almost $120,000!
Ramsey Risk Management GroupSlide21
How do Primary Claims impact my Emod?
Primary Claim with Indemnity
In WV, Indemnity payments start after 3 lost days.
Assume $1000 claim cost
Ramsey Risk Management GroupSlide22
Primary Claim Emod Impact
WORKERS' COMPENSATION RATING WORKSHEET
STATE
WT
SRP
EXPECTED
EXCESS
LOSSES
EXPECTED
LOSSES
EXPECTED
PRIMARY
LOSSES
ACTUAL
EXPECTED
LOSSES
BALLAST
ACTUAL
INCURRED
LOSSES
ACTUAL
PRIMARY
LOSSES
WV-A
0.21
0
170,948
213,640
42,692
363,281
38,500
441,504
78,223
WV-B
0.00
0
0
0
0
0
0
0
0
WV-C
0.00
0
0
0
00000WV-D0.0000000000TOTALS170,948213,64042,692363,28138,500441,50478,223(A)WT(B)(C)EXPECTEDEXCESSLOSSES(D - E)(D)TOTALEXPECTEDLOSSES(E)EXPECTEDPRIMARYLOSSES(F)ACTUALEXPECTEDLOSSES(H - I)(G)BALLAST(H)ACTUALINCURREDLOSSES(I)ACTUALPRIMARYLOSSES0.21 170,948213,64042,692363,28138,500441,50478,223 PRIMARY LOSSESSTABILIZING VALUERATABLE EXCESSTOTALSACTUAL(I)C * (1 - A) + G(A) * (F)(J) 1,000 0 0 1,000EXPECTED(E)C * (1 - A) + G(A) * (C)(K) 42,692 173,549 35,899 252,140 ARAPFLARAPSARAPMAARAPEXPERIENCE MODFACTORS (J) / (K)0.003966
Ramsey Risk Management GroupSlide23
Primary Claim Premium Impact
.003966 X 209,938 X 3 = 2497
For every $1 of Primary Claims Cost, you will pay approximately $2.50 in additional premium.
Ramsey Risk Management GroupSlide24
How do Medical Only claims impact my Emod?
Medical Only Claim
Medical Only Claims are reduced by 70%
Any indemnity payments cause you to lose the discount.
This includes payments for permanent partial disability
Assume $1000 claim cost
Ramsey Risk Management GroupSlide25
Medical Only Claim Impact
WORKERS' COMPENSATION RATING WORKSHEET
STATE
WT
SRP
EXPECTED
EXCESS
LOSSES
EXPECTED
LOSSES
EXPECTED
PRIMARY
LOSSES
ACTUAL
EXPECTED
LOSSES
BALLAST
ACTUAL
INCURRED
LOSSES
ACTUAL
PRIMARY
LOSSES
WV-A
0.21
0
170,948
213,640
42,692
363,281
38,500
441,504
78,223
WV-B
0.00
0
0
0
0
0
0
0
0
WV-C
0.00
0
0
0
00000WV-D0.0000000000TOTALS170,948213,64042,692363,28138,500441,50478,223(A)WT(B)(C)EXPECTEDEXCESSLOSSES(D - E)(D)TOTALEXPECTEDLOSSES(E)EXPECTEDPRIMARYLOSSES(F)ACTUALEXPECTEDLOSSES(H - I)(G)BALLAST(H)ACTUALINCURREDLOSSES(I)ACTUALPRIMARYLOSSES0.21 170,948213,64042,692363,28138,500441,50478,223 PRIMARY LOSSESSTABILIZING VALUERATABLE EXCESSTOTALSACTUAL(I)C * (1 - A) + G(A) * (F)(J) 300 0 0 300EXPECTED(E)C * (1 - A) + G(A) * (C)(K) 42,692 173,549 35,899 252,140 ARAPFLARAPSARAPMAARAPEXPERIENCE MODFACTORS (J) / (K)0.001190
Ramsey Risk Management GroupSlide26
Medical Only Premium Impact
.001190 X 209,938 X 3 = 749
For every $1 of Medical Only Claims Cost, you will pay approximately $.74 in additional premium.
Ramsey Risk Management GroupSlide27
How do Excess claims impact my Emod?
Excess Claims
The Emod is designed to rate frequency (primary) claims and, as such, claims above the split point are discounted by a weighting factor.
Assume $1000 claim
cost in excess of the split point.
Ramsey Risk Management GroupSlide28
Excess Claim Impact
WORKERS' COMPENSATION RATING WORKSHEET
STATE
WT
SRP
EXPECTED
EXCESS
LOSSES
EXPECTED
LOSSES
EXPECTED
PRIMARY
LOSSES
ACTUAL
EXPECTED
LOSSES
BALLAST
ACTUAL
INCURRED
LOSSES
ACTUAL
PRIMARY
LOSSES
WV-A
0.21
0
170,948
213,640
42,692
363,281
38,500
441,504
78,223
WV-B
0.00
0
0
0
0
0
0
0
0
WV-C
0.00
0
0
0
00000WV-D0.0000000000TOTALS170,948213,64042,692363,28138,500441,50478,223(A)WT(B)(C)EXPECTEDEXCESSLOSSES(D - E)(D)TOTALEXPECTEDLOSSES(E)EXPECTEDPRIMARYLOSSES(F)ACTUALEXPECTEDLOSSES(H - I)(G)BALLAST(H)ACTUALINCURREDLOSSES(I)ACTUALPRIMARYLOSSES0.21 170,948213,64042,692363,28138,500441,50478,223 PRIMARY LOSSESSTABILIZING VALUERATABLE EXCESSTOTALSACTUAL(I)C * (1 - A) + G(A) * (F)(J) 0 0 210 210EXPECTED(E)C * (1 - A) + G(A) * (C)(K) 42,692 173,549 35,899 252,140 ARAPFLARAPSARAPMAARAPEXPERIENCE MODFACTORS (J) / (K)0.000833
Ramsey Risk Management GroupSlide29
Excess Premium Impact
.000833 X 209,938 X3 = 524
For every $1 of Excess Claims Cost, you will pay approximately $.52 in additional premium.
Ramsey Risk Management GroupSlide30
Conclusions
ZERO Incidents =
ZERO Claims Cost =
Minimum Mod =
Lowest Premium
ZERO INCIDENTS!
Ramsey Risk Management GroupSlide31
But if you do have claims…
Claims management from the time of
injury
forward is essential.
Return
to work policies should focus on return to work as soon as possible from the time of injury.
Indemnity
Claims below the split point are very costly to the employer: example: $1 Claim =
$2.50 in
additional
Premium.
Medical
only claims get a 70% Discount: $1 Claim =
$.74
in additional premium
.
If you can get the employee back to work prior to 3 days, it saves the company 70%. And, statistics show that the sooner you can get an employee back to work the more likely it is that they will return to full duty.
Ramsey Risk Management GroupSlide32
But if you do have claims…
Triage
Then if the employee is referred, work towards Work
Release/Light Duty/Full Duty/MMI
.
Every year, prior to the Emod promulgation date, negotiate
with your insurance carrier to remove or reduce claims
reserves. There is no reason to pay for unnecessary reserve cost.
Ramsey Risk Management GroupSlide33
What Can the Employer Do?
Manage the claims management process on
your
own.
Or
Use a Business Process Outsourcing Model to manage the claim process.
Ramsey Risk Management GroupSlide34
Manage the claims management process on your
own:
Continue Safety Efforts to avoid claims!
When an injury does occur:
Triage the injury to determine the appropriate level of care.
Return to work: every effort should be made to get the employee back to work prior to indemnity. Alternate job assignments should be considered. Work Release/Light Duty/Full Duty/MMI.
Ramsey Risk Management GroupSlide35
Manage the claims management process on your own:
Should negotiate with the insurance carrier to remove or adjust unnecessary or inflated reserves prior to the Emod promulgation date.
Should investigate past, current, and future claims for accuracy.
Reduce Fraud.
Ramsey Risk Management GroupSlide36
Or Use Business Process Outsourcing to Manage the Process
Continue Safety Efforts to avoid claims
When an injury does occur:
Care
will not be
diminished. The BPO will set up telephonic medical triage to be used with each injury.
Return to work: The BPO will use their experience managing claims to work with the
employee, the medical provider and the employer
to get the employee back to work prior to indemnity, if possible. Alternate job assignments should be considered. The BPO will work with the employee, medical provider and the employer to effect Work Release/Light Duty/Full Duty/MMI.
Ramsey Risk Management GroupSlide37
The BPO :
Will use their experience to negotiate with the insurance carrier to remove unnecessary reserves and exaggerated reserves prior to the emod promulgation date.
Will investigate past, current, and future claims for accuracy.
Will institute proven procedures to reduce fraud.
Ramsey Risk Management GroupSlide38
What should an employer look for in a BPO?
The BPO should have no fiduciary responsibility to anyone but the employer.
The BPO should work on a capitated, flat fee basis – forced to be efficient.
The BPO should offer an annual agreement. If the BPO is not performing or conditions change, the employer should be able to leave.
The BPO should offer a 100% return on investment guarantee.
The BPO should have references available.
Ramsey Risk Management GroupSlide39
Questions?
Ramsey Risk Management Group