Emod Putting Deflationary Pressure on an Inherently Inflationary

Emod: Putting Deflationary Pressure on an Inherently Inflationary System 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

If an employee loses the ability to hear or see or walk… Will any amount of money make them whole? Ramsey Risk Management Group

If an employee is killed in an unfortunate accident… Will a lump sum benefit replace the husband, mother, brother, sister? Ramsey Risk Management Group

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 Group

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 Group

• 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 Group

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 followup appointments – The preferred provider network gets involved – The lawyer gets involved to see if he can make money helping the employee – Etc…. Ramsey Risk Management Group

Who’s making money here? Not the employer! Ramsey Risk Management Group

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 Group

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 Group

“Every dollar in claims cost has a direct and measurable impact on the premium you pay!” Ramsey Risk Management Group

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 Group

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 Group

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 Group

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 Group

Typical Emod Worksheet WORKERS' COMPENSATION RATING WORKSHEET STATE WT WV-A WV-B WV-C WV-D 0. 21 0. 00 SRP EXPECTED EXCESS LOSSES 0 0 TOTALS (A) (B) WT 170, 948 0 0 0 170, 948 (C) EXPECTED EXCESS LOSSES (D - E) 0. 21 170, 948 PRIMARY LOSSES ACTUAL EXPECTED 213, 640 0 213, 640 ACTUAL EXPECTED LOSSES 42, 692 0 0 0 42, 692 (D) (E) TOTAL EXPECTED LOSSES EXPECTED PRIMARY LOSSES 213, 640 (F) ACTUAL EXPECTED LOSSES (H - I) 42, 692 BALLAST ACTUAL INCURRED LOSSES ACTUAL PRIMARY LOSSES 38, 500 441, 504 78, 223 TOTALS (J) 76, 289 328, 061 (K) 173, 549 SARAP 78, 223 0 0 0 78, 223 (I) (A) * (C) 42, 692 441, 504 0 0 0 441, 504 (H) 363, 281 173, 549 C * (1 - A) + G ACTUAL PRIMARY LOSSES (G) (A) * (F) 78, 223 FLARAP 38, 500 0 38, 500 RATABLE EXCESS C * (1 - A) + G (E) ACTUAL INCURRED LOSSES BALLAST 363, 281 0 0 0 363, 281 STABILIZING VALUE (I) ARAP FACTORS EXPECTED PRIMARY LOSSES EXPECTED LOSSES 35, 899 252, 140 MAARAP EXPERIENCE MOD (J) / (K) 1. 22 Ramsey Risk Management Group 1. 30

Minimum Mod WORKERS' COMPENSATION RATING WORKSHEET STATE WT WV-A WV-B WV-C WV-D 0. 21 0. 00 SRP 0 0 TOTALS (A) (B) WT 0. 21 EXPECTED EXCESS LOSSES 170, 948 0 0 0 170, 948 (C) EXPECTED EXCESS LOSSES (D - E) 170, 948 PRIMARY LOSSES ACTUAL EXPECTED 213, 640 0 213, 640 ACTUAL EXPECTED LOSSES 42, 692 0 0 0 42, 692 (D) (E) TOTAL EXPECTED LOSSES EXPECTED PRIMARY LOSSES 213, 640 (F) ACTUAL EXPECTED LOSSES (H - I) 42, 692 C * (1 - A) + G 78, 223 0 0 0 78, 223 (I) BALLAST ACTUAL INCURRED LOSSES ACTUAL PRIMARY LOSSES 38, 500 441, 504 78, 223 TOTALS (J) 0 (A) * (C) 173, 549 (K) 173, 549 SARAP 441, 504 0 0 0 441, 504 (H) 363, 281 173, 549 42, 692 ACTUAL PRIMARY LOSSES (G) (A) * (F) 0 FLARAP 38, 500 0 38, 500 RATABLE EXCESS C * (1 - A) + G (E) ACTUAL INCURRED LOSSES BALLAST 363, 281 0 0 0 363, 281 STABILIZING VALUE (I) ARAP FACTORS EXPECTED PRIMARY LOSSES EXPECTED LOSSES 35, 899 252, 140 MAARAP EXPERIENCE MOD (J) / (K) 1. 49 Ramsey Risk Management Group 0. 69

Emod Premium Estimates Premium Estimate class 1 1403 class 2 167348 EL manual Emod Prem 2363 171114 1. 30 51334 EL 2363 manual Emod 171114 1. 00 Emod Prem 0 EL manual Emod 2363 171114 0. 69 Emod Prem -53045 171114 std prem 118069 std prem 222448 std prem expense 175 terror 704 catastrophe 704 subtotal Broadform subtotal 224031 13365 237396 surcharge 11052 surcharge 19895 surcharge 91 268435 subtotal Broadform subtotal 172697 13365 186062 surcharge 8502 surcharge 15304 surcharge 70 209938 Ramsey Risk Management Group subtotal Broadform subtotal 119652 13365 133017 surcharge 5866 surcharge 10560 surcharge 48 149491

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 Group

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 Group

Primary Claim Emod Impact WORKERS' COMPENSATION RATING WORKSHEET STATE WT WV-A WV-B WV-C WV-D 0. 21 0. 00 SRP 0 0 TOTALS (A) (B) WT 0. 21 EXPECTED EXCESS LOSSES 170, 948 0 0 0 170, 948 (C) EXPECTED EXCESS LOSSES (D - E) 170, 948 PRIMARY LOSSES ACTUAL EXPECTED PRIMARY LOSSES EXPECTED LOSSES 213, 640 0 213, 640 ACTUAL EXPECTED LOSSES 42, 692 0 0 0 42, 692 (D) (E) TOTAL EXPECTED LOSSES EXPECTED PRIMARY LOSSES 213, 640 42, 692 C * (1 - A) + G ARAP FLARAP (H) (I) BALLAST ACTUAL INCURRED LOSSES ACTUAL PRIMARY LOSSES 38, 500 78, 223 TOTALS 0 (A) * (C) 1, 000 (K) 173, 549 SARAP 441, 504 (J) 0 42, 692 78, 223 0 0 0 78, 223 (G) (A) * (F) 1, 000 ACTUAL PRIMARY LOSSES 441, 504 0 0 0 441, 504 RATABLE EXCESS C * (1 - A) + G (E) 38, 500 0 38, 500 363, 281 STABILIZING VALUE (I) BALLAST 363, 281 0 0 0 363, 281 (F) ACTUAL EXPECTED LOSSES (H - I) ACTUAL INCURRED LOSSES 35, 899 252, 140 MAARAP EXPERIENCE MOD (J) / (K) FACTORS Ramsey Risk Management Group 0. 003966

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 Group

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 Group

Medical Only Claim Impact WORKERS' COMPENSATION RATING WORKSHEET STATE WT WV-A WV-B WV-C WV-D 0. 21 0. 00 SRP 0 0 TOTALS (A) (B) WT 0. 21 EXPECTED EXCESS LOSSES 170, 948 0 0 0 170, 948 (C) EXPECTED EXCESS LOSSES (D - E) 170, 948 PRIMARY LOSSES ACTUAL EXPECTED PRIMARY LOSSES EXPECTED LOSSES 213, 640 0 213, 640 ACTUAL EXPECTED LOSSES 42, 692 0 0 0 42, 692 (D) (E) TOTAL EXPECTED LOSSES EXPECTED PRIMARY LOSSES 213, 640 42, 692 C * (1 - A) + G ARAP FLARAP (H) (I) BALLAST ACTUAL INCURRED LOSSES ACTUAL PRIMARY LOSSES 38, 500 78, 223 TOTALS 0 (A) * (C) 300 (K) 173, 549 SARAP 441, 504 (J) 0 42, 692 78, 223 0 0 0 78, 223 (G) (A) * (F) 300 ACTUAL PRIMARY LOSSES 441, 504 0 0 0 441, 504 RATABLE EXCESS C * (1 - A) + G (E) 38, 500 0 38, 500 363, 281 STABILIZING VALUE (I) BALLAST 363, 281 0 0 0 363, 281 (F) ACTUAL EXPECTED LOSSES (H - I) ACTUAL INCURRED LOSSES 35, 899 252, 140 MAARAP EXPERIENCE MOD (J) / (K) FACTORS Ramsey Risk Management Group 0. 001190

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 Group

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 Group

Excess Claim Impact WORKERS' COMPENSATION RATING WORKSHEET STATE WT WV-A WV-B WV-C WV-D 0. 21 0. 00 SRP 0 0 TOTALS (A) (B) WT 0. 21 EXPECTED EXCESS LOSSES 170, 948 0 0 0 170, 948 (C) EXPECTED EXCESS LOSSES (D - E) 170, 948 PRIMARY LOSSES ACTUAL EXPECTED PRIMARY LOSSES EXPECTED LOSSES 213, 640 0 213, 640 ACTUAL EXPECTED LOSSES 42, 692 0 0 0 42, 692 (D) (E) TOTAL EXPECTED LOSSES EXPECTED PRIMARY LOSSES 213, 640 42, 692 FLARAP (I) BALLAST ACTUAL INCURRED LOSSES ACTUAL PRIMARY LOSSES 38, 500 78, 223 210 (K) 173, 549 SARAP 441, 504 TOTALS (A) * (C) 42, 692 ARAP (H) (J) 0 C * (1 - A) + G 78, 223 0 0 0 78, 223 (G) (A) * (F) 0 ACTUAL PRIMARY LOSSES 441, 504 0 0 0 441, 504 RATABLE EXCESS C * (1 - A) + G (E) 38, 500 0 38, 500 363, 281 STABILIZING VALUE (I) BALLAST 363, 281 0 0 0 363, 281 (F) ACTUAL EXPECTED LOSSES (H - I) ACTUAL INCURRED LOSSES 35, 899 252, 140 MAARAP EXPERIENCE MOD (J) / (K) FACTORS Ramsey Risk Management Group 0. 000833

Excess Premium Impact. 000833 X 209, 938 X 3 = 524 For every $1 of Excess Claims Cost, you will pay approximately $. 52 in additional premium. Ramsey Risk Management Group

Conclusions • ZERO Incidents = • ZERO Claims Cost = • Minimum Mod = • Lowest Premium • ZERO INCIDENTS! Ramsey Risk Management Group

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 Group

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 Group

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 Group

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 Group

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 Group

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 Group

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 Group

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 Group

Questions? Ramsey Risk Management Group