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The Components of Your Policy & Premium Demystified
Lee Wuchner
Assistant Vice President Risk Management385.351.8313
Discussion Topics
• WIIFM – Why WCF
• Utah Insurance Regulatory Agencies
• Key Provisions of Your Policy
• How Your Premium is Determined
Ground Rules
• Ask questions anytime
• The more you understand the concepts presented here, the better you will be able to manage your workers compensation costs and reduce them over time.
Did You Know
WCF is rated “A” Excellent by A.M. Best & Company (an insurance rating organization). A.M. Best’s rationale for the rating included the following statement:
“The ratings reflect WCF's superior capitalization, strong operating performance and dominant position in the Utah workers' compensation market. The ratings further acknowledge the company's experienced management team, unparalleled local presence and excellent reputation among Utah policyholders for its high level of service and profit sharing.
These positive attributes are driven by WCF's adherence to sound underwriting principles, aggressive claims management, effective loss control services and conservative investment guidelines.”
WCF is a mutual company, meaning you, our policyholders, are the owners of the company. We are quasi-public, a private company that is also the insurer of last resort for Utah business.
Your WCF Policy - WIIFM.
• Peace of Mind. If one of your employees incurs a work-related injury, they will be well taken care of with high quality medical care and continual case management.
• Value. Not a tax, nor just a cost of doing business. WCF provides a superior WC product which will help you manage and control your long-term WC costs.
• Resources. Because we’re good at what we do, we have the financial strength to provide our employees and customers with the tools and knowledge they need to be successful.
• Services. From claim management to safety services to medical cost management to premium audit, everyone at WCF works for you to help you manage your WC program and reduce your costs over the long term.
Utah Regulatory
• Department of Insurance (3)
– Oversees Insurance Industry in Utah (regulations, enforcement, approval of filings)
– Wealth of information online at www.insurance.utah.gov
• Labor Commission (3)
– Mission is to lead in achieving safety & fairness in Utah’s workplaces
– Adjudicates disputes between injured workers and you (us)
– A variety of resources on WC at www.laborcommission.utah.gov• Workers’ CompCheck – to verify employer has WC insurance
• National Council on Compensation Insurance (NCCI)– Designated Rating Organization in Utah
– All carriers must follow their manuals, use their loss costs and the employer experience modifications they promulgate.
Regulatory – Out of State Employees
Employees Temporarily Out of State.• Entitled to compensation under Utah law IF in a state Utah has a
reciprocity agreement with (list in packet).• Duration out of Utah must be < six months.• Unless, prior to the end of the six months you file for a longer
duration.• Truckers are subject to the provisions of HB308 (flyer in packet).
Employees Hired or Who Regularly Work, Out of State or for Which Utah Has No Reciprocity Agreement With.
• Generally not covered by your Utah policy.• Coverage must be obtained in that state.• WCF may be able to write this for you (3).
Your Policy
Standard Policy (copy in packet)as filed by NCCI and used by all carriers. By accepting it, you accept all terms and conditions contained within it.
• Part One – Workers’ Compensation
• Part Two – Employers Liability
• Part Three – Other States
• Part Four – Your Duties if an Injury Occurs
• Part Five – Premium
• Part Six - Conditions
Part One – Workers Compensation (3)
• Work Related Injury
• Arising Out of & in the Course Of Employment
• Be Aware of Section F – Payments You Must Make:– Your Serious & Willful Misconduct
– Employ an Employee in Violation of the Law
– Fail to Comply with a Health or Safety Law or Regulation
– Discharge, Coerce or Otherwise Discriminate…
Part Two – Employers Liability (3)
• Arising Out Of & in the Course Of Employment
• You Become Legally Obligated to Pay
• Key Exclusions:
– WC
– Intentional Acts
– Harassment, Discipline, Discrimination, etc
– Federal Acts
Part Three – Other States
• Only applies if one or more states are listed in item 3C of the Information Page (WCF policies are Utah only but we have the capability to consider writing your non-Utah operations).
• Item 3A are your key states – where you have operations at the time of policy issuance.
• If you have work on the effective date of the policy in any state not listed in item 3A, coverage is not provided unless we are notified within 30 days.
• We have a relationship with Advantage Workers Compensation Insurance Company to write in other states.
• Notify your agent/representative/WCF immediately if you start operations in another state.
Part Four – Your Duties
• Tell us at once of any work-related injury.
• Provide for immediate medical/other services as needed.
• Cooperate.
• Do not interfere with our right to recover from others (may reduce the ultimate cost of the claim).
• Do not make voluntary payments/ expenses/ obligations except at your own cost.
Part Five - Premium
• Our Filings and (NCCI) manuals apply.• Classifications will be corrected if incorrect.• Remuneration includes your employees, officers
and all other persons that could make us liable under Part One – Workers Compensation.
• You will pay all premium when due.• You will keep proper records and allow our
auditors to audit them.• We will conduct a final audit (note premium
provisions for cancelled policies).
Part Six - Conditions
• We have the right to inspect but are not obligated to do so.
• Inspections relate only to the insurability of the workplace and the premiums to be charged.
• Cancellation provisions:– You may cancel (short-rate penalty)
– We may cancel (pro-rata)
– See endorsement to your policy
Your Premium
• Information Page – Schedule of Operations
Payrolls– Classifications
– Rates
– Employers Liability
– Experience Rating
– Schedule Rating
– Association Discount
– Premium Discount
– Terrorism
Premium Determination
• Payrolls. Are provided to us via the Application for Coverage and are considered estimates until final audit (interim adjustments possible). Accurate estimates (in total and by class) are key to avoiding surprises at the final audit.
• Classifications (5). Are based on information provided in the Application and subject to change if incorrect. Correct classifications are critical to ensuring the integrity of the classification system and another way to avoid final audit surprises.
• Rates (5). Are based on the class and rate tier. All carriers file loss cost modifiers applied to NCCI loss costs (resulting in different rates by carrier). Rates generally apply for one year based on your Anniversary Rating Date (generally your policy dates).
• Employers Liability. Additional charge applies for limits greater than standard (100/500/100).
Premium Determination – cont.
• Experience Rating (11). Mandatory if you qualify ($3,500 in 2 of 3 years or $7,000 in 1 year). Calculated by NCCI based on carrier unit statistical filings. Is the same regardless of carrier. The intent of Experience Rating is to incent employers to provide their employees with a safe workplace. Manage this to manage your costs.
• Schedule Rating (5). Amends the premium based on behaviors and characteristics of your company. Seven categories for a total of +/- 25%. Every policy > $5,000 is considered for schedule rating.
• Association Discount (9). A credit of 5% if you are a member of one of WCF’s five trade associations and meet the qualifications for eligibility prior to your policy effective date.
Premium Determination – cont.
• Premium Discount (5). Recognizes policy handling expenses are similar regardless of premium. Percentage discounts that start at $5,000 of premium based on a table.
• Terrorism. Mandatory charge for all carriers. NCCI sets the loss cost and carriers apply their loss cost modifiers to determine the final rate. There are two factors, one for terrorism (foreign and domestic) and one for catastrophes.
• Dividends. While dividends cannot be guaranteed and must be approved by our Board of Directors, WCF has paid dividends every year since 1992 to the tune of over $315m.
• Rating Plan. Final premium determination will depend on your rating plan; Guaranteed Cost or loss sensitive (Retrospective Rating or Large Deductible).
Loss Cost Rate ChangesUtah
20
12.6%
-8.5%-10.1%
-11.9%
-16.3%
-9.6%
0.0% 0.0% 0.0%
-7.2%
5.9%
11.2%
4.2%
-6.0%-8.2% -7.8% -2.8%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010P
Policyholder Dividends
21
$5.8 $7.0 $8.4 $8.7
$30.9
$17.1
$39.8
$25.5
$6.0 $8.0
$2.4 $3.0
$19.9 $19.5
$41.8
$46.7
$15.0
$9.8
$16.8
$7.3
$-
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
(In Millions)
Advise Your Agent / Marketing Rep / WCF Directly of Activities That May Impact Your Policy
• If you hire people outside Utah
• Start an operation in another state either on a temporary basis or permanent
• Start a new or discontinue an existing operation
• Have large temporary or permanent fluctuations in your payrolls
• Merge with or acquire another company
Questions
Your AgentYour WCF Marketing Representative
WCF Customer Service 800-446-COMP
Thank You!
Reporting
• Establish a company policy for reporting injuries
– Whom to report the accident to
– How to report the accident
– What information is needed
– Investigate every accident
• Report injuries immediately
– First reports must be submitted within 7 days of notice
– Labor Commission may impose a penalty for a late report
– Delayed reports increase claims cost
First Report of Injury
• Mail to WCF PO Box 2227 Sandy, UT 84091
• Fax to 385.351.2875
• Phone in to 385.351.8285 or 800.561.8008
• File Online @ www.wcfgroup.com Login vs. non login options
Ability to save incomplete report
View submitted claims
Additional benefits Quicker Response
Immediate access to claim #
WCF will file the report with the Labor Commission on your behalf
You will also get an email from WCF with the claim attached which you can print with Acrobat Reader.
Establish a Relationship with a Physician or Industrial Clinic
• Employer has first choice of physician
– WorkMed is the preferred choice for industrial injuries
• Have physician visit your workplace
– Provide job descriptions
• Identify modified or transitional duty jobs
• Notify your employees in writing of your company physician or clinic
• Drug testing
Implement a Return to Work Policy
• Identify and establish modified duty jobs
• Reduced hours and/or reduced wage OK
• Volunteer RTW Program– Helps manage medical costs
– Increases moral
– Increases communication
– Decreases fraud
– Reduces employer’s experience modification
– Eliminates need for retraining
• Maintain contact with your injured employee– Decreases disability mentality
Experience
Experienced Claims Adjusting Staff
• Senior Adjusters average 15 years of experience- all with WCF
• Managers average 18 years of experience- all with WCF
Dedicated Subrogation Unit
• The Subrogation claims department receives an average of 1200 third party referrals in a calendar year to review for possible recovery.
Claims Department Service Standards
Contacts Contact Employer within 2 business days Contact Injured Worker within 2 business days Receive provider information or make contact Return phone calls within 4 hoursOne Point Contact
Resource Group Cover for absent adjusters both short term and long term Conduct 3 week training course for new adjusters, mentor for 3-6 months On-going training Develop and maintain training manuals Provide administrative support
ToolsEffective use of Managed Care Programs
Medical Case Management
Vocational Rehabilitation
Utilization Review
PPO
In-house bill review
Prescription Card Program (PBM)
Claims Recoveries - Subrogation
Subrogation Department to actively investigate and pursue third party recoveries
Annual ERF Day to recover funds from the Employer Reinsurance Fund
Annual PTD Day to review all claims on the PTD roles to determine applicable offsets
In-House Resources
• Staff Attorneys
– Represent WCF and its policyholders on disputed claims
– Available for consultation on difficult compensability issues
– Offers legal advice and support on any concerns regarding your workers compensation coverage
• Special Investigation (SIU)
– Actively investigate all leads on a confidential basis
– Fraud Hotline: 385.351.8140 or [email protected]
• Medical Director
– Available for consultation on difficult medical issues
– Peer to peer review with treating physician
Claims Department
Determines Compensability• Adjusters utilize the Utah Workers’ Compensation Act and case precedent
to evaluate and determine compensability
Ongoing Investigation and Management• How severe is the injury?
• Is the treatment reasonable and necessary?
• Is the recovery going as expected?
• Will the employee RTW SJSE?
Ultimate Goal
Return the Injured Worker to
gainful employment
7 Elements of an EffectiveSafety Program:
1. Management Support
2. Assignment of Responsibility
3. Safety Committee
4. Hazard Identification & Control
5. Employee & Supervisor Training
6. Incident Reporting & Emergency Response
7. Return to Work
What We Can Do…• Program Assistance
• Safety training
• On site
• Seminars - Over 90 seminars per year state wide
• Safety surveys
• Industrial hygiene surveys
• OSHA required programs
• Cost avoidance assistance
• Online Safety Resources
WCF Safety & Health Services• Staff of Highly qualified Safety & Health
Professionals:– 13 CSPs (Board of Certified Safety Professionals)
– 3 CIHs (American Board of Industrial Hygiene)
– 8 Master’s Degrees
• Safety & Health Consultation Services for Policyholders:– Accident Prevention Programs & Systems
– Promoting a Safe Workplace Culture
– On Site Safety Training
WCF Safety & Health Services• Safety Consultation Services customized to the needs of
the policyholder– Industrial Hygiene Consultation– Safety Program Evaluation– Safety Culture Assessment Survey– Balanced Scorecard “Safety Success Balanced
Scorecard”– Risk Assessment Matrix
• Safety & Health in the Community:– Partnerships with local Associations and University– Provider of DOPL approved Contractor Continuing
Education
WCF Safety & Health Services• Active Involvement in Promoting Accident Prevention:
2010 2011
Inspections 1432 1418
Consultations 3868 3828
Seminars 196 207
On Site Training 836 861
Total People Trained 18,828 18,131
• Association Partner Training Courses – WCF Safety & Health provides instructors for safety courses sponsored by Association Partners ( UMA, AGC, HBA, URC, UMT)
41
The Basics of the Audit Process
John WallinAssistant Vice President Premium Audit
385.351.8127
Workers compensation insurance premium is based on actual payrolls for your classifications.
Your payment schedule is calculated using estimatedpayroll.
At the expiration of each policy period, the estimated premium paid must be reconciled to actual amount due based on actual data.
The mechanism WCF uses for this reconciliation is an audit.
The Audit Process: Gathering & Verifying Information
Each year you will either receive a Gathering audit or a Final Payroll Report.
Gathering Audit
• Currently mandatory for all policies meeting specific premium limits, all multi-state, and those designated by underwriting.
• An auditor visits organization at an agreed upon date and time to collect payroll information and analyze its assignment to the classifications on the policy.
Term Final Report
• This report used to provide WCF with payroll figures during the course of or at the end of the year.
• No auditor involvement.
• Distributed to Utah policies that don’t receive a gathering audit.
If you submit payroll using Final Payroll Report you may receive physical audit to verify the reported payroll information.
This type of audit is performed using one of three formats:Desk audit – a worksheet is sent for completion to be returned
along with copies of quarterly reports, e.g. State Unemployment Reports or 941’s.Telephone audit – similar to a desk audit with a follow up phone call.Physical audit – A WCF representative visits the company or its representative to verify records and data at an agreed on time and place.
Tips to Improve the Audit Process
• During the audit have someone available to the auditor who is knowledgeable about your operations and employee duties.
• Tell the auditor anything you deem relevant about your operations.
• The auditors will usually request these forms, so be prepared with: – Tax forms e.g. 940/941’s, State unemployment reports, W-2s
– Payroll summaries
– Your general Ledger
– Certificates of workers compensation insurance for all subcontract labor.
• Ask the auditor as many questions as you would like.
• If you disagree with the audit’s outcome you are encouraged to use WCF’s dispute resolution process.
What does payroll include?• Wages or salaries (including retroactive wages or salaries).
• Total cash received by an employee for commissions and draws against commissions.
• Bonuses including stock bonus plans.
• Pay for holidays, vacations, or periods of sickness
• Payment by an employer of amounts that would have been withheld from employees to meet statutory obligations for insurance or pension plans such as the Federal Social Security Act or Medicare.
• Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans.
• Payment or allowances for hand tools or hand-held power tools used by employees in their work or operations for the insured. These tools may be supplied directly by the employee or to the employee through a third party.
• The rental value of an apartment or house provided to an employee based on comparable accommodations.
• The value of lodging, other than an apartment or house received by an employee as part of their pay to the extent shown in the insured's records.
• The value of meals received by employees as part of their pay to the extent shown in the insured's records.
• The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay.
• Payments for salary reduction, employee savings plans, retirement or cafeteria plans (IRC 125) that are made through employee-authorized salary reduction from the employee's gross pay.
• Davis-Bacon wages or wages from a similar prevailing wage law.
• Annuity plans.
• Expense reimbursements to employees to the extent that an employer's records do not confirm that the expense was incurred as a valid business expense.
What payroll does not include?• Tips or other gratuities received by employees• Payments by an employer to group insurance or group pension plans for employees, other than those covered by Rule 2-B-1-f and
Rule 2-B-1-m.• Overtime pay• Payments by an employer into third-party trusts for the Davis-Bacon Act or a similar prevailing wage law provided the pension trust is
qualified under IRC Sections 401(a) and 501(a).• The value of special rewards for individual invention or discovery.• Dismissal or severance payments except for time worked or vacation accrued.• Payments for active military duty.• Employee discounts on goods purchased from the employee's employer.• Expense reimbursements to employees to the extent that an employer's records confirm that the expense was incurred as a valid
business expense.• Reimbursed expenses and flat expense allowances (except for hand or hand-held power tools) paid to employees may be excluded
from the audit only if all three of the following conditions are met: • The expenses are incurred for the business of the employer• The amount of each employee's expense payments or allowances are shown separately in the records of the employer• The amount of each employee's expense reimbursement is a fair estimate of the actual expenses incurred by the employee in
the conduct of his/her work. • Note: When it can be verified that the employee was away from home overnight on the business of the employer, but the
employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 per day, is permitted.
• Supper money for late work.• Work uniform allowances.• Sick pay paid to an employee by a third party such as an insured's group insurance carrier that is paying disability income benefits to a
disabled employee.• Employer-provided perks such as: • Use of company-provided automobiles• Airplane flights• Incentive vacations (e.g., contest winners)• Discounts on property or services• Club memberships• Tickets to entertainment events
Subcontract laborBE CAREFUL! Subcontract labor can be an overlooked liability .
The National Council on Compensation (the statutory ruling authority for the State of Utah) Basic Manual for Workers Compensation states in Rule IX C. 1. "The contractor shall furnish satisfactory evidence that the subcontractor had workers compensation insurance in force covering the work performed for the contractor. For each subcontractor for which such evidence is not furnished, additional premium shall be charged on the policy..."
The Utah State Labor Commission further elaborates "sole proprietors and partners, by law, are not employees of the sole proprietorship or partnership and worker compensation insurance is, therefore, not required. However, if a sole proprietor or partner work for a general contractor, the general will require that the sole proprietor or partner supply them with a valid certificate of worker's compensation insurance. Otherwise, the general will have to include the sole proprietor or partner on their insurance. A sole proprietor or partner can meet the requirements of workers' compensation insurance in one of three ways:
~ Purchase a worker's compensation insurance policy.
~ Purchase a Statutory Exclusion Policy for worker's compensation coverage.
~ Have the general contractor include the sub on their worker compensation policy.
Exclusion of Overtime
• The extra pay for overtime is excluded from payroll on which premium is calculated as indicated below, provided that the insured's books and records are maintained to show overtime pay separately by employee and in summary by classification. Extra pay is the difference between the regular pay rate and the overtime pay rate multiplied by the number of overtime hours worked.
Calculating Overtime
If the records show:
- extra pay earned for overtime separately the entire extra pay is excluded.
- total pay earned for overtime (regular pay plus overtime pay) in one combined amount, and time and one-half is paid for overtime 1/3 of this total pay must be excluded.
- Double time is paid for overtime and the total pay for such overtime is recorded separately 1/2 of the total pay for double time must be excluded.
The 5 most common audit problems
1 Estimated payroll is severely over or under estimated.
2 Principle coverage issues.– Does WCF have the correct principals endorsed to the policy?
– Corporate officers are automatically covered.
– Sole proprietors, partners, and members must elect coverage.
3 Subcontract labor.
4 Division of labor.– Neither the clerical (8810) nor outside sales (8742) wage allow division.
– When division is allowed, adequate documentation is necessary.
5 Changes in operations.– Some changes in operations allow class codes to be added retroactively, e.g.
construction trades.
