Minimizing Workers’ Compensation CostsMinimizing Workers’ Compensation Costs

Information for Businesses and Business InterestsInformation for Businesses and Business Interests

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Workers’ compensation basics Coverage basics Policy basics

Experience modification Classification code

Avoid audit premium Know your legal duties Workplace safety Return to Work Know your legal duties Frequently asked questions

What we will cover

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The Law is complex The Insurance line is complex There are multiple parties are involved

It’s complicated……..

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This mandatory insurance program arose out of the industrial revolution due to increase in work injuries

Workers’ compensation was created as a compromise No fault coverage Statutory and limited benefits

Work injuries presented uncertainty Worker uncertainty over medical treatment and wage loss Employer uncertainty over potential law suit and outcome

If no work injuries, no need for workers’ compensation. The key to minimizing costs is safety

Workers’ Compensation Basics

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Employers are keenly aware of the costs of workers’ compensation but not the benefits

Limited liability Injured worker is limited to workers’ compensation recovery Employer is immune from most law suits for a work injury Benefits that are paid out are limited by law

No worker recovery for non-economic loss such as pain and suffering

No punitive damages

The Employer

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Not all injuries at work are covered An injury must arise out of and in the course of

employment “Arises out of” requires the claimant show that the

conditions of the workplace or some significant exertion caused the injury (“actual risk” test)

“In the course of employment” refers to the time, place and circumstances under which the accident occurred

Virginia law’s on coverage are somewhat narrower than compared to other jurisdictions

Requiring the “actual risk” test Limited view of “overuse” and ergonomic injuires

Covered Injuries

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Basic premise in workers’ compensation Either party may be negligent – claim is still covered

Employer may be negligent in providing negligent working conditions, inadequate training, poor or inadequate equipment or supervision

Claim is still covered

Injured worker negligence may be the cause of their own injury; not following instruction, careless, sleepy, or disregard of obvious hazard

Claim is still covered

No Fault Coverage

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Law provides for denial of certain claims The burden of proof is on the party claiming wishing to

deny the claim (the employer and insurance carrier) Willful misconduct Intentional self-injury Intentional injury to another Intoxication Use of non-prescribed controlled substance Willful breach of employer’s reasonable rules or regulations

Must prove one of the above was in play and the cause of the injury

Claims Can be Denied

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Learn the basics to understand who needs coverage and avoid audit premium or fine

Many employers know coverage is required for 3 or more workers…but learn additional factors to consider

When counting workers be sure to understand the broad definitions of “employee” and “employer”

Contractors or businesses that subcontract out work are responsible for the workers’ compensation for their subcontractor’ employees

Coverage Basics

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“Employee” is broadly defined under Virginia workers’ compensation law

There are few employee exceptions under the law “Employee” includes all of the following:

Corporate officers * LLC managers Family members Minors Aliens Seasonal workers Ministers, Pastors and other church employees

*Many business owners are unfamiliar with this provision

Employee

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“Employer” under Virginia law is broadly defined

The Statutory Employer law requires that a business that hires a subcontractor to perform the same work or trade as the business or to fulfill a contract of the business is responsible for the workers’ compensation liability of the subcontractor’s employees

Requirement applies even if the subcontractor has coverage

Many business owners are unfamiliar with this provision

Employer

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Consider insurance options Employers have four means of coverage:

Obtain a policy from a carrier licensed in Virginia Apply to the Commission for approval as an independent self-insurer Become a member of a group self-insurance

association licensed by the SCC; or Enter into agreement with a Virginia registered PEO

Consider which option is of interest and what it costs

Coverage Options

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Learn basics for calculating premium Type of work - classification code Payroll

Estimated payroll in each class x rate for that class = total for all classifications = estimated annual manual premium

Experience rating (safety) – modifies premium +/- 1.0 is neutral / based on experience prior 3 years

Adjustments Schedule credit rating Premium credits or discount Expense constant Final audited premium

Policy Basics

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Employer has greatest control here Experience rating analyzes the employer’s loss data

over a period of time, usually 3 years For renewal 1/12, would use loss experience that

occurred for policies effective 1/08–1/09, 1/09–1/10, and 1/10–1/11

Experience Mod of 1.0 is neutral / average Experience Mod of less than 1 is desirable Experience Mod of greater than 1 is undesirable More information: ABC’s of Experience Rating

https://www.ncci.com/Documents/abc_Exp_Rating.pdf

Experience Modification

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Understand your losses Loss total is not the bottom line

Claim frequency (number of claims) your business has matters more than severity (expense of claim)

Ten $10,000 claims count worse in experience rating than one $100,000 claim

Experience rating imposes a cap on losses Medical only claims have minor impact - reduced 70% if the

insurance carrier files them as a “Minor”

Safer employer will have fewer claims

Loss Comparison

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Classification of workplace exposure A primary pricing component for a policy

Codes are established by NCCI Virginia has 640 classification codes Each code carries a specific rate:

A clerical worker (code 8810) has a significantly lower rate than the code for a roofer (code 5545)

Most businesses assigned 1 code, construction multiple Clerical rate may be $0.40 per $100 of payroll while

roofer rate may be $40.00 per $100 of payroll

Make sure you are properly classified, not overcharged

Classification Code

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Seek Expertise Take time and effort to seek out more than one

opinion and obtain insurance expertise Ask business associates for good agent referrals Agent expertise is variable in workers’ compensation

insurance underwriting Workers’ compensation law is complex Underwriting is complex Agent skill can impact policy application, premium

calculation, credits and audit premium

Shop Around

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No shortage of insurance carriers Virginia has a hundreds of licensed workers’

compensation carriers writing policies in the state Currently writing coverage at less than they are paying

out on Many carriers provide Schedule Rating, Dividends and

reductions beyond what appears profitable Consider this:

For each $100 carriers collected in 2010 they paid out $109 in losses

Insurance Market

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Prepare for your insurance agent Take time to learn workers’ comp fundamentals

Know your policy history, cost and experience mod If you are a corporate officer – ask about exclusion Review your class code(s) for accuracy Ask questions, ask how you can save now and in the

future Keep good business records, payroll records and

subcontractor’s certificates of insurance

Your Insurance Agent

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Ask what communication you will have in the event of a claim and what resources are available to you as a client

Carrier may offer on-line tools or no involvement Does carrier invite employer involvement; offer on-line

tools to view losses? Request claim settlement / closure where possible

Reduces your experience modification Make sure your carrier reports minor claims as minor Ask for positive characteristics of your carrier

Licensed adjusters Lower caseloads than average

Your Insurance Carrier

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Officer Exclusion

Form 16A excludes WC coverage: Corporate officers or LLC managers can exclude

themselves from coverage Useful in reducing premium Requires a valid insurance policy to exclude from File with the Commission and with insurance carrier Exclusion is in effect unless termination (17A) filed For a very small corporation, if all employees are

excluded it can eliminate future need for a policy

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Avoid Audit Premium

Audit premium can be costly and unexpected May be more expensive than original policy Keep good business records For a contractor, keep records of subcontractor’s

coverage and verify it on VWC website

One cause: statutory employer liability Contractor that hires a sub is responsible for

subcontractor’s employees Subcontractor’s certificate may not be valid Contractor is required to cover nevertheless

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Know Your Legal Duties

Employer legal obligations Maintain coverage when required by law Report work injuries to your carrier May not deduct cost of coverage from wage Post workers’ compensation poster

Workers’ compensation penalties Civil penalty is $500 - $5000 for each instance of

failure to comply

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Insurance Coverage Search

Check coverage using the free insurance search tool located on the VWC website

Verify coverage of subcontractor that you are in business with

NCCI database, current and past data

https://www.ewccv.com/cvs/

roughly 16,000 insurance searches are performed monthly

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Bureau of Insurance

Bureau of Insurance in SCC manages: Audits and audit disputes Policy underwriting Rates and premium adjustment issues Loss Cost Multiplier List Classification codes Insurance credits

E-mail: bureauofinsurance@scc.virginia.govBOI Phone: 804-371-9741

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Workplace Safety

Accidents occur but most are preventable Make workplace safety a priority High hazard business should make it higher priority Use free OSHA or insurance worksafe consult services Provide workplace safety training where needed Monitor and enforce safety practices Claims that occur where enforced safety rules were

not followed can be denied

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Safety Rules

Failure to follow employer’s safety rules or procedures or use safety equipment is a common reason for claim denial

However, this often does not hold up at hearing Employer and carrier’s burden to demonstrate:

Safety rule was reasonable Rule was known to employee Rule was for employee’s benefit Employee intentionally undertook forbidden act

Lesson: Employer must train, monitor and enforce rule

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Workplace Review

Review prior workplace injuries Review your Employer Accident Reports

What is the cause of your workplace injuries? Identify patterns; equipment, location, people… Are there are recurring hazards? Identify any training needs? What can you do to make workplace safer?

Ask employees to report workplace hazards

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Return to Work

Create a “Return-to-Work” program Can reduce policy cost and earn premium credit

In the event of work injury, an employee’s return to work sooner reduces claim costs

Do not require full duty, without restrictions Offer light duty work for employee with limitations Return to work reduces indemnity pay out Reduced claim costs translates into better experience The longer a worker is out of work the more likely it is

they will never return to work

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Health and Wellness

Health and wellness efforts can reduce claim costs

Healthier, more fit employees will recover more quickly if injured

Consider support or reimbursement for: Health club membership Weight reduction efforts like Weight Watchers Smoking cessation

Cost of claims increases with obesity NCCI study demonstrates rise in claim costs with rise in BMI

“Healthy BMI claim costs per 100 workers: $7,500 Moderately obese claim costs per 100 workers: $23,300

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Other Cost Savers

Training – especially for new employees Younger workers and new workers have a higher

incidence of injuries so putting extra effort into new employee training can reduce injuries

Avoid Overtime Higher incidence of work injuries with overtime Extended hours of work leads to overuse injuries

Preventing injuries is preferable to treating them

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Frequently Asked Questions

I am a contractor and I only hire subcontractors that have their own workers’ compensation insurance. Do I need coverage? Answer: Yes, a contractor that hires one or more subcontractors to assist in the work of the business is responsible for the workers’ compensation liability for its subcontractor’s employees, regardless of whether the subcontractor has coverage.

Isn’t it double coverage for a contractor and a subcontractor to both have coverage? Answer: No. Under Virginia law, statutory employers and employers have different obligations and some subcontractors are not required by law to have coverage.

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Frequently Asked Questions

I have tried to obtain insurance coverage with an insurance agent but have not been able to. How do I get coverage in the Assigned Risk market? Answer: The Assigned Risk carrier for Virginia is NCCI (National Council on Compensation Insurance). You can reach NCCI by phone at 1-800- 622-4123 and their website is: https:// www.ncci.com

I heard Virginia has a premium discount for a drug-free workplace program, is this true? Answer: Yes. Under Virginia law, insurance carriers are required to offer a premium discount of up to 5% for an employer that provides and maintains a drug-free workplace program. Each carrier establishes its own criteria for program establishment and maintenance.

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Laura K. Collins, Esq.Laura K. Collins, Esq.Insurance ManagerInsurance Manager

Virginia Workers’ Compensation CommissionVirginia Workers’ Compensation Commission1000 DMV Drive1000 DMV Drive

Richmond, VA 23220Richmond, VA 23220Laura.collins@workcomp.virginia.govLaura.collins@workcomp.virginia.gov

(804) 482-5304 (804) 482-5304

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