Following the second anniversary of workers’ compensation reform rates have significantly reduced. Employers are defending reforms, while applicants’ attorneys are picking away at the tighter medical controls and fighting what they consider an illegal permanent disability rating schedule. In addition, Democratic legislators are slamming the Schwartzenegger administration on utilization review and appropriate medical treatment for injured employees.
Smart Business spoke with Jay Manning, who is director of workers’ compensation for DLD Insurance Brokers.
What do you see in the short run regarding employer’s premiums?
With competition in the marketplace and more carriers willing to entertain a quote, you can expect a decrease in premiums. This should impact insurance companies with low manual rates and those willing to push the bounds of their schedule rating discounts. Expected loss rates per job-classification codes will also decrease as a consequence of the downward trend of loss ratios. This will have a positive impact on companies that can keep their losses down and a negative impact on companies that are unable to control their losses.
To maximize employer’s savings and secure the most competitive pricing for their clients, I believe brokers should be market knowledgeable, understand program structure alternatives, and have technical workers’ compensation claims experience.
What else can businesses do?
Employers should have an overall risk management strategy in place. Watch for complacency now that rates have lowered. It’s easy to sit back and enjoy the benefits of reform, but it’s better to view this as an opportunity to substantially reduce costs now and in the future. Appropriate loss-control measures should be implemented and maintained to reduce future risk. Employers should have a detailed plan in place to strategically monitor all claims. Claims management of open claims especially those involving the experience modification period or the self-insured retention level should be aggressively monitored. Employers must stay in touch with the ever-changing claims-handling environment, including apportionment, utilization review, impact of delayed claims and Medical Provider Network (MPN) issues. Employers must also have a solid strategy to reduce cost, because many factors can come into play to offset the current rate reductions for those who are not careful.
Are there other things to consider?
With increased competition, decreasing pure premium rates and the current favorable legal climate, your broker should be strategically negotiating other factors besides premium. Be prepared to look at past and future collateral requirements, insurance company loss-control services and specialized claims-handling instructions as a strategy during your renewal process.
Should companies move their insurance programs to the lowest bidder?
Be on the lookout for new carriers entering the marketplace with a lower price. Some insurance companies lower prices by limiting coverage through endorsements and servicing commitments. I would recommend that a complete marketing strategy be conducted, given the competitive climate, in order to ensure all the bases are being covered. Then, I believe in establishing a strong relationship with a carrier who will be there when prices are down but also be there when the climate turns. The best relationship is one that involves the client, carrier and the broker.
What other opportunities for savings might there be for employers?
Outsourcing claims administration and service can often lead to waste. Carriers and administrators are continually relying on utilization review companies, bill review outfits, nurse case managers and a host of other vendors to help handle claims. A lack of oversight and control can lead to significantly higher costs for an employer. Services that are over utilized and unmanaged can result in more costs than savings.
Many companies also have operations in states other than California. Some states are undergoing workers’ compensation reform tantamount to California’s. The Texas Department of Insurance recently certified the state’s first medical Health Care Network (HCN), which is similar to California’s MPN. Florida has a contracting premium adjustment credit available for employers engaged in contracting classifications. Many states can also apply for other premium reductions, including workplace safety and drug-free workplace credits. In addition, some states also offer a variety of deductible options to reduce premium levels.
What do you expect down the road?
I expect the legal battle to continue between the parties most affected by workers’ compensation reform. I expect there will be some changes including modifications to the permanent disability rating schedule but not a complete overhaul. It will be important to watch how individual claim specific disputes are adjudicated under the new reform and what impact this will have on employers, insurance companies and marketplace pricing.
JAY MANNING, ARM, is director of workers’ compensation for DLD Insurance Brokers. Reach him at (949) 553-5684 or email@example.com.