For the first time since 2010, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is changing the formula for calculating experience modifications, effective January 1, 2017. This could impact your Workers’ Compensation premiums.
What is an Experience Modification?
Experience rating is a method that compares an employer to other companies in its industry class based on their historical claims experience. It is expressed as a percentage—called an experience modification factor, or “Ex Mod”—and utilizes past loss experience to help predict future losses. The Ex Mod is applied against premium and either penalizes a company (if its loss experience is worse than the industry average) or rewards it (if its loss experience is better than the industry average). Experience modifications create a powerful incentive for employers to prevent claims and control claims costs.
How is it Currently Calculated?
The experience modification rating process uses what is known as a split point of $7,000. An insured’s actual losses below $7,000 are considered primary and go into the formula at full value. Losses above the split point (to a maximum of $175,000) are considered excess losses and have less weight in the formula. Dividing losses into primary and excess components gives greater weight to loss frequency, which is typically more controllable by the employer, than to loss severity, which is typically caused by less predictable catastrophic claims. The current formula, in effect since 2010, is a one-size-fits-all approach for all employers regardless of company size.
How will it be Calculated Starting January 1, 2017?
WCIRB found that the pattern of claim frequency and severity in California has changed over time, and the single $7,000 fixed split point was “no longer producing optimal results.” On January 1, 2017 it will be implementing a variable split point methodology where, depending on the size of the employer, there will be 94 different primary loss split points between $7,000 and $75,000. Losses above an insured’s split point will no longer be used in the experience modification calculation. The overall effect of the change will be to give greater weight to claims frequency while claims severity, although still a factor, will be limited at no more than $75,000.
What is the Potential Impact?
The WCIRB states: “While the variable split point plan represents a fundamental change in the values used to calculate experience modifications, there is no expectation that experience modifications for California employers as a whole (emphasis added) will change.” However, each individual insured’s experience modification will be dependent not only on its losses, but also on its size. Under the new formula, insureds whose split points increase above the current $7,000 level will have a greater amount of their losses designated as primary and will be more negatively affected by frequency than severity. This in turn could lead to an increase in their Ex Mod. On the positive side, the $75,000 excess cut off limits the impact of catastrophic losses which should especially benefit smaller employers.
This article was first published by Captive Review, and written by Richard Cutcher.
California-based Ascension Insurance Services is expecting to add a second cell to its segregated portfolio company (SPC) in the Cayman Islands.
Captive Review reported in February 2015 AARIS Insurance Company SPC, owned by Ascension Insurance Services, had formed the jurisdiction’s first portfolio insurance company (PIC) – AGG 1 PIC.
Legislation enabling PICs, comparable to incorporated cell companies (ICCs) in Guernsey, came into effect in January 2015.
“We were up against a tight deadline because the renewals for the members were in February and the legislation was only passed the month before,” Paul Tamburri, west coast risk management practice leader at Ascension Insurance Services, told Captive Review. “We had to get the fronting in place and ensure the carrier understood they were now contracting with the PIC rather than AARIS.”
When AGG 1 PIC was established it originally had 13 members. That has since grown to 15. All members are agriculture businesses with California or Arizona risks writing workers’ compensation.
The rush to find a solution for the original 13 members came about after the owners of a separate Bermuda segregated account company (SAC) changed hands and the clients in two of the three cells wanted to continue working with Ascension.
Tamburri said one of the reasons the SPC option was so attractive to Ascension was they saw the potential to offer a PIC solution to other groups of clients.
“We are already working on a segregated portfolio which we hope to get running by 1 April,” he added. “That cell will be for another group of agricultural clients and is also for workers’ compensation.”
Ascension also works with the trucking industry and education institutions. A large part of its client base is non-profits and the firm is considering setting up another vehicle especially for medical stop-loss.
“The SPC is a big opportunity for our company as a whole, and not just for this one PIC,” Tamburri said.
This article was first published by Captive Review, and written by Richard Cutcher. Captive Review was launched in 1999 and caters for the risk management and captive insurance communities.
Please join us for a seminar and panel discussion, led by Shiraz Saeed, Cyber Specialist at AIG, and John Simios, ARM, AAI, Vice President, Captive Resources LLC.
This seminar will focus on sharing ideas and expertise regarding creative risk transfer solutions and assessing new and growing exposures for middle- market companies.
Questions Answered/Topics Covered:
- Market Update: Property & Casualty and Employee Benefits
- How can I assess my Cyber Risk?
- Am I large enough for a Captive? Isn’t that only for large companies?
- What are rates doing? Should I expect an increase in next year’s renewal?
- Regulatory Environment Changes: OSHA, ACA Compliance
- Learn about current Trends and Best Practices
Date:
Thursday, October 29th, from 8:00am to 10:00am
Location:
Charlotte Country Club, 2465 Mecklenburg Avenue, Charlotte, NC 28205
The economy simply can no longer be the excuse as to why safety is not a top-tier priority in the waste and recycling industry. During recent challenging times, companies of all shapes and sizes elected to adopt a cost-cutting focus simply to survive, causing many to rethink their investments (both time and money) in programs related to fleet management and safety.
In 2013 as a result, the number of industry fatalities spiked by more than 25 percent, which boosted the waste-and-recycling industry to the fifth most dangerous profession (up one spot from the prior year). All workers in this industry should be focused on how to increase the odds of getting drivers home safely to their families each day.
Traditional Approaches to Injuries
Mindsets around safety in our industry have frequently been based from “nature of the beast” to “the employee has to be held accountable… I can’t hold their hand.” Driving a compactor truck loaded with nearly 10 tons of waste is an extremely dangerous profession.
Any profession can be made dangerous while operating with a laissez faire attitude. Safety starts at the top of the organizational chart and must be constantly visible. If safety is driven home on a routine basis with a set of professionally crafted operating procedures, the waste industry can be thought of in the same light as our other trucking brethren. Insisting that a driver is 100 percent to blame and responsible is like saying a sales individual is in charge of the overall financial performance of the company. While they drive growth that directly impacts the bottom line, they are only part of the solution; not the end all/be all.
The most prevalent and damaging company environment is the all too familiar lip service to risk and injury mitigation efforts. In this scenario, some signs are put up in the break room, and a safety-first pizza lunch is provided every once in a while. These gestures are not entirely wrong, but they must be included in a much larger overall safety-imperative effort. One driver, making one bad decision, can completely change the entire direction of a company.
Damaging Consequences from Traditional Mindsets
There are significant, and often unrecognized, outcomes from injuries within our industry, including, but not limited to, the following:
- Increased out-of-pocket expenses
- The inability to bid on certain jobs
- Rising insurance premiums
- Declining customer satisfaction and retention rates
- Weakening driver attraction/retention and absenteeism
A company doing the bare minimum in regards to protecting its most essential assets (its people) is much more likely to experience downward spiraling financial performance. The next time a garbage truck passes, wonder whether or not the team carrying out that service is satisfied with what they are doing or if they’re just putting in their time. It might change how close you are willing to drive hugging the center line.
Due to being in the high-frequency/high-severity quadrant when it comes to employee injuries, waste and recycling companies are discovering it is increasingly difficult to find more than a handful of insurance carriers that provide coverage for our industry. Carriers are funny—fond of premiums. Excessive claims? Not so much. The rising litigation costs, followed by increasing fatality rates, are ugly to see. Barring companies embracing the safety imperative, as opposed to giving it lip service, these trends will only get worse.
The Good News
The waste industry does have a lot of things going for it as far as finding well qualified drivers. They are home at night. The hours worked often leave free time during the middle of the day for employees to take care of personal needs. Drivers are familiar with routes and work within a limited radius. Helpers are used in residential vehicles. And the weather does not affect their weekly number of hours; as is often the case in other trucking industries. The waste and recycling industry is generally thought of as stable in terms of hours worked and providing steady pay. This being said, employees have to know that they are regarded as valuable tools that need to be consistently sharpened.
So how do you know you have an effective program in place that will generate long-term success, stability, and reverse the trend of profit drain? It all starts with the Proactive Risk Approach (PRA). This PRA is based on a sequential and protected process.
- Assess your current situation and find the deficiencies. You’re only as good as your weakest link.
- After the gap identification, address the low-hanging-fruit improvement opportunities you’ve known about for a while and have put off.
- The most important aspect of a proficient PRA is to not stop here. Companies must invest in a multi-prong approach that addresses the true problems rather than simply masking the symptoms.
Core Elements of an Effective PRA
These additional steps are essential:
Select Drivers Carefully
This is an ongoing practice—not an event. What happens if you lose your best driver tomorrow? How do you replace them? Creating a list of qualified prospects and working it frequently allows for a much less severe situation than starting from scratch. In the hiring process, lowering your standards should never be an option. If you don’t find a worthy hire, don’t settle or force a hire.
Create a Safety-First CultureSuch an environment cannot be faked. The buy-in must come from the top and trickle down. Keep in mind your team members will listen to what you say far less than they’ll watch what you do.
Keep Safety Training Ongoing
Training is not reserved for new hires only; it must be an ongoing initiative, be regularly enhanced, and be designed to enhance and encourage everyone to be their best at all times Creating open communication with all employees strengthens any culture of safety.
Maintain Visibility
The PRA cannot be a flavor-of-the-month program. Employees must know who they can and should turn to and should be encouraged to identify hazards or best practices. Employees are the ones who truly establish and carry out company culture.
Monitor Your Results
Any effective PRA must quantify the program outcomes. This can be done in a number of ways (e.g., sick days taken, tardiness, increased retention, customer-service ratings, yards collected per hour, maintenance dollars versus fines, etc.). Share metrics with your employees to spark a friendly competition.
Recognize and Reward Improved Performance
Incentives must be provided for clean MVRs and roadside inspections, turning in all paperwork correctly and on time, improved customer-retention rates, customer surveys, etc.
Assess Your Insurance Program Regularly
This ensures the retention versus transfer balance of potential threats in focus and will gauge if your limits are optimal given current market conditions and risk appetite.
Continue to Fine-tune
There is no one program that will be perfect for every company, and even if there were, things change. The culture of the company is going to evolve, so be flexible in finding what works, as long as safety remains top of mind.
Most companies don’t have adequate resources to establish and maintain a PRA program alone. It’s essential to partner with the right team, so seek out firms with insurance-industry experience, in-house resources, knowledge and working capital to provide external resources, and a documented track record of success mitigating injuries and overall loss with waste/hauling and recycling clients. It’s never too early to improve your overall safety program, as the short- and long-term returns are excellent. Ramp up your safety culture driven by a PRA, and you’ll experience an exceptional ROI.
About the Authors
Steven Billings is a risk advisor in Relation’s waste-management practice focused in alternative risk solutions and value-added services. He can be reached on LinkedIn, via email at [email protected] or via phone (704) 688-1285.
George H. Lucas, Ph.D., is director of coaching and learning at Schul + Baker Partners of Dallas, TX. He can be reach via email at [email protected] or via phone at (469) 291-5493.
This article originally appeared on the Waste360 website.