Back to the Future to Get Control of Workers Comp as Market Firms & Premiums Rise

The Workers Compensation market has been in a state of turmoil over the last several years.   Insurance carriers are struggling with underwriting profitability, and there’s been a rise in claims frequency, rate increases and a firming market with businesses paying more in premiums even though payrolls are down in an economy where unemployment is high.

In fact, year after year employers find themselves paying more for coverage while revenue and staffing levels have been significantly reduced or remain flat. Unemployment remains at record levels, while at the same time the workers comp market begins to firm up. This is unlike what has occurred in the past where unemployment was fairly low when the market hardened. For example, in 2001 when the market hardened after 9/11, in New York, unemployment was at 5.30%; in April of this year it was at 8.10%. In New Jersey, the unemployment rate in 2001 was 4.60%, today it’s 9.10%; and in California, it was 5.90% and now it’s 10.50%. The bottom line: Employers today are experiencing increases in their premium rates but they’re not better off…in fact, they’re doing a lot worse, with less manpower, lower sales, and a decrease in income. You have higher unemployment with diminished revenue, with employers’ fees and charges continually going up.

In terms of rate increases, let’s look at the same states: New York filed a rate increase of 11.5% for October 2012, following a big increase last year. New Jersey had an increase this year of 6.9%. And, California just approved an 8.25% workers compensation advisory pure premium rate hike for new policies and those renewing on or after July 1, 2012 on top of an earlier increase of 37%.

What’s more, claims frequency is up 3% despite the lagging economy, according to the National Council on Compensation Insurance (NCCI Holdings). The more claims employers have the higher their experience mod factor. The mod factor will be further impacted by recent changes that NCCI will be making to its splint point value effective in 2013. One of the most important factors in the mod is primary losses, which are made up of frequency losses. Right now the dollar amount for frequency losses is set at $5,000, anything over this is considered an excess loss. With the NCCI changes, over a three-year period the current value will increase to $10,000 for the first year. In 2014, this will increase to $13,500, and from 2015, the split point value will be $15,000 plus inflation adjustments.

These changes are being implemented, according to NCCI, as the average cost of a claim tripled since the last split point update occurred two decades ago. NCCI says they expect that “good mods will get better and bad mods will get worse.” Yet the concern here is that primary losses have a greater impact on the mod than excess losses. More losses will fall into the newly established primary losses, making the experience mod go up. You can expect employers with poor claims experience facing major experience mod increases, and perhaps being forced to move into the assigned risk plan at a higher rate with an ARAP surcharge and possible loss of scheduled credits.

How can you help your business customers?

 There are many cost containment steps and safety programs that one can implement, which need to be done but take time, commitment, and additional resources for your clients. To really make a substantial impact and help get premiums under control, you need to reduce experience mods effective 2013, 2014, and 2015. And the only way to do this by going back to the future: Changing losses that have already occurred. For example, the 2013 experience mod utilizes losses from 2011, 2010, and 2009. In order to knock down an employer’s 2013 experience mod and most of the 2014 and 2015 mods, Workers Compensation premium recovery is needed.

Workers Compensation premium recovery offers solutions going backwards and forwards. This involves auditing services designed to find and recover premium errors and overcharges in current and past policies. The process involves vetting out errors and overcharges and having the insurance companies correct them.

You can end up providing your customers with sizeable refunds on policies over the past six years – at no cost to them, as the premium recovery audit service provided by Apex is on a contingency basis. Your customers will also save on future years and improve their underwriting profile. What’s more, as a broker you will earn first-year and renewal commissions. You’ll have clients that will stay with you for life, and prospects will listen when you show them some cash back returns.

For more information about Apex, please visit: www.apexservices.com. Or, you can call Simon at (888) 380-APEX (2739).