When you combine increased baseline pricing , increased experience modifications, and continued deteriorating loss development, some employers will be completely blindsided from the impact. While California employers saw large rate decreases during the past 5 years, they will be shocked and dismayed when they receive their renewals from their brokers.
As I mentioned in my January 2010 blog, employers earlier this year were just starting to face"The Perfect Storm". I described this as a match not made in heaven. Decreased payrolls, poorer than expected loss development, and a change in the experience rating formula will cause, or has caused many experience rated employers to begin to feel the effects from these problems.
These issues will lead to continued increases in the experience modifications, and costs affiliated from these increases.
What can you do about it?
- Get educated and understand that you can control these changes.
- Compute your lowest possible mod (LPM) to identify the impact to EBITDA. The difference between your current mod and your LPM is directly relational to your bill.
- Establish goals and benchmarks within your organization.
- Evaluate departments which are contributing to the decline in your program. Evaluate personnel in the department to identify future risks and how to minimize them.
- Get aggressive in closing out outstanding claims. Negotiate with your carriers to settle cases by Compromise and Release. (This settlement is most preferred by employers as it prevents the injured worker's claim from being opened after it is C and R'ed).
- Evaluate the results from your current safety and loss control plan. If your experience mod is over 1 your plan may have lost its effectiveness.
- Understand and measure the difference in cost between your current plan results and your lowest possible mod. With multiples in EBITDA hopefully increasing sometime within the next few years, this could represent real value to a seller. It could however represent real value to a buyer if the mod is not reduced by the time of the sale.
2010 should be the year you start getting your work comp risk management plan back on track. Rates in California have just begun to increase and those employers who make true structural changes in their plan will be very pleased when their renewals remain flat and their competitors do not.
COLIN D. BAIRD
Commercial Risk Management
Colin D. Baird specializes in helping corporations reduce their worker’s compensation experience modification and securing the most advantageous worker’s compensation insurance coverage. He focuses on both privately held and publicly traded companies, whose workers compensation expense exceeds $250,000.
Colin has been in the risk management and insurance placement business since 1987. He enjoys writing, in addition to teaching courses in workers compensation and the application and reduction of the experience modification.
SullivanCurtisMonroe Insurance Services, LLC is a privately held, full-service insurance agency focused on upper middle market companies. SCM offers commercial property & casualty, employee benefits and personal lines coverage. SCM has nearly 200 employees and serves a wide range of clients from its offices in Irvine, Pasadena and Corona.