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The Top 6 Workers Comp Insider Secrets by Eric D. Patrick, Esq. June 10, 2008
This article describes 6 workers compensation insurance industry secrets
For most organizations, employee related costs are one of the biggest drains on the bottom line. And workers compensation insurance is often the main drain. Unlike the price of gas, however, understanding these six workers compensation insurance industry secrets can help owners and managers aggressively control these costs. So what are they?
1. Insurance companies don't pay for your employee injuries - they just finance them for you.
Do you realize that oftentimes you pay $2 to $3 back to your insurance company for every dollar they pay out for your employee injuries? Each claim results in an extremely expensive financing contract. You pay your premiums. Then you have to pay for almost all of your claims.
- For employee injuries through lost dividends and return of premium
- Increased costs because your Experience Modification skyrockets
- Lost productivity
- Reduced morale for the unhurt employees who fill in for the injured employee
- Increased stress for management and staff
Workers Comp does not pay for employee injuries. You do!
2. Insurance Company Claims Management Services are usually horrendous.
Now that you know you write the checks for your employee's injuries you should realize how critical it is for you to demand aggressive claims management. Claims adjusters are snowed under with too many cases. Your injured employee doesn't get the attention he or she deserves. In spite of this, insurance companies continue to downsize as they strive to increase profits. Add Managed Care to the mix and your employee's claim is often outsourced to a case management company. The adjuster doesn't even know what is happening or how your injured employee is being treated. You just can't notify the insurance company your employee was injured and expect them to "do their job." You must have a proven process in place to minimize the cost of the injury and expedite your injured employee's return to work.
3. You are penalized and overpay when the "Audit Police" make a mistake on an audit
Because your real insurance cost is determined after your policy expires, it is essential the audit is correct. You're at a disadvantage from the start. The insurance company auditor knows the rules, you don't. The auditor is not compelled by law to explain the rules, even if applying a rule would cause you to pay a lower premium. Here's how the auditor works against you:
- Your entire payroll is put into the highest classification
- Then, the "standard class exceptions" are put into the correct cost classification. When someone is not properly moved to the lower cost classification, you pay at the highest rate. Misclassifications are common and the system is designed for you to pay for all mistakes. Would you allow an IRS agent to conduct an audit without an expert on your side? Of course not. Then, why allow an insurance company auditor to conduct an audit without an expert at your side? A workers comp audit may actually cost you more money than an IRS audit. A workers comp audit is every year. You may go years without an IRS audit.
4. Experience modification factors are often wrong or mismanaged
Most insurance buyers accept on "good faith" that their experience modification factor is correct? Why? It's just easier that way. I go into great detail about this in my article Why Assuming Your Workers Comp Experience Mod is Correct Could be a Dangerous Calculation. However, for our purposes here, you need to learn how to double check your mod because oftentimes it may be wrong. Your insurance company then collects an unfairly high premium.
5. Your dividend may not be what it appears to be
If you were placed into a dividend program with the promise of future savings, at least be aware that these promises are often illusory. Did you just buy your workers comp policy based on that fancy proposal your agent presented or did you really read the contract that states the terms of your program? Realize that you pay a bigger premium upfront to finance the possibility that you will not have any claims. And if you do have a few claims, your dividend will magically evaporate.
6. Your money will fly away unless your agent pays closer attention to your Workers Comp than any other insurance buy.
Here's what your agent must do to insure you have the best value for your workers comp insurance:
- Claims need to be monitored
- Premium audits must be managed and verified
- Experience modifications must be double checked for accuracy
- Contract must be analyzed
- Sub-contractor's insurance must be controlled Many actions are time sensitive.
If you don't know why 6 months after your policy expires is such a critical date, you may be overpaying your insurance. If you need a specialist in any one area of your insurance program, it is in the management of your insurance that affects your employees the most- workers compensations, medical and disability benefits.
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ABOUT THE AUTHOR
Eric D. Patrick is an attorney and Chief Operating Officer of Consumers Insurance Agency Inc. http://www.consumers-insurance.com . He also engages in insurance consulting and legal work through The RiskAssure Consulting Group. Please contact him for further information.
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