Right now, the marketplace for worker’s compensation in New York is mostly stable and competitive but some issues do exist. Below are what we see as the Top 5 Problems with Workers Compensation in New York.
#1. Healthcare Costs.
As an employer, you have seen the cost of your employee benefit costs skyrocket. There are a lot of reasons for this, but the root of the problem is the cost of healthcare which tends to outpace inflation and other spending indexes year after year. As healthcare costs continue to rise, this will impact workers compensation costs. Treating injured workers will continue to get more expensive as time moves on.
#2. Poor Worker Health
Not all workers are in poor health, but a rising number of workers every year are less healthy. This is due to the aging of America’s workforce and societal issues where we see more Americans (now more than ever) suffer from obesity, diabetes, hypertension, joint pain, respiratory problems, sleep apnea, and other chronic ailments. While these issues typically are not work-related and part of workers’ compensation spending, these issues do complicate the treatment and recovery of workers who are injured on the job. They also can be a trigger for injuries or make injuries more severe. As an example, an obese truck driver who jumps off a truck after securing a load may be more susceptible to a severe injury than a driver who is physically fit. We have seen dozens of injuries from clerical office workers to higher hazard manufacturing workers who have sustained “average” injuries but take an abnormally long time to heal and recover due to chronic diseases they incur off the job. There doesn’t seem to be any improvement in sight for the poor health condition of America’s workers and this could be problematic for worker’s compensation down the road.
#3. The Experience Rating Modifier
The experience rating modifier or “mod” is complex due to the number of factors that affect the number which is calculated by the NYCRIB in New York, and NCCI in 34 other states. This is a problem because if employers don’t understand how it’s calculated and how it impacts their worker’s comp premiums, they’re not inclined to make the necessary changes to reduce the cost.
Many employers think this is somehow related to their “loss ratio” the result of dividing losses over a set period of time by the premiums paid over that same time period. Unfortunately, it’s not that simple. Losses and payrolls are the two predominant factors from the insured which help develop a client’s mod.
Why is this important?
Let’s say you pay $300,000 a year for workers comp. A one-point error or change in the mod could be worth $3,000. That may not be a big deal but what if the mod is wrong by 10 points? That’s potentially a $30,000 error you’ll be paying.
More importantly, does a business owner know that their potential “minimum modifier” could be if they had excellent claims performance?
Most don’t and this is a shame. Taking the same client that pays $300,000 a year; let’s assume that their current modifier is 1.15 and their minimum modifier is .67. That’s a 48-point difference which could result in a $144,000 reduction in the premium. (I realize I’m oversimplifying the calculation of premiums here but stick with me!)
The point I’m trying to make is that the complexity of the experience rating modifier is a problem for two reasons:
a. For the employer, there’s no easy solution to know if the mod is right or wrong. And for many agents and brokers, they can’t figure it out either. So, many modifiers go unchecked for years because so few experts know how to understand the mod and how it’s calculated. We do know, by the way.
b. Due to the complexity, most decision-makers don’t know what claims actually cost them in the form of additional premiums. If they did, and they had a target to reach for (like the minimum modifier) they may make more informed decisions on risk control, insurance company selection, and broker selection process.
#4. Claims Management is difficult
Too many employers (as well as insurance agents) think once you report a worker injury claim to an insurer, that your job is done.
Unfortunately, that’s not true. Doing so is a costly mistake.
Because insurance company claims reps manage SO MANY claims that some claims will “get away” from them. Meaning costs will run out of control, the injured worker may not be getting the services they need to recover, healthcare utilization may exceed norms, and worse, an injured worker may intentionally stay out of work and game the system.
All of these things will inflate the cost of a claim and ultimately the costs you pay for worker’s compensation as your experience rating modifier rises, and your insurer charges more for coverage.
It’s everyone’s job; the agent, the employer, and the insurer to make sure that the injured worker is appropriately cared for and encouraged to recover and get back to work as quickly as feasible. Claims and injured workers that linger in the system too long can result in abuse of the system which only increases everyone’s costs.
That means that the employer, in conjunction with their agent or broker, needs to have a formal process for managing claims. This includes timely reporting, relevant communications with the injured worker, frequent follow up with the claim’s handler, tracking of losses, and benchmarking. In short, every good-sized employer (typically those with 25 or more employees) needs to have a formal claims management system.
Yet, few do.
Because it’s time-consuming and difficult. But as a company grows in headcount this can be a critical differentiator.
We have created effective claims management programs for several of our clients and work with them on a regular basis to make sure claims are being managed properly and effectively.
#5. Distracted Driving Claims are Rising
Right now, insurers in New York and many other states are struggling with the rise of auto claims caused by distracted drivers. These claims are occurring more frequently and often are more severe than “normal” crashes.
When they occur in a business vehicle, or during work-related duties an injured worker does not make a claim on the auto policy for their injuries, and instead files a worker’s compensation claim.
In an article by Concentra a single work-related vehicle accident can result in injury costs of around $150,000 and if there’s a fatality the costs can be as much as $3.6 million. “As medical bills, legal expenses lost productivity, workers’ compensation and insurance premiums add up, employers spend $60 billion annually for motor vehicle crashes!”
The point is that this one area of auto crashes is getting worse and will continue to be a problem for worker’s compensation not only for insurers but also for employers unless certain behaviors are changed. See this post where we discuss the issue in-depth and provide a guide on how to prevent distracted driving.
So there you have it. These are the top 5 problems with worker’s compensation in New York, in our opinion.
The Coyle Group is uniquely qualified to handle large and difficult worker’s compensation accounts. We expertly blend together our in house risk control resources, insurance company resources, and sometimes outside “pay for service” vendors to tackle difficult issues so that an employer can gain greater control over worker injuries, direct costs and indirect costs associated with claims.
For more information, contact me, Gordon Coyle, and let’s have a conversation.