Workers’ Compensation Basics

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Brief history

Purpose

Structure of policy

Premium components

Experience rating

Controlling costs

Workers’ Compensation Overview

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History

Spindletop erupted in 1901

Transformed Texas economy

System created in 1913

Employers can opt out

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History

System declared broken in 1987

Texas Workers’ Compensation Act

passed in 1989

System revised in 2005

Networks authorized

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Workers’ Comp Today

State-regulated

No-fault

Protects employers, employees

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Workers’ compensation coverage:

Pays benefits to injured workers

Provides for lifetime benefits if necessary

Employers’ liability coverage:

Protects employers from lawsuits

Gross negligence exception

Policy Structure

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Exposure

Safety program

Loss experience

Experience modifier (E-Mod)

Premium Considerations

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Adjust premium to reflect loss

experience

Reward good experience

Penalize bad experience

Incentive to encourage return-to-work

Incentive to reduce losses

Purpose of E-Mod

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Actual Losses (Anytown Drillers)

Expected Losses (all drillers)

Basic E-Mod Formula

= E-Mod

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Base Premium

Class code

Description Rate Payroll Base premium

6216 Drill site prep $8.64 $500,000 $43,200($8.64 x $5,000)

8810 Clerical $0.29 $250,000 $725 (0.29 x $2,500)

Base premium = $43,925 ($43,200 + $725)

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Company Base

Premium

E-Mod Final

Premium

A $43,925 1.00 $43,925

B $43,925 .70 $30,747

C $43,925 2.00 $87,850

Impact of E-Mod on Premium

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Identify and control hazards:

Conduct a thorough review

Use job safety analyses

Secure management commitment

Establish employee accountability

Reduce Your Costs: Prevent Accidents

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Teach safe behaviors:

Start day 1

Follow up

Take a walk

Stress accountability

Reduce Your Costs: Prevent Accidents

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Track trends:

Work toward constant evolution

Watch for problem areas

Remember near misses

Reduce Your Costs: Prevent Accidents

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Identify and address root causes:

Investigate accidents and near misses

Don’t mistake symptoms for root causes

Remember the goal

Reduce Your Costs: Prevent Accidents

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Direct costs – paid by carrier

Benefits paid to injured workerOther costs associated with

handling and processing claim

Reduce Your Costs: Manage Claims

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Reduce Your Costs: Manage Claims

Indirect costs – paid by employer

Repairing damaged equipment

Hiring extra help

Lost production

2x direct costs ($2/$1)

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Direct costs

Indirect costs

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Reduce Your Costs: Manage Claims

Direct cost $5,000

Indirect cost $10,000 ($2/$1)

Total cost $15,000

At a 4% profit margin, additional sales necessary to cover:

Indirect costs $250,000

Total costs $375,000

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Reduced revenue = reduced operating capital

Delay in equipment updates

Reduction in salaries

Lack of raises

Elimination/reduction in safety incentives

Reduce Your Costs: Manage Claims

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Reduce Your Costs: Return-to-Work

What’s in it for employers?

Reduce costs

Maintain production

Promote employee morale

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Reduce Your Costs: Return-to-Work

What’s in it for injured workers?

Make more money

Recover faster

Steer clear of the disability mindset

Maintain job skills

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Network goals:

Improve care

Focus on return-to-work

Control medical costs

Reduce Your Costs: Networks

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Reduce Your Costs:Safety Groups

Safety groups offer:

Specialized safety programs

Dividend potential

Premium discounts

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Workers’ compensation basics:

Covers injured workers’ medical expenses

Replaces a portion of lost wages

Protects employers from unlimited liability

exposure

Workers’ Compensation Recap

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Recap

Remember:

Loss experience affects cost

Employers can control costs

Report all accidents

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Questions?

Return to table of contentsGo to next presentation

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