Minimizing Workers’ Compensation Costs Information for Businesses

 Workers’ compensation basics  Coverage basics  Policy basics Experience modification Classification code  Avoid audit premium  Know your legal duties  Workplace safety  Return to Work  Know your legal duties  Frequently asked questions What we will cover

 Learn the basics to avoid a penalty for failure to insure or a costly audit premium Many employers know coverage is required for 3 or more workers…but there are more factors to consider When counting workers be sure to include:  Family members, minors, aliens and part-time workers  Corporate officers A business that hires a subcontractor to assist in the work of the business is required to have coverage to insure the workers’ comp liability of sub’s employees Coverage Basics

 Consider insurance options Employers have four means of coverage:  Obtain a policy from a carrier licensed in Virginia  Apply to the Commission for approval as an independent self-insurer  Become a member of a group self-insurance association licensed by the SCC; or  Enter into agreement with a Virginia registered PEO Consider which option is of interest and what it costs Coverage Options

 Learn basics for calculating premium Type of work - classification code Payroll  Estimated payroll in each class x rate for that class = total for all classifications = estimated annual manual premium Experience rating (safety) – modifies premium +/-  1.0 is neutral / based on experience prior 3 years Adjustments  Schedule credit rating  Premium credits or discount  Expense constant  Final audited premium Policy Basics

 Employer has greatest control here Experience rating analyzes the employer’s loss data over a period of time, usually 3 years  For renewal 1/12, would use loss experience that occurred for policies effective 1/08–1/09, 1/09–1/10, and 1/10–1/11  Losses are not all viewed equally, cap on claim loss  Larger number of claims generally hurts mod more  Medical only claims have minor impact - reduced 70%  More information: ABC’s of Experience Rating Experience Modification

 Classification of workplace exposure A primary pricing component for a policy  Codes are established by NCCI  Virginia has 640 classification codes  Each code carries a specific rate: A clerical worker (code 8810) has a significantly lower rate than the code for a roofer (code 5545)  Most businesses assigned 1 code, construction multiple  Clerical rate may be $0.40 per $100 of payroll while roofer rate may be $40.00 per $100 of payroll Make sure you are properly classified, not overcharged Classification Code

 Seek Expertise Take time and effort to seek more than one opinion and obtain insurance expertise  Ask business associates for good agent referrals  Agent expertise is variable in workers’ compensation insurance underwriting  Workers’ compensation law is complex  Underwriting workers’ compensation is complex  Agent skill can impact policy application, premium calculation, credits and audit premium Shop Around

 Prepare for your insurance agent Take time to learn workers’ comp fundamentals  Know your policy history, cost and experience mod  If you are a corporate officer – ask about exclusion  Review your class code(s) for accuracy  Ask questions, ask how you can save now, in the future  Keep good records, payroll records, subcontractor certificates of insurance Your Insurance Agent

 Ask what communication you will have in the event of a claim and what resources Carriers offer no involvement to on-line tools  Do they offer on-line tools to view losses?  Request claim settlement / closure where possible Reduces your experience modification  Make sure your carrier reports minor claims as minor  Ask for positive characteristics of your carrier Licensed adjusters Lower caseloads than average Your Insurance Carrier

Officer Exclusion  Form 16A excludes WC coverage: Corporate officers or LLC managers can exclude themselves from coverage Useful in reducing premium Requires a valid insurance policy to exclude from File with the Commission and with insurance carrier Exclusion is in effect unless termination (17A) filed For a very small corporation, if all employees are excluded it can eliminate future need for a policy

Avoid Audit Premium  Audit premium can be costly and unexpected May be more expensive than original policy Keep good business records For a contractor, keep records of subcontractor’s coverage and verify it on VWC website  One cause: statutory employer liability Contractor that hires a sub is responsible for subcontractor’s employees Subcontractor’s certificate may not be valid Contractor is required to cover nevertheless

Know Your Legal Duties  Employer legal obligations Maintain coverage when required by law Report work injuries to your carrier May not deduct cost of coverage from wage Post workers’ compensation poster  Workers’ compensation penalties Civil penalty is $500 - $5000 for each instance of failure to comply

Insurance Coverage Search  Check coverage using the free insurance search tool located on the VWC website Verify coverage of subcontractor that you are in business with NCCI database, current and past data roughly 16,000 insurance searches are performed monthly

Bureau of Insurance  Bureau of Insurance in SCC manages: Audits and audit disputes Policy underwriting Rates and premium adjustment issues Loss Cost Multiplier List Classification codes Insurance credits BOI Phone:

Workplace Safety  Accidents occur but most are preventable Make workplace safety a priority High hazard business should make it higher priority Use free OSHA or insurance worksafe consult services Provide workplace safety training where needed Monitor and enforce safety practices Claims that occur where enforced safety rules were not followed can be denied

Workplace Review  Review prior workplace injuries Review your Employer Accident Reports  Identify patterns; equipment, location, people…  Are there are recurring hazards?  Identify any training needs?  What is the cause of your injuries? Ask employees to report workplace hazards

Return to Work  Create a “Return-to-Work” program Can reduce policy cost and earn premium credit  In the event of work injury, an employee’s return to work sooner reduces claim costs Do not require full duty, without restrictions Offer light duty work for employee with limitations Return to work reduces indemnity pay out Reduced claim costs translates into better experience The longer a worker is out of work the more likely it is they will never return to work

Frequently Asked Questions  I am a contractor and I only hire subcontractors that have their own workers’ compensation insurance. Do I need coverage? Answer: Yes, a contractor that hires one or more subcontractors to assist in the work of the business is responsible for the workers’ compensation liability for its subcontractor’s employees, regardless of whether the subcontractor has coverage.  Isn’t it double coverage for a contractor and a subcontractor to both have coverage? Answer: No. Under Virginia law, statutory employers and employers have different obligations and some subcontractors are not required by law to have coverage.

Frequently Asked Questions  I have tried to obtain insurance coverage with an insurance agent but have not been able to. How do I get coverage in the Assigned Risk market? Answer: The Assigned Risk carrier for Virginia is NCCI (National Council on Compensation Insurance). You can reach NCCI by phone at and their website is:  I heard Virginia has a premium discount for a drug-free workplace program, is this true? Answer: Yes. Under Virginia law, insurance carriers are required to offer a premium discount of up to 5% for an employer that provides and maintains a drug-free workplace program. Each carrier establishes its own criteria for program establishment and maintenance.

Laura K. Collins, Esq. Quality Assurance Manager Virginia Workers’ Compensation Commission 1000 DMV Drive Richmond, VA (804)