1. Workers’ Compensation Basics Disclaimer: These safety materials, resources and PowerPoint ® presentations are not intended to replace your company's health and safety policies or to substitute for specific state and federal standards. We do not guarantee the absolute accuracy of the material contained within these resources. Please refer to applicable state and federal standards for regulatory compliance. 1

2.  Brief history  Purpose  Structure of policy  Premium components  Experience rating  Controlling costs Workers’ Compensation Overview 2

3. History  Spindletop erupted in 1901  Transformed Texas economy  System created in 1913  Employers can opt out 3

4. History  System declared broken in 1987  Texas Workers’ Compensation Act passed in 1989  System revised in 2005  Networks authorized 4

5. Workers’ Comp Today  State-regulated  No-fault  Protects employers, employees 5

6. 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 6

7.  Exposure  Safety program  Loss experience  Experience modifier (E-Mod) Premium Considerations 7

8.  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 8

9. Actual Losses (Anytown Drillers) Expected Losses (all drillers) Basic E-Mod Formula = E-Mod 9

10. Base Premium Class code DescriptionRatePayrollBase premium 6216Drill site prep$8.64$500,000$43,200 ($8.64 x $5,000) 8810Clerical$0.29$250,000$725 (0.29 x $2,500) Base premium = $43,925 ($43,200 + $725) 10

11. CompanyBase Premium E-ModFinal Premium A$43,9251.00$43,925 B.70$30,747 C$43,9252.00$87,850 Impact of E-Mod on Premium 11

12. Identify and control hazards:  Conduct a thorough review  Use job safety analyses  Secure management commitment  Establish employee accountability Reduce Your Costs: Prevent Accidents 12

13. Teach safe behaviors:  Start day 1  Follow up  Take a walk  Stress accountability Reduce Your Costs: Prevent Accidents 13

14. Track trends:  Work toward constant evolution  Watch for problem areas  Remember near misses Reduce Your Costs: Prevent Accidents 14

15. 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 15

16. Direct costs – paid by carrier  Benefits paid to injured worker  Other costs associated with handling and processing claim Reduce Your Costs: Manage Claims 16

17. Reduce Your Costs: Manage Claims Indirect costs – paid by employer  Repairing damaged equipment  Hiring extra help  Lost production  2x direct costs ($2/$1) 17

18. Direct costs Indirect costs 18

19. 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 19

20. 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 20

21. Reduce Your Costs: Return-to-Work What’s in it for employers?  Reduce costs  Maintain production  Promote employee morale 21

22. 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 22

23. Network goals:  Improve care  Focus on return-to-work  Control medical costs Reduce Your Costs: Networks 23

24. Reduce Your Costs: Safety Groups Safety groups offer:  Specialized safety programs  Dividend potential  Premium discounts 24

25. Workers’ compensation basics:  Covers injured workers’ medical expenses  Replaces a portion of lost wages  Protects employers from unlimited liability exposure Workers’ Compensation Recap 25

26. Recap Remember:  Loss experience affects cost  Employers can control costs  Report all accidents 26

27. Questions? Return to table of contents Go to next presentation 27