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Virginia Workers Compensation Commission Virginia Employment

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					Minimizing Workers’ Compensation Costs

 Information for Businesses and Business Interests




                                                     1
What we will cover


    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



                                    2
It’s complicated……..


 The Law is complex
 The Insurance line is complex
 There are multiple parties are involved




                                            3
Workers’ Compensation Basics

    This mandatory insurance program arose
     out of the industrial revolution due to
     increase in work injuries
       Workers’ compensation was created as a compromise
           No fault coverage
           Statutory and limited benefits


       Work injuries presented uncertainty
           Worker uncertainty over medical treatment and wage loss
           Employer uncertainty over potential law suit and outcome

    If no work injuries, no need for workers’ compensation.
             The key to minimizing costs is safety

                                                                   4
The Employer

   Employers are keenly aware of the costs of
    workers’ compensation but not the benefits
       Limited liability
           Injured worker is limited to workers’ compensation recovery
           Employer is immune from most law suits for a work injury
           Benefits that are paid out are limited by law



    No worker recovery for non-economic loss such as pain and
                            suffering

                            No punitive damages



                                                                    5
Covered Injuries

   Not all injuries at work are covered
       An injury must arise out of and in the course of
        employment
               “Arises out of” requires the claimant show that the
                conditions of the workplace or some significant exertion
                caused the injury (“actual risk” test)
               “In the course of employment” refers to the time, place
                and circumstances under which the accident occurred
               Virginia law’s on coverage are somewhat narrower than
                compared to other jurisdictions
                  Requiring the “actual risk” test
                  Limited view of “overuse” and ergonomic injuires




                                                                      6
No Fault Coverage

   Basic premise in workers’ compensation
       Either party may be negligent – claim is still covered
               Employer may be negligent in providing negligent working
                conditions, inadequate training, poor or inadequate
                equipment or supervision
                  Claim is still covered

               Injured worker negligence may be the cause of their own
                injury; not following instruction, careless, sleepy, or disregard
                of obvious hazard
                  Claim is still covered




                                                                            7
Claims Can be Denied

   Law provides for denial of certain claims
        The burden of proof is on the party claiming wishing to
         deny the claim (the employer and insurance carrier)
            Willful misconduct
            Intentional self-injury
            Intentional injury to another
            Intoxication
            Use of non-prescribed controlled substance
            Willful breach of employer’s reasonable rules or regulations

        Must prove one of the above was in play and the cause of the injury




                                                                              8
Coverage Basics

   Learn the basics to understand who needs
    coverage and avoid audit premium or fine
       Many employers know coverage is required for 3 or
        more workers…but learn additional factors to consider

       When counting workers be sure to understand the
        broad definitions of “employee” and “employer”

       Contractors or businesses that subcontract out work
        are responsible for the workers’ compensation for their
        subcontractor’ employees



                                                            9
Employee

   “Employee” is broadly defined under
    Virginia workers’ compensation law
        There are few employee exceptions under the law
        “Employee” includes all of the following:
           Corporate officers *
           LLC managers
           Family members
           Minors
           Aliens
           Seasonal workers
           Ministers, Pastors and other church employees

        *Many business owners are unfamiliar with this provision


                                                             10
Employer

   “Employer” under Virginia law is broadly
    defined
        The Statutory Employer law requires that a business
         that hires a subcontractor to perform the same work or
         trade as the business or to fulfill a contract of the
         business is responsible for the workers’ compensation
         liability of the subcontractor’s employees

           Requirement applies even if the subcontractor has coverage


        Many business owners are unfamiliar with this provision




                                                                  11
Coverage Options

    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


                                                          12
Policy Basics

   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


                                                                            13
Experience Modification

   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
           Experience Mod of 1.0 is neutral / average
           Experience Mod of less than 1 is desirable
           Experience Mod of greater than 1 is undesirable
           More information: ABC’s of Experience Rating

        https://www.ncci.com/Documents/abc_Exp_Rating.pdf


                                                                    14
Loss Comparison

   Understand your losses
       Loss total is not the bottom line
           Claim frequency (number of claims) your
            business has matters more than severity
            (expense of claim)
           Ten $10,000 claims count worse in experience rating
            than one $100,000 claim
           Experience rating imposes a cap on losses
           Medical only claims have minor impact - reduced 70% if
            the insurance carrier files them as a “Minor”



            Safer employer will have fewer claims
                                                               15
Classification Code

   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



                                                                         16
Shop Around

   Seek Expertise
       Take time and effort to seek out 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 is complex
           Agent skill can impact policy application, premium
            calculation, credits and audit premium




                                                                   17
Insurance Market

   No shortage of insurance carriers
       Virginia has a hundreds of licensed workers’
        compensation carriers writing policies in the state
           Currently writing coverage at less than they are paying
            out on
           Many carriers provide Schedule Rating, Dividends and
            reductions beyond what appears profitable
           Consider this:
               For each $100 carriers collected in 2010 they paid out $109 in
                losses




                                                                            18
Your Insurance Agent

   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 and in the
            future
           Keep good business records, payroll records and
            subcontractor’s certificates of insurance




                                                                   19
Your Insurance Carrier

   Ask what communication you will have in
    the event of a claim and what resources
    are available to you as a client
       Carrier may offer on-line tools or no involvement
           Does carrier invite employer involvement; 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


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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




                                                            21
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



                                                            22
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




                                                             23
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


           https://www.ewccv.com/cvs/

    roughly 16,000 insurance searches are performed monthly




                                                              24
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


    E-mail: bureauofinsurance@scc.virginia.gov
            BOI Phone: 804-371-9741

                                                 25
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




                                                         26
Safety Rules

    Failure to follow employer’s safety rules or
     procedures or use safety equipment is a
     common reason for claim denial
       However, this often does not hold up at hearing
       Employer and carrier’s burden to demonstrate:
           Safety rule was reasonable
           Rule was known to employee
           Rule was for employee’s benefit
           Employee intentionally undertook forbidden act


    Lesson: Employer must train, monitor and enforce rule


                                                             27
Workplace Review

    Review prior workplace injuries
     Review your Employer Accident Reports
         What is the cause of your workplace injuries?
         Identify patterns; equipment, location, people…
         Are there are recurring hazards?
         Identify any training needs?
         What can you do to make workplace safer?


      Ask employees to report workplace hazards



                                                        28
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




                                                          29
Health and Wellness

   Health and wellness efforts can reduce
    claim costs
       Healthier, more fit employees will recover more
        quickly if injured
       Consider support or reimbursement for:
           Health club membership
           Weight reduction efforts like Weight Watchers
           Smoking cessation


   Cost of claims increases with obesity
       NCCI study demonstrates rise in claim costs with rise
        in BMI
           “Healthy BMI claim costs per 100 workers: $7,500
           Moderately obese claim costs per 100 workers: $23,300


                                                                    30
Other Cost Savers

    Training – especially for new employees
       Younger workers and new workers have a higher
        incidence of injuries so putting extra effort into new
        employee training can reduce injuries

    Avoid Overtime
       Higher incidence of work injuries with overtime
       Extended hours of work leads to overuse injuries


    Preventing injuries is preferable to treating them




                                                             31
    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.




                                                                     32
    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
    1-800- 622-4123 and their website is: https:// www.ncci.com

   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.




                                                                 33
          Laura K. Collins, Esq.
             Insurance Manager
Virginia Workers’ Compensation Commission
              1000 DMV Drive
           Richmond, VA 23220
   Laura.collins@workcomp.virginia.gov
               (804) 482-5304




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