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Workers’ Comp: Cost of Doing Business

Most employers, both large and small, consider workers’ compensation “the cost of doing business.” The vast majority of employers that are not covered under federal regulations such as the Longshore and Harbors Workers Act are 100%-controlled by individual state laws, court systems and dispute resolution procedures. The history dates back to over 100 years ago as the “exclusive remedy” for injuries and illnesses “arising out of, and in, the course of employment.” It was also designed as a “no-fault system.” On paper, it is a simple system to understand. In reality, a simple claim can be a potential landmine and can be lost in a myriad of bureaucratic red tape, attorney involvement and litigation through state court systems.

Although workers’ comp costs are typically viewed as strictly a risk management or safety responsibility, the only way for an employer to truly contain both direct and indirect costs is to take a comprehensive approach and view workers’ comp programs in the context of their overall human resource programs. This requires an integrated, pre-planned, post-injury program design along with clearly defined policies and procedures using tools available under both state workers’ comp laws and federal disability laws. This includes the Americans with Disabilities Act (ADA), Family Medical Leave Act (FMLA), Occupational Safety and Health Administration (OSHA) recordkeeping regulations and other potentially specific federal rules and regulations such as medical exams covered under the Department of Transportation (DOT).

See also: The State of Workers’ Compensation  

Two of the most common cost drivers for employers is late reporting of injuries, known as lag time, and poorly designed return-to-work programs. Although both issues involve the core of workers’ comp cost management, neither is really dictated by state workers’ comp law. In fact, state workers’ comp laws and the treating providers working under those laws can be severely detrimental in efforts to improve prompt reporting and return-to-work programs.

Although workers’ comp benefits and systems are strictly governed by state law, the injury or illness is also covered by several federal laws. One of the biggest paradigm shifts in the workers’ comp industry was the result of the Equal Employment Opportunities Commission (EEOC) ruling in 2014 that the Americans with Disabilities Act (ADA) “applies all the time whenever a medical condition has the potential to significantly disrupt an employee’s work participation.” (See ITL article “Is EEOC an Unlikely Friend on Work Comp,” March 25, 2015)

This EEOC ruling took the workers’ comp industry by surprise. Work-related injuries and illnesses are now clearly governed under federal law under the ADA “as soon as notified,” “all the time” and the process is “continuous.” The EEOC stated the only relevant question is, “whether the disability is now, or is perceived as potentially having an impact on someone’s ability to perform their job, bring home a paycheck and stay employed.” Further, the EEOC stated that the ADA applies, “when a medical condition has the potential to significantly disrupt an employee’s work participation.” What workers’ comp claim does not have the potential to disrupt work participation?

The EEOC went much further and stated that the cause of injury is “irrelevant” and that everyone, treating providers, TPAs and employers, should keep that in mind. Further, the EEOC indicated the employer is 100% responsible for the continuing interactive process regarding potential job accommodations and return-to-work policies under the federal ADA law. The following EEOC comment was the knockout punch: “Physicians and TPAs may be putting employers at risk, even if not properly passed along, and would be especially troublesome if the treating physician was selected by the employer.” This means that under the ADA the employer is 100% responsible for job accommodations for the employee “who can perform the essential functions of their job with a reasonable accommodation.”

A truly integrated disability approach and interactive process is required because all medical-related absences, both occupational and non-occupational, are covered under the ADA. Remember, the injury and return-to-work process are covered under the ADA, but the benefits associated with an occupational injury are still covered 100% under state workers’ comp law. Workers’ comp remains the exclusive remedy for claimant medical and lost-wage benefits but is not the exclusive remedy for an employer to gather relevant information such as accident witness information or medical reports regarding cause of injury, comorbidities and pre-existing conditions that can be extremely relevant in the adjudication of a workers’ comp claim down the road.

Jay Peichel, a principal at Keystone Risk Partners in Media, PA, was intrigued by the various ITL articles on ADA, DOT and OSHA and the federal laws’ relation to the workers’ compensation process and how it may relate to the various barriers that can affect workers’ compensation outcomes such as significant claim reporting lag, limited investigation, poor return to work process and ineffective med-legal determinations. Keystone designed a workers’ comp survey and resultant proprietary scorecard as an assessment tool to quantify how current policies and procedures (including safety rules, accident reporting, supervisor training, medical management, use of provider networks, use of independent medical exams (IMEs) and medical second opinions and return-to-work programs) are integrated to take full advantage of state-specific workers’ comp rules and regulation in coordination with federal disability laws such as the ADA, FMLA, DOT exams, when applicable, and OSHA recordkeeping regulations.

See also: How Should Workers’ Compensation Evolve?  

Keystone saw this tool as a natural fit in their risk mitigation and analytics service platform and also their core platform of captive consulting, captive management and risk placement. Jay Peichel, who specializes in workers’ comp claim analytics and benchmarking for his employer clients, said this new survey was “designed to help isolate hidden cost drivers in HR and workers’ compensation programs. It also provides us the road map to provide recommendations and intervention points not in isolation but rather within an integrated process utilizing best practices in both workers’ comp and disability cost management. Strategically, it links to our analytics platform and our ability to quantify the changes in outcomes and total cost of risk.”

The survey and scorecard are provided for a nominal charge by Keystone Risk Partners. For more information, contact Jay at jpeichel@keystonerisk.com.

Is Change Really Happening So Fast?

Lots of people are saying these days that the insurance industry, after essentially not ever changing, is suddenly moving too fast to follow — for instance, the recent ITL article, “Feeling Like a Keystone Cop.” But in my 37 years in the industry, insurance has evolved continuously.

Insurers have changed from the days where syndicates consisting of individuals provided insurance coverage through the Lloyds market; today, China Re with a majority ownership by China’s ministry of finance, has a syndicate at Lloyds. Today, a large number of insurers are owned by multinational conglomerates.

Other types of evolution include Berkshire Hathaway’s use of insurance premiums as a means of financing its investment interests. Similarly, Fairfax Financial Holdings of Canada uses premiums collected from its insurance companies around the world to finance investment interests.

Financial services groups such as Suncorp Group in Australia now offer insurance through a number of brand names, such as Shannons (classic car insurance), APIA (Australian Pensioners Insurance Agency) and AAMI. Rand Merchant Insurance Holding Group of South Africa offers insurance in Australia under the name of Youi (https://www.youi.com.au).

In addition, some insurance companies, like Progressive, are taking a technology-only approach to offer motor vehicle insurance in Australia without a “brick and mortar” presence. Apart from the option of reporting a claim by phone, all other communications are through email or a web page. With this approach, Progressive in Australia will only attract those who use technology. Here is the link http://www.progressiveonline.com.au/car-insurance.aspx

People talk about Google, Walmart, Amazon and others possibly entering the insurance market — again, this isn’t something new. Brand names have been used by insurers for many decades. Coles, a large supermarket chain in Australia (https://financialservices.coles.com.au/insurance) (similar to a Safeway or Ralphs here in the U.S.), offers various insurance polices to its customers that are underwritten by Insurance Australia Group.

Whether Google, Walmart or Amazon actually decides to underwrite risks, act as channels for insurance or simply provide a means to compare insurer premiums remains to be seen, but, regardless, none of this is new. For example, InsWeb has offered car insurance price comparisons since the mid-1990s. Here is the link: http://www.insweb.com.

One thing that is certain, however, is that the insurance market will continue to be driven by price and service, especially service at the time of a claim. In his 2013 annual report, Warren Buffett made the following comment, “GEICO in 1996 ranked number seven among U.S. auto insurers. Now, GEICO is number two, having recently passed Allstate. The reasons for this amazing growth are simple: low prices and reliable service.”

Over time, risk types change, and insurance coverage follows. Boiler explosion insurance for example, was a major type of insurance through the 1800s and into the mid-1900s. It still exists but is only a very small percentage of the insurance market.

We will see changes to vehicle insurance coverage when driverless vehicles appear on our roads, as mentioned in the recent ITL article titled, “Beginning of the End for Car Insurance.” There are many risk coverage issues for potential exposures with driverless cars. Imagine if a child runs onto the street to retrieve a ball without looking (a common occurrence for those living in the suburbs). With advanced technology built into driverless vehicles, the vehicle would be programmed to make a decision about which action to take in the best interest of all parties (i.e. the child, occupants in the vehicle or nearby vehicles as well as pedestrians): (1) brake but still hit the child or (2) brake and avoid the child but possibly hit another object such as another vehicle or lamppost, injuring the occupants of the vehicles as well as nearby pedestrians.

All this will need to be addressed by laws and road rules when driverless vehicles are introduced, with insurance following on. Premiums and who pays are the least of the insurance complexities involved with driverless vehicles. If a manufacturer is required to obtain insurance coverage or volunteers to obtain insurance coverage, the premium would be factored into the price of the vehicle; otherwise. it would be paid by the owner of the vehicle. Regardless, insurers will receives premiums from one source or the other.

Another evolving insurance coverage relates to a disability occurring from a work-related, motor-vehicle or non-work-related incident. While U.S. jurisdictions ponder whether coverage for a work-related injury or illness should be through a workers’ compensation policy issued by a property/casualty insurer or through the opt-out option (a hot topic in the U.S. at the moment), Europe, Asia and Australia are focusing on what people with a disability can be doing and deciding on how best to achieve this, including funding. In this case, the evolution relates to who will pay the premiums. Will employers continue to pay for work-related injuries, or will individuals buy personal injury coverage to cover their recovery costs, no matter whether associated with a work-related, motor-vehicle or non-work-related incident?

In the evolution of insurance, technology has always played an important role in areas such as deciding which segment of a market companies want to attract, meeting reporting obligations and improving processing efficiencies. In workers’ compensation, a number of U.S. carriers have chosen to outsource many of their claims functions, as I outlined in my last article. Whether this practice continues remains to be seen, but something needs to change in the way the workers’ compensation insurer or its representatives (e.g.. third party payer) handle claims, because clearly what they are doing is not producing the desired outcome for the injured worker or the employer, and no form of state legislature or technology change will address this shortfall.

Products like IBM’s Watson and Saama that are able to use unstructured data in addition to structured data to perform analytics are part of the technology evolution, and there is high probability of success. But we saw something along the same lines during the early 1990s, when all the buzz was about neural networks.

In closing, I don’t feel as if I’m a Keystone Cop when it comes to professional development, either relating to insurance or the technology used now or offered in the future. I also don’t think the major players in the insurance industry (like Berkshire Hathaway, Fairfax, Suncorp and others around the globe) feel they or their personnel are operating like Keystone Cops. If they were, I’m sure their share prices would not be as high as they are.

Feeling Like a Keystone Cop

I’m beginning to feel like a Keystone Cop. You know the one; he’s the guy hanging on the back of the police car for dear life as the car speeds around the corner in hot pursuit of something.

Let me explain: For most of my professional career I have worked in the insurance industry, and I’ve diligently tried to keep hold of my personal steering wheel, directing my career toward what I thought might be the right way forward. Along the way, I’ve tried to keep on top of industry developments, people changes and company news.

But all of a sudden it’s beginning to feel harder. I can confidently say that I don’t think it’s just me. It seems that there’s a lot happening at the moment, and it’s happening more quickly than ever before. I’ve just got my head around advanced analytics; now I need to think about cognitive analytics. When I’ve sorted that one out, I will need to figure out “block chain” — then “sidechain.” By then, well, something else is bound to have come along.

So I’m hanging on like the guy on the back of the Keystone police car. From time to time, I try to convince myself that all of this change is founded on the basic principles of insurance, but I sense that the “rules” of insurance are also being reinvented. Is that a good thing, in an industry that is relatively unchanged for at least three hundred years? Perhaps it’s essential?

The danger – if there is a “danger” – is that we run the risk of technologically driven change with disregard to the basic foundations of the industry. Insurance as we know it now, with all its flaws and frustrations, remains as a critical part of society and commerce because we stand on the shoulders of giants. Technology is the great enabler of change, but should it be allowed to displace or threaten the basic tenets of our business – indemnity, utmost good faith and the rest? If we remove these, don’t we have something completely different than insurance as we know it?

From a professional point of view, change brings additional challenges. We all work hard to keep ourselves updated and, as a result, to remain relevant. But isn’t the speed of change making this harder? Mark Twain once said, “The only people who like change are wet babies.” Some of us are perhaps a little more tolerant of doing things differently — it’s in our personal DNA. If as individuals we are prepared to promote change, then we need as individuals to take our own medicine, whatever the consequences.

Continuous professional development has become more essential than ever before. Our ability to promote change, evangelize and manage change remains dependent on our personal ability to cope, and are critical success factors in our ability to remain professionally relevant.

It may feel uncomfortable hanging on to the back of the proverbial Keystone Cops car — but isn’t it better than being left behind?