Beauty Store Business

AUG 2013

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THE NEW MATH For business owners, the most immediate concern is the change in the x-mod. The portion of each claim that will flow into the experience rating formula at its full primary value will increase to $10,000 from the former level of $5,000. (See "Calculating the New X-Mod," page 92.) The reason for the change, says Burton, is the growing mismatch between the cost of claims and the premiums employers pay. "The split point portion of the experience rating formula has not been updated for 20 years, a period during which the average cost of a claim has tripled," explains Burton. "So our actuaries looked at the program and saw it was out of balance." Some industry observers recognize the connection. "The new x-mod calculation is a reflection of medical costs, which have gone up exponentially in recent years," says Daniel C. Free, president and general counsel of Insurance Audit & Inspection (insuranceaudit. com) in Indianapolis. "The NCCI is really just catching up. The new x-mod can be seen as a 'true-up.' " Be that as it may, employers are sitting up and paying attention to the new math. "The x-mod changes are a big deal for employers," says Karl Ahlrichs, benefits consultant for Indianapolis-based insurance broker Gregory & Appel (gregory appel.com). Those employers with historically safe workplaces are going to be better off under the new system. Those with more frequent, higher-level claims will see their x-mods increase. "The impact will vary based on the number and size of claims the employer has had." CARRIERS LEAVING THE MARKET A third factor contributes to premium angst: a dwindling supply of carriers serving the market. "We are seeing a growing number of cases where multiline (auto, property, umbrella, general-liability) carriers are refusing to renew workers comp insurance for an employer whose experience is unfavorable," says Mike Salazar, vice president and manager of client services at Gregory & Appel. The reason for carriers' growing reluctance is clear: "In a low interest-rate environment, carriers cannot make up workers comp losses with profits from property and other insurance products." 90 August 2013 | beautystorebusiness.com "Employers turned down by the multiline outfits must apply to the single-line workers comp insurance carriers," says Salazar. While the premiums at such carriers may not be much higher, there is another problem: Insurance carriers are becoming more judicious in what they underwrite due to the rising costs of the workers compensation system. "Singleline carriers are becoming more prone to accept only employers with strong claimsmanagement and risk-control engineering," he says. Employers with poor histories may have to go to the state pools for coverage. "These are pools you do not want to go swimming in," says Salazar. "They are expensive. They charge standard premiums that are adjusted for the employers' experience, plus a 20% to 25% surcharge. And you do not get the same service. For example, there is no engineer to come in and help you manage your safety program." HIRE SMART Employers can take a number of steps to keep workers comp costs under control. Right out of the gate, say consultants, vetting potential hires can obviate problems down the road. "Change your hiring practices to reflect your drive to get people who value safety," says Ahlrichs. "It's legitimate, for example, to ask safetyrelated questions that are work-related." Also, look at pre-hire assessments that can predict safety behaviors. It is valid to ask applicants to perform the activities required of a position, for example. "This is called a 'fit for duty' assessment," says Salazar. "Can the applicant do the job safely based on its requirements?" Finally, conduct pre-employment drug screens. "That's a good way to avoid hiring people who will file workers comp claims," says Salazar. "People who take drugs are more likely to have accidents, hurting themselves or others." Drug abusers, too, can suffer from poor health. "Employees who are in poor health when they do have accidents usually end up with more expensive claims." Don't, however, fall into the trap of discrimination. It's both improper and illegal to reject older applicants under the belief that they will have more accidents. "Older workers tend to work more safely than younger workers because

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