Simmonds on Workers Compensation Insurance

Workers’ Compensation Blook

2009-02-10T12:17:00.000-08:00

Everything A Business Owner Needs To Know About Workers' Compensation

This is a Blook - a blog made from a book.

In 2007 I published Simmonds on Workers' Compensation as a reference for business owners who struggle with insurance issues. Sales have been pretty good.

I hope this digital version is also useful. Several advantages: searchable, a more complete index, instantly updatable, accessible... And you can still buy the book!

Your Comments Are Always Welcome

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Hints for Reading Your Insurance Policies

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The mere thought of reading an insurance policy can make your head hurt. Here are some hints to make it less painful.

Start with an Understanding of the Purpose of the Policy

An auto policy is designed to cover vehicle accidents. General liability insurance is purchased to protect the insured from liability arising out of bodily injury, property damage, personal injury, and advertising injury. Directors’ and officers’ insurance indemnifies the key people for errors in judgment and bad decisions. Professional liability is designed to pay for poor advice and doing your work improperly.

Read the Declarations Page

The declarations page is usually the first few pages of the policy. It will have information specific to the policy being reviewed, such as: policy effective and cancellation dates; name of insured; the subject of the insurance policy (list of vehicles, buildings, description of property, etc.); premiums charged; policy form numbers and edition dates.

Review the Definitions

In most insurance policies, words that are defined by the policy are in bold type or are within quotation marks. Find the definition section of the policy and browse the terms.

Read the Insuring Agreement

The insuring agreement is usually the first part of the actual policy wording. It will tell you what is covered by the policy. For property insurance, learn what causes of loss (perils) are insured. For a directors’ and officers’ insurance policy, look at the definition of “wrongful act.”

Review the Exclusions

Exclusions tell you what is not covered by the policy. Most policies start with broad insuring agreements, then whittle away at the coverage with the use of exclusions. Broad exclusions are not necessarily bad. For example, a general liability policy will exclude auto accidents. No problem. That’s why you buy an auto insurance policy.

While reviewing exclusions, look for exceptions to the exclusion. Look for wording like, “This exclusion does not apply to….” For example, the general liability policy excludes watercraft. There is an exception to the exclusion in most policies for watercraft less than 26 feet in length that you do not own.

Review the Endorsements

The endorsements are usually found at the end of the policy. They amend the standard policy language. It is not unusual to have more than ten endorsements to the policy. The title of the endorsement usually gives you a good idea of what is trying to be accomplished with the form. If an endorsement deletes a section of the policy, mark that section in the policy document for future reference.

Review Policy Conditions

The policy conditions will show you the general “rules of the road” for the contract. Issues like cancellation, arbitration, and claims reporting are usually covered in this section.

Read the Policy with a Pencil

I read insurance policies with a pencil in hand. I mark sections and summarize the contents of a particular clause in two or three words. It helps me find sections later and makes sure that I am not wasting time looking at a section that is amended by an exclusion.

Sample Certificate of Insurance Request Procedures

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Note: This procedure is a simple way for you and your agent to work together to obtain for your customer a certificate proving that you have insurance.

(Note: This procedure is suggested for your operations handbook and is worded for such.)

Certificate of Insurance Request Procedures

When requesting a certificate of insurance from our insurance agent please complete the information on the “Request for Certificate of Insurance” form (below). Once the form is complete, please attach the customer’s agreement/contract to the form and return it to the attention of:

Your Insurance Agent’s Name

Your Insurance Agent’s Address

City, State Zip

Attn: Contact Name

Email: Contact@email.com

Fax: (800) xxx-xxxx

Or call our agent at (800) xxx-xxxx.

Here are some examples where a certificate may be required by our customers:

Companies wanting proof in insurance before using our facilities
Companies for whom we are working / subcontracting for
Leased equipment and/or vehicles
Leased buildings and/or space
Airports wanting proof of insurance to allow our vans on airport property
Proof of Workers’ Compensation Insurance
Company picnics, special events, etc.

Request for Certificate of Insurance Form

Location: ____________________________________

Description of property/operation/vehicles/special items, events:

___________________________________________

Should the certificate show any special relationship by the requestor?

Name: ______________________________________

Company: ___________________________________

Address: ____________________________________

Phone: ________________ Fax: _______________

Date Requested: _____________

Requested By: __________________

Send this request with the customers written request to:

Your Insurance Agent’s Name

Your Insurance Agent’s Address

City, State Zip

Attn: Contact Name

Email: Contact@email.com

Fax: (800) xxx-xxxx

Or call our agent at (800) xxx-xxxx.

Certificates of Insurance Subcontractor Requirements

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Note: This procedure is a simple way for you to request certificates of insurance from your customers, subcontractors and independent contractors.

Certificates of Insurance Requirements

-- Note to Employees

Note: All contractors, subcontractors and independent contractors working for us must provide certificates of insurance before starting work. This includes plumbers, painters, landscaping, electricians, roofers, repair people, vendors, cleaning companies, snowplow contractors, and the like.

A certificate of insurance provides us with evidence that an outside contractor, vendor, or customer has the financial backing of an insurance policy to protect us against claims arising out of their negligence. If we are named as an additional insured on a contractor’s liability policy we will also be defended by their insurance policy(s) shown on the certificate.

Certificates of insurance should be obtained whenever we hire a contractor or subcontractor to work on our property or for one of our customers.

To obtain a certificate of insurance provide the contractor or vendor with an Insurance Requirements Form (below), along with instructions to give the form to their insurance agent to handle. Retain a copy of the insurance requirements form in your files to use as a follow-up until receipt of the certificate.

When the certificate is received, review it to be sure it meets our requirements. Our company must be named as an additional insured to provide defense under the insurance policy(s) listed on the certificate.

If the certificate is needed on an on-going basis, follow up on replacement certificates prior to the expiration dates shown on the certificates.

TIPS for reviewing Insurance Certificates when supplied by an outside contractor, vendor or customer:

Our company should be shown as the certificate holder and shown as an additional insured.
Coverage applies only during the policy period shown on the certificate. You must follow up with the contractor or vendor regarding a renewal certificate, if applicable, prior to the expiration date.
Be sure that general liability, automobile liability (when appropriate) and workers compensation coverage’s are included on the certificate. A separate certificate is often supplied for workers’ compensation.
Limits for general and automobile liability should ordinarily be at least $x million. You can specify higher limits if justified by the hazard of the operation. Lower limits should be referred to for approval.
Certificates should be retained on file for 60 months following expiration of the policy or the contract.

Insurance Requirements for Outside Contractors, Vendors, or Customers

_________________ (hereinafter “Contractor”) agrees to indemnify and hold harmless and any and all related or affiliated parties who may have an ownership interest in the property (hereinafter “OEI”) at which Contractor is providing services, harmless for all claims for property damage and/or damage for personal or bodily injury, including death, which may arise from acts by Contractor, its agents or associates, and its subcontractors and their agents and associates. Contractor agrees to maintain adequate insurance, in form and with companies acceptable to us, to insure against the aforesaid, as follows;

Type of Insurance	Minimum Limits
Workers’ Compensation	Statutory Limits
General Liability (including contractual liability, completed operations, and contingent liability for acts of subcontractors)	$x,000,000 each occurrence $x,000,000 aggregate $x,000,000 products/completed operations aggregate
Automobile Liability	$x,000,000
Umbrella Liability Coverage	$x,000,000 each occurrence / aggregate

If excavation work is to be completed, no policy may exclude excavation, collapse, or explosion.

Insurance companies must hold a “Best Rating” of A- or better.

The insurance coverage provided hereunder shall be primary to and non-contributory with any other available insurance of ours. Contractor’s general liability and automobile liability insurance policies shall name us as additional insureds, and shall provide us with a 30-day notice of cancellation. Certificates of Insurance evidencing the above shall be forwarded in advance of any work to:

Contact Name

Your Company Name

Your Address

Your City, State Zip

Your Phone

State Workers Compensation Boards

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Each state regulates their own work comp program.

Here is a list of the state workers' compensation websites.

Insurance and Workers’ Compensation Resources

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Coalition Against Insurance Fraud – www.InsuranceFraud.org

National Council on Compensation Insurance – www.ncci.com

OSHA – www.osha.gov

US Dept. of Labor Workers’ Compensation Benefit Info – www.dol.gov/esa/regs/statutes/owcp/stwclaw/stwclaw.htm

Scott Simmonds’ Website – www.ScottSimmonds.com

Scott’s Insurance Blog – www.InsuranceBuzzer.com

Experience Modification Analysis – www.ModManager.com

State Insurance Departments – www.naic.org/state_web_map.htm

State Workers’ Compensation Regulators – Google Your State

Calculate Your Perfect Mod – www.ModManager.com

Ergonomic Stretching Exercises

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Stretch breaks have proven to be helpful for employees working at repetitive tasks such as piece work, computer work, and other stationary duties.

Have small groups do the stretches together. Ten is a great number. Rotate leaders daily. Consider a break in the morning and a break in the afternoon.

All stretches should be done slowly and without any pain. If an employee experiences any discomfort they should find an alternative stretch.

Arms down – roll shoulders backwards – three times.
Arms down – roll shoulders forward – three times.
Hands on hips – slowly squeeze shoulder blades together – three times.
Right hand resting on left, palms facing toward floor, extend arms down – relax – three times.
Arms out to sides forming a T, slowly turn trunk to the right – repeat to the left – three times.
Reach right hand over left shoulder. Gently pull on right elbow with left hand – repeat to the right – three times.
Arms stretched out in front of you – fingers dangling – slowly flex wrists so fingers point up – three times slowly.
Slowly rotate head – first clockwise, then counterclockwise.
Palms up with thumbs out – stretch arms forward – hold for three seconds – repeat twice.
With one foot forward, shift weight to front foot. Keep trunk upright and back leg straight – flex front knee stretching the back leg – slowly – reverse – three times.

Ergonomic Workstation Standards

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Adapted From OSHA

Working Postures

The workstation is designed or arranged for doing computer tasks so it allows your:

1. Head and neck to be upright, or in-line with the torso (not bent down/back).

2. Head, neck, and trunk to face forward (not twisted).

3. Trunk to be perpendicular to floor (may lean back into backrest but not forward).

4. Shoulders and upper arms to be in-line with the torso, generally about perpendicular to the floor and relaxed (not elevated or stretched forward).

5. Upper arms and elbows to be close to the body (not extended outward).

6. Forearms, wrists, and hands to be straight and in-line (forearm at about 90 degrees to the upper arm).

7. Wrists and hands to be straight (not bent up/down or sideways toward the little finger).

8. Thighs to be parallel to the floor and the lower legs to be perpendicular to floor (thighs may be slightly elevated above knees).

9. Feet rest flat on the floor or are supported by a stable footrest.

Seating

Consider these points when evaluating the chair:

10. Backrest provides support for your lower back (lumbar area).

11. Seat width and depth accommodate the specific user (seat pan not too big/small).

12. Seat front does not press against the back of your knees and lower legs (seat pan not too long).

13. Seat has cushioning and is rounded with a “waterfall” front (no sharp edge).

14. Armrests, if used, support both forearms while you perform computer tasks and they do not interfere with movement.

Keyboard/Input Device

Consider these points when evaluating the keyboard or pointing device. The keyboard/input device is designed or arranged for doing computer tasks so the:

15. Keyboard/input device platform(s) is stable and large enough to hold a keyboard and an input device.

16. Input device (mouse or trackball) is located right next to your keyboard so it can be operated without reaching.

17. Input device is easy to activate and the shape/size fits your hand (not too big/small).

18. Wrists and hands do not rest on sharp or hard edges.

Monitor

Consider these points when evaluating the monitor. The monitor is designed or arranged for computer tasks so the:

19. Top of the screen is at or below eye level so you can read it without bending your head or neck down/back.

20. User with bifocals/trifocals can read the screen without bending the head or neck backward.

21. Monitor distance allows you to read the screen without leaning your head, neck or trunk forward/backward.

22. Monitor position is directly in front of you so you don’t have to twist your head or neck.

23. Glare (for example, from windows, lights) is not reflected on your screen which can cause you to assume an awkward posture to clearly see information on your screen.

24. Thighs have sufficient clearance space between the top of the thighs and your computer table/keyboard platform (thighs are not trapped).

25. Legs and feet have sufficient clearance space under the work surface so you are able to get close enough to the keyboard/input device.

Accessories

Check to see if the:

26. Document holder, if provided, is stable and large enough to hold documents.

27. Document holder, if provided, is placed at about the same height and distance as the monitor screen so there is little head movement, or need to re-focus, when you look from the document to the screen.

28. Wrist/palm rest, if provided, is padded and free of sharp or square edges that push on your wrists.

29. Wrist/palm rest, if provided, allows you to keep your forearms, wrists, and hands straight and in-line when using the keyboard/input device.

30. Telephone can be used with your head upright (not bent) and your shoulders relaxed (not elevated) if you do computer tasks at the same time.

General

31. Workstation and equipment have sufficient adjustability so you are in a safe working posture and can make occasional changes in posture while performing computer tasks.

32. Computer workstation, components and accessories are maintained in serviceable condition and function properly.

33. Computer tasks are organized in a way that allows you to vary tasks with other work activities, or to take micro-breaks or recovery pauses while at the computer workstation.

OSHA Links

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OSHA Website

Compliance Assistance

Laws and Regulations

Sample Safety Policy

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Your safety is the constant concern of this company. Every precaution has been taken to provide a safe workplace. [Name or title of the person in charge of safety] makes regular inspections and holds regular safety meetings. [He or she] also meets with management to plan and implement further improvements in our safety program. Common sense and personal interest in safety are still the greatest guarantees of your safety at work, on the road, and at home. We take your safety seriously. Any willful or habitual violation of safety rules will be considered cause for dismissal. [Your company] is sincerely concerned for the health and well being of each member of the team.

The cooperation of every employee is necessary to make this company a safe place in which to work. Help yourself and others by reporting unsafe conditions or hazards immediately to your supervisor or to a member of the safety committee. Give earnest consideration to the rules of safety presented to you by posters, signs, discussions with your supervisor, posted department rules, and regulations published in the safety booklet. Begin right by always thinking of safety as you perform your job, or as you learn a new one.

Accident Reporting

Any injury at work—no matter how small—must be reported immediately to your supervisor and receive first aid attention. Serious conditions often arise from small injuries if they are not cared for at once. Injured employees requiring medical attention must use the services of <>.

Specific Safety Rules and Guidelines

To ensure your safety, and that of your coworkers, please observe and obey the following rules and guidelines:

Observe and practice the safety procedures established for the job.
In case of sickness or injury, no matter how slight, report at once to your supervisor. In no case should an employee treat his own or someone else’s injuries, or attempt to remove foreign particles from the eye.
In case of injury resulting in possible fracture to legs, back, or neck, or any accident resulting in an unconscious condition, or a severe head injury, the employee is not to be moved until medical attention has been given by authorized personnel.
Do not wear loose clothing or jewelry around machinery. It may catch on moving equipment and cause a serious injury.
Never distract the attention of another employee, as you might cause him or her to be injured. If necessary to get the attention of another employee, wait until it can be done safely.
Where required, you must wear protective equipment, such as goggles, safety glasses, masks, gloves, hair nets, etc.
Safety equipment such as restraints, pull backs, and two-hand devices are designed for your protection. Be sure such equipment is adjusted for you.
Pile materials, skids, bins, boxes, or other equipment so as not to block aisles, exits, fire fighting equipment, electric lighting or power panel, valves, etc.
FIRE DOORS AND AISLES MUST BE KEPT CLEAR.
Keep your work area clean.
Use compressed air only for the job for which it is intended. Do not clean your clothes with it and do not fool with it.
Observe smoking regulations.
Shut down your machine before cleaning, repairing, or leaving.
Tow motors and lift trucks will be operated only by authorized personnel. Walk-type lift trucks will not be ridden and no one but the operator is permitted to ride the tow motors. Do not exceed a speed that is safe for existing conditions.
Running and horseplay are strictly forbidden.
Do not block access to fire extinguishers.
Do not tamper with electric controls or switches.
Do not operate machines or equipment until you have been properly instructed and authorized to do so by your supervisor.
Do not engage in such other practices as may be inconsistent with ordinary and reasonable common sense safety rules.
Report any UNSAFE condition or acts to your supervisor.
HELP TO PREVENT ACCIDENTS.
Use designated passages when moving from one place to another; never take hazardous shortcuts.
Lift properly—use your legs, not your back. For heavier loads, ask for assistance.
Do not adjust, clean, or oil moving machinery.
Keep machine guards in their intended place.
Do not throw objects.
Clean up spilled liquid, oil, or grease immediately.
Wear hard sole shoes and appropriate clothing. Shorts or mini dresses are not permitted.
Place trash and paper in proper containers and not in cans provided for cigarette butts.

Safety Checklist

It’s every employee’s responsibility to be on the lookout for possible hazards. If you spot one of the conditions on the following list—or any other possible hazardous situation—report it to your supervisor immediately.

Slippery floors and walkways

Tripping hazards, such as hose links, piping, etc.

Missing (or inoperative) entrance and exit signs

Inoperable emergency lighting

Poorly lighted stairs

Loose handrails or guard rails

Loose or broken windows

Dangerously piled supplies or equipment

Open or broken windows

Unlocked doors and gates

Electrical equipment left operating

Open doors on electrical panels

Leaks of steam, water, oil, etc.

Blocked aisles

Blocked fire extinguishers, hose sprinkler heads

Blocked fire doors

Evidence of any equipment running hot or overheating

Oily rags

Evidence of smoking in non-smoking areas

Roof leaks

Directional or warning signs not in place

Safety devices not operating properly

Machine guards missing, damaged, or loose

Safety Equipment

Your supervisor will see that you receive the protective clothing and equipment required for your job. Use them as instructed and take care of them. You will be charged for loss or destruction of these articles only when it occurs through negligence.

Safety Shoes

The company will designate which jobs and work areas require safety shoes. Under no circumstances will an employee be permitted to work in sandals or open-toe shoes.

A reliable safety shoe vendor will visit the company periodically. Notices will be posted prior to the visits.

Safety Glasses

The wearing of safety glasses by all shop employees is mandatory. Strict adherence to this policy can significantly reduce the risk of eye injuries.

Seat Belts

All employees must use seat belts and shoulder restraints (if available) whenever they operate a vehicle on company business. The driver is responsible for seeing that all passengers in front and rear seats are buckled up.

Good Housekeeping

Your work location should be kept clean and orderly. Keep machines and other objects (merchandise, boxes, shopping carts, etc.) out of the center of aisles. Clean up spills, drips, and leaks immediately to avoid slips and falls. Place trash in the proper receptacles. Stock shelves carefully so merchandise will not fall over upon customer contact.

NCCI Definition of Drivers

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Code 7380 N/A—AZ, CA, NV

PHRASEOLOGY DRIVERS, CHAUFFEURS AND THEIR HELPERS NOC—COMMERCIAL. Subject to the Standard Exception Manual Rule.

CROSS-REF. Distributing Companies & Drivers—applies to house-to-house delivery of samples, advertising circulars, telephone directories, and similar products when employees are transported to the delivery location in vehicles. If no transportation, assign to governing classes. If no transportation or governing class, payroll shall be assigned to Code 8017; Geophysical Exploration NOC—All Employees & Drivers—core drilling to be separately rated as 6204—Drilling NOC (N/A AK, OK).

State Special: Arkansas—Trucking Grain or Feed Delivery Under Contract—Local Hauling Only & Drivers—the term “Local Hauling” as used in this classification means hauling within a radius of two hundred (200) miles from the point of principal garaging. Includes terminal employees, garage employees, and repairers. The assignment of this classification shall be based on the following criteria:

Massachusetts—Bank and Trust Companies: Armored Car Crews & Drivers—not applicable to contractors who provide such services;

Massachusetts—Concrete—Ready Mix Dealers: Trucks Operated to Supply Construction Work by the Insured Either Carrying Pre-Mixed Concrete or Mixing the Ingredients During Transit—Drivers or Chauffeurs—assign Code 7380 unless in connection with work covered by a classification which includes drivers or chauffeurs as in the case of street or road construction;

Massachusetts—Highway Operations—Toll Roads—By County or Municipal Employees: Receipts Collectors—Traveling;

Massachusetts—Municipal, Township, County or State Employee NOC—Major Governmental Occupations Assigned to Classifications Other Than Code 9410—Library: Bookmobile Drivers;

New Jersey—Automobile Delivery—Driveaway & Drivers;

New Jersey—Charcoal Dealer & Drivers;

New Jersey—Sawdust Dealer & Drivers;

New York—Chauffeurs & Helpers NOC—Commercial—subject to the standard exception manual rule;

New York—Drivers and Helpers NOC—Commercial—subject to the standard exception manual rule;

Oregon—School: Drivers, Chauffeurs and Their Helpers—applies to operation of school buses and, for truck driving schools only, applies to all other activities.

Wisconsin—Ambulance Service Companies: All Employees & Drivers.

SCOPE Code 7380 is applied to commercial drivers, chauffeurs and their helpers provided they are not otherwise classified in the Basic Manual. These employees are common to many businesses and are Standard Exceptions assigned to Code 7380 unless they are specifically included within the phraseology of a basic classification applicable to a risk.

The term “drivers” refers to employees who engage in duties on or in connection with vehicles and includes drivers, chauffeurs, drivers’ helpers, garage employees, stable hands and employees using bicycles in their operations.

Code 7380 is not intended for drivers (chauffeurs) employed by insureds engaged in the business of transporting the public. Please refer to Codes 7370 and 7382 for drivers or chauffeurs employed by insureds that qualify to be classified as ambulances; bus companies; limousine services; taxis and other forms of public vehicular transportation. Chauffeurs contemplated by Code 7380 are drivers who are not employed by a risk classified as a public transportation operation but who may transport people. An example of this would be a bus driver employed by a financial institution to transport its employees between various sites at which the financial institution does business. For classification purposes, this driver is assigned to Code 7380 since he/she is a chauffeur for an insured that is not in the business of providing transportation to the public.

Drivers, chauffeurs and/or their helpers may perform these duties for more than one classification that is applicable to their employer’s operations. Provided the conditions of Basic Manual Rule 2-G (Rule IV-E, 1996 edition) are met, pay earned for these duties may be allocated between each applicable classification for which these employees earn pay. If drivers, chauffeurs and/or their helpers perform these duties for a classification that does not include drivers, pay earned for work performed for that classification is assigned to an appropriate drivers, chauffeurs and helpers classification such as Code 7380. If drivers, chauffeurs and/or their helpers perform these duties for a classification that does include drivers, pay earned for these duties is assigned to such classification.

Outside salespersons who deliver merchandise are assigned to the classification applicable to the particular risk’s drivers even though they also collect or sell. An outside salesperson who may occasionally make a courtesy delivery as an accommodation to a customer is assigned to Code 8742.

An important distinction between Code 7380 and trucking classifications such as Codes 7228 and 7229 is that trucking classifications are generally applicable to the transportation of goods not owned by an insured whereas Code 7380 generally is applicable to the driving of vehicles and/or the transportation of goods owned by an insured.

Code 7380 contemplates school bus drivers employed by school districts that operate their own buses. School bus drivers employed by independent contractors, not school districts, are classified to Code 7382.

Distributing company employees who are transported by vehicle to the area at which they will distribute materials are also included in Code 7380. Examples of materials distributed include samples, advertising circulars and telephone directories.

Additional employees contemplated by Code 7380 are armored car crews employed by banks and trust companies, traveling receipts collectors of highway toll roads, drivers of mobile units in connection with U.S.O. activities performed by participating charitable organizations, mobile food or ice cream vendors and bookmobile drivers.

Code 7380 also is applied to insureds engaged in geophysical exploration provided such operations are not otherwise classified in the manual. Refer to Code 8606 for geophysical explorations using the seismic method. As indicated in this classification’s phraseology, Code 7380 contemplates all employees and drivers of geophysical exploration crews except those employees engaged in core drilling. Core drilling employees are assigned to Code 6204.

The more common methods of geophysical exploration covered by Code 7380 are gravitational, electric and magnetic.

In the gravitational method, delicate pendulums and torsion balances capable of detecting differences in the gravity pull of the earth at various places enable the geologist to tell where oil is likely to be found.

There are two electrical methods, resistivity and inductive. In the resistivity method, measurements are taken on an ohmmeter, which indicates the resistivity of the subsurface. The inductive method is somewhat comparable but instead of determining the resistivity of the subsurface formations, the conductivity is measured, enabling the geologist to determine the character of the subsurface being studied.

The magnetic method is accomplished by means of a highly developed form of magnetic dipping needle with a telescope magnifier. The magnetic attraction exerted by magnetic rocks, formations, etc., causes the needle to deflect from its horizontal plane, thereby enabling a geologist to develop contour maps with lines of equal magnetic attraction.

While most work of this nature is undertaken by specialists, when undertaken by oil companies, their geophysical crews are separate and distinct from other operations of such employers and are subject to separate classification treatment under Code 7380.

The following classification procedure is applicable to Concrete Ready Mix Dealers:

Trucks operated to supply construction work by the insured either carrying premixed concrete or mixing the ingredients during transit.

Trucks operating to supply construction work undertaken by independent contractors either carrying premixed concrete or mixing the ingredients during transit.

Code 7380 is “not otherwise classified” (NOC) classification. This means that Code 7380 shall apply to an insured’s operation(s) only when no other classification more specifically describes the insured’s operation(s) or when a classification applicable to an insured’s operation that includes driving does not contemplate the type of driving being performed. The following is a representative list of operations somewhat related in nature to Code 7380 operations that are not assigned to Code 7380. The term “trucking” below refers to the hauling of non-owned goods.

7370	Ambulance Service Companies & Drivers—All Other Than Garage Employees
7382	Bus Companies & Drivers—All Employees Other Than Garage Employees & Drivers
7228	Trucking Local Hauling Only—All Employees & Drivers
7229	Trucking Long Distance Hauling Only—All Employees & Drivers
7231	Trucking Mail, Parcel or Package Delivery—All Employees & Drivers
7232	Trucking Mail, Parcel or Package Delivery Under Contract With the U.S. Postal Service—All Employees & Drivers
7222	Trucking Oil Field Equipment—All Employees & Drivers
7230	Trucking Parcel or Package Delivery—All Employees & Drivers

In addition to this representative list, one should review sources such as the alphabetical index in this manual to determine whether a classification other than Code 7380 or a classification other than a classification on the above list is applicable to the operation(s) being reviewed for classification purposes.

Refer to Code 7228 classification procedures for dispatchers.

State Addendum

Massachusetts —division of an individual driver’s payroll between Code 7380 and any other classification, whether or not that classification specifically includes drivers, is highly restricted—see MA Manual Rule IV-E. An important distinction between Code 7380 and trucking classifications such as Code 7219 is that trucking classifications are generally applicable to the transportation of goods not owned by an insured, whereas Code 7380 generally is applicable to the driving of vehicles and/or transportation of goods owned by an insured. Refer to Code 7382 for school bus drivers employed by school districts, as well as school bus drivers employed by independent contractors. Trucking Codes 7228, 7229, 7222 and 7232 are not available (N/A MA). Rather, all operations conducted that would otherwise be assigned to these classifications in other jurisdictions are appropriately assigned to a single classification, Code 7219. Refer to Code 7219 for classification procedures for dispatchers.

NCCI Definition of Salespersons

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Code 8742

PHRASEOLOGY SALESPERSONS, COLLECTORS OR MESSENGERS—OUTSIDE. Subject to the Standard Exception manual rule.

CROSS-REF. Claim Adjusters or Special Agents—Insurance Co.; [___]U.S.O. Operations: Travelers Aid Society (N/A MA).

State Special: Alaska, Florida, Indiana, Montana, North Carolina, Oregon, South Carolina, Virginia, Wisconsin—Real Estate Agency—Outside Employees—& Collectors—care, custody and maintenance or construction work to be separately rated;

Arizona, Oregon—Estimators—Code 8742 applies to all types of estimators including but not limited to estimators performing measurements of inspections in crawl spaces, on ladders, or on roofs of structures in order to complete the estimation. It does not apply where the estimator has concurrent construction duties or is engaged in supervision of construction workers at the same site, in which case the appropriate construction classification applies. Also applies to employees making estimates for contractors or others, including but not limited to construction, remodeling, repair, pest control, landscaping or tree removal from residential or commercial property;

California—Bookbinding Operation—Salespersons—Outside;

California—Boy and Girl Scout Councils—Executive Secretaries—Office and Travel;

California—Newspaper Publishing or Newspaper Printing—Reporters, Advertising or Circulation Solicitors;

California—Printing Operation—Salespersons—Outside;

California—Salespersons—outside assignment of this classification is subject to the provisions of the rules for Standard Exceptions;

Massachusetts—Banks and Trust Companies: Special Officers Armed and Unarmed, Ushers, Door Attendants, Appraisers, Field Auditors, Runners or Messengers;

Massachusetts—Boy and Girl Scout Councils: Executive Secretaries—Office and Travel;

Massachusetts—Municipal, Township, County or State Employee NOC—Major Occupations Assigned to Classifications Other Than Code 9410: Industrial Development Commission, Social Workers;

Massachusetts—U.S.O. Activities:

The following classification treatment is to be applied for U.S.O. activities performed by the participating charitable organizations:

Minnesota—Labor Union—All Employees—includes business agents and organizers;

New Jersey—Building and Loan Appraisers;

New Jersey—Investigating Co.—includes theater investigating, shopping service, credit reporting or similar activities and is not applicable to detective or patrol agencies;

New York—Foot Deliveries of Envelopes, Parcels or Packages;

New York—Real Estate Agency—Outside Employees—& Collectors—care, custody and maintenance or construction work to be separately rated;

Oregon—Estimators—Code 8742 applies to all types of estimators including but not limited to estimators performing measurements of inspections in crawl spaces, on ladders, or on roofs of structures in order to complete the estimation. It does not apply where the estimator has concurrent construction duties or is engaged in supervision of construction workers at the same site, in which case the appropriate construction classification applies. Also applies to employees making estimates for contractors or others, including but not limited to construction, remodeling, repair, pest control, landscaping or tree removal from residential or commercial property;

Oregon—Real Estate Appraisal Companies—Outside Employees.

SCOPE Code 8742 is applied to outside salespersons, collectors or messengers. Since these employees are common to many businesses, they are considered to be Standard Exceptions. As such they are classified to Code 8742 unless the classification applicable to their employment includes salespersons. Under the latter circumstance the outside salespersons, collectors or messengers are assigned to the classification which includes salespersons, not Code 8742.

Salespersons, collectors or messengers as defined in Basic Manual Rule 1-B-2-c (Rule IV-B-2-d—Standard Exception Classifications—1996 edition), are employees engaged in such duties away from the employer’s premises. Code 8742 is not available for employees who deliver merchandise. These employees are assigned to the driver’s classification applicable to the risk even though these employees may also collect or sell. If they deliver merchandise by walking or using public transportation, they are assigned to the governing classification. Judgment is necessary in assessing these employees’ duties for classification purposes as occasional courtesy deliveries of a nominal quantity of merchandise would not preclude them from being classified to Code 8742.

Code 8742 includes demonstration of products being sold when performed by salespersons contemplated within the scope of Code 8742. However, the governing classification must be assigned to demonstrating salespersons when these operations are specifically included within the phraseology of a basic classification.

When outside salespersons, collectors or messengers regularly and frequently perform duties at the premises of their employers, their total payroll is assigned to the highest rated classification representing any part of their work. This is in accordance with Basic Manual Rule 2-G (Rule IV-E-2, 1996 edition). Again, judgment is required because outside employees will normally spend some time at the premises of their employers attending sales meetings, telephoning clients for appointments, turning in collections, and making out reports or occasionally performing emergency inside work, all of which are contemplated within the scope of Code 8742.

Other employees or operations assigned by analogy to Code 8742 include bank or trust company employees such as special officers and armed or unarmed attendants, ushers, door attendants, appraisers, field auditors, runners or messengers; cotton classifiers exclusively engaged in inspecting and testing cotton samples at insureds’ sampling rooms or away from the premises; executive secretaries of Boy or Girl Scout councils who work in the office and travel; fund-raising campaign managers or directors who travel; process servers; reporters and photographers employed by newspapers; advertising or circulation solicitors employed by newspaper and magazine publishers; scouts who recruit players for professional sports teams; and U.S.O. activities performed by the Travelers’ Aid Society.

Code 8742 is applied to claim adjusters or special agents of insurance companies. The duties of claim adjusters away from the employer’s premises involve the investigation of claims. The duties of special agents involve the appointment of new agents, closing out the accounts of existing agents or the discussion of other business matters as necessary. Additionally, these claim adjusters or special agents will spend some time at the premises of their employers making out reports and attending meetings. Refer to Code 8720 for the classification of insurance company inspectors. Refer to Code 8803 for the classification of insurance company premium auditors.

Code 8742 is also applicable to outside social case or welfare workers employed by homemaker services classified to Code 8835. Refer to Code 9410 for outside welfare workers employed by political bodies.

Businesses operating as escort services are additionally assigned to Code 8742. These insureds furnish their clients with individuals who accompany the clients as escorts or dates on social outings.

Employees of firms which are in the business of performing meter reading services for entities such as utilities are classified to Code 8742. As evidenced by the individual classification footnote, meter readers employed by utilities are classified to the risk’s governing code. For example, the footnote to Code 7539—Electric Light or Power Co. specifically references that this classification includes meter readers.

Refer to Code 8748 for automobile salespersons.

Extra-Territorial Classification Guidelines (Florida—refer to Florida Basic Manual Rule IX-I—Extraterritorial Rating Procedure):

The following material was developed by NCCI to be used as a guide by auditors and underwriters in the determination of premium for risks with extra-territorial employments where no carrier guidelines have been established for this purpose.

Employees contemplated by the following interpretation include employees who travel from state to state such as executives, salespersons, sales engineers, service representatives, supervisors, and other employees who travel for administrative purposes:

When a portion of the operations of a risk are insured in a monopolistic state fund, consideration must be given to the special rules and requirements that may exist in such cases.

Refer to Code 5403 for extra-territorial classification guidelines for contracting risks.

State Addendum

Massachusetts — salespersons, collectors or messengers are defined in MA Manual Rule IV-B-D, Standard Exception Classifications. Also, see Rule IV-E-2 when salespersons, collectors or messengers regularly and frequently perform duties at the premises of their employer. Refer to Code 7720 for the appropriate classification assigned to process servers; such operations are not assigned to Code 8742. The MA Bureau does not make the determination as to whether an individual salesperson is an employee for workers compensation purposes.

Outside welfare workers employed by political bodies are also assigned to Code 8742. Refer to Code 8720s for employees of firms that are in the business of performing meter reading services for entities such as utilities.

NCCI Definition of Salespersons

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Code 8742

PHRASEOLOGY SALESPERSONS, COLLECTORS OR MESSENGERS—OUTSIDE. Subject to the Standard Exception manual rule.

CROSS-REF. Claim Adjusters or Special Agents—Insurance Co.; [___]U.S.O. Operations: Travelers Aid Society (N/A MA).

California—Bookbinding Operation—Salespersons—Outside;

California—Boy and Girl Scout Councils—Executive Secretaries—Office and Travel;

California—Newspaper Publishing or Newspaper Printing—Reporters, Advertising or Circulation Solicitors;

California—Printing Operation—Salespersons—Outside;

California—Salespersons—outside assignment of this classification is subject to the provisions of the rules for Standard Exceptions;

Massachusetts—Banks and Trust Companies: Special Officers Armed and Unarmed, Ushers, Door Attendants, Appraisers, Field Auditors, Runners or Messengers;

Massachusetts—Boy and Girl Scout Councils: Executive Secretaries—Office and Travel;

Massachusetts—Municipal, Township, County or State Employee NOC—Major Occupations Assigned to Classifications Other Than Code 9410: Industrial Development Commission, Social Workers;

Massachusetts—U.S.O. Activities:

The following classification treatment is to be applied for U.S.O. activities performed by the participating charitable organizations:

Minnesota—Labor Union—All Employees—includes business agents and organizers;

New Jersey—Building and Loan Appraisers;

New Jersey—Investigating Co.—includes theater investigating, shopping service, credit reporting or similar activities and is not applicable to detective or patrol agencies;

New York—Foot Deliveries of Envelopes, Parcels or Packages;

New York—Real Estate Agency—Outside Employees—& Collectors—care, custody and maintenance or construction work to be separately rated;

Oregon—Real Estate Appraisal Companies—Outside Employees.

Businesses operating as escort services are additionally assigned to Code 8742. These insureds furnish their clients with individuals who accompany the clients as escorts or dates on social outings.

Refer to Code 8748 for automobile salespersons.

Extra-Territorial Classification Guidelines (Florida—refer to Florida Basic Manual Rule IX-I—Extraterritorial Rating Procedure):

When a portion of the operations of a risk are insured in a monopolistic state fund, consideration must be given to the special rules and requirements that may exist in such cases.

Refer to Code 5403 for extra-territorial classification guidelines for contracting risks.

State Addendum

NCCI Definition of Clerical

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Code 8810

PHRASEOLOGY CLERICAL OFFICE EMPLOYEES NOC. Subject to the Standard Exception manual rule.

CROSS-REF. Computer System Designers or Programmers: Exclusively Office; Drafting Employees—subject to the Standard Exception manual rule; Public Library or Museum—Professional Employees & Clerical; Racetrack Operation: Horse or Dog: Pari-Mutuel Clerks, Cashiers, and Clerical Office Employees.

State Special: Arkansas—Check Cashing Companies—the basic and major operations of check cashing companies are clerical in nature and assigned to Code 8810—Clerical Office Employees, which is a Standard Exception classification outlined in Basic Manual Rule 1-B-2-a (Rule IV-B-2-a; 1996 edition) therefore, the payroll of all employees that do not qualify as clerical office employees under (a) the definitions of clerical office duties and (b) the definition of a clerical office as described under Rule 1-B-2-a (Rule IV-B-2-a; 1996 edition) shall be separately rated. The following indicates the appropriate assignment for miscellaneous employees of check cashing companies:

7380	Armored Car Operation & Drivers—armored car service risks to be separately rated.
9015	Building Maintenance, Care, or Custody—includes night watch guards.
	Cafeterias or Restaurants—assign the appropriate restaurant classification.
8833	Dispensaries.

Employees of contracting agencies in bank service:

7720	Guards, Patrols, Messengers, or Armored Car Crews & Drivers.
5191	Office Machine Repair.
8742	Special Officers and Armed and Unarmed Attendants, Ushers, Door Attendants, Appraisers, Field Auditors, Runners, or Messengers—subject to the Standard Exception Manual Rule.

California—Libraries—Public—Librarians or Professional Assistants—Including Clerical Office Employees;

Massachusetts—Boy and Girl Scout Councils: Clerical Office Employees;

Massachusetts—Bus Terminal—Ticket Sellers;

Massachusetts—Highway Operations—Toll Roads—By County or Municipal Employees Whose Duties Are Confined to Keeping the Books or Records of the Insured, and Having No Other Duty of Any Nature in or About the Employers Premises;

Massachusetts—Labor Union: Clerical Office Employees;

Massachusetts—Municipal, Township, County or State Employee NOC—Major Occupations Assigned to Classifications Other Than Code 9410: Accountant, Accounting Clerk, Auditor: Office, Board of Commissioners, Chairman of Board of Commissioners, City Clerk, Clerk of Courts, Court Recorder, Judge, Justice of the Peace, Library: Librarians and Clerical, Mayor & Commissioners, Moderator, Personnel Board Planning Board—Officer, Purchasing Board, Register of Deeds, Secretary, Tax Collector, Veterans Service Officer;

New Jersey—Bank or Trust Company—Clerical—special officers, uniformed attendants, ushers, doormen or employees engaged in care, custody and maintenance to be separately rated as Code 9015—Building NOC. Runners or messengers to be separately rated as Code 8742—Salesperson. Armored car crews or chauffeurs to be separately rated as Code 7380—Drivers, Chauffeurs and Their Helpers;

New Jersey—Draftsmen—subject to the Standard Exceptions Manual rule;

New Jersey—Store—Stamp Dealer—& Clerical;

New York—Computer System Designers or Programmers—subject to the Standard Exception Manual rule;

New York—Counseling—Social Work: Inside Work Only;

New York—Telephone Sales—Exclusively;

Oregon—Clerical Office Employees—exception to Rule 2-G (Rule IV-E-2, 1996 edition) does not apply in Oregon. See Oregon Special Rule for Code 8810, Rule 1-B-2 (Rule IV-B-2, 1996 edition);

Oregon—Clerical Telecommuter Employees—exception to Rule 2-G (Rule IV-E-2, 1996 edition) does not apply in Oregon;

Oregon—Computer Software Manufacture: No Video Production—applies to those firms developing and producing computer software. Firms producing software where the production includes video production are to be classified under Code 7610;

Oregon—Telephone Answering Service.

SCOPE Code 8810 is applied to clerical office employees provided they are not otherwise classified in the Basic Manual. Clerical employees who engage in telecommuting activities may qualify for Code 8871—Clerical Telecommuter Employees. Refer to Code 8871’s scope for conditions under which a telecommuting employee’s pay should be assigned to this code.

Code 8810 employees are common to so many businesses that they are considered to be Standard Exceptions unless they are specifically included within the phraseology of a basic classification. The duties of a clerical office employee include creation or maintenance of financial or other employer records, handling correspondence, computer composition, technical drafting, and telephone duties, including sales by phone. The clerical office classification continues to apply to a qualified clerical office employee who performs a duty outside of a qualified clerical office area when that duty does not involve direct supervision or physical labor and is directly related to that employee’s duties in the office. These duties do not exclude the depositing of funds at the bank, purchase of office supplies, and pickup or delivery of mail, provided they are incidental and directly related to that employee’s duties in the office. However, for purposes of this rule, the definition of clerical duties excludes outside sales or outside representatives; any work exposed to the operative hazards of the business; and any work, such as a stock or tally clerk, which is necessary, incidental or related to any operations of the business other than a clerical office.

A clerical office is a work area separated and distinguishable from all other work areas and hazards of the employer by floors, walls, partitions, counters or other physical barriers.

A clerical office excludes work or service areas and areas where inventory is located, products are displayed for sale, or to which the purchaser customarily brings the product from another area for payment.

If the principal business of an insured is a clerical operation (such as a bank or insurance company), the operations of all employees not included in the definition of clerical shall be assigned to the separate basic classification that most closely describes their work. Examples of this procedure are the assignment of bank guards to a classification other than Code 8810 and the assignment of computer repair technicians to an appropriate computer repair classification.

Certain Internet service providers may also have their principal business described by a clerical classification. Under these circumstances, these Internet service providers are classified in the same manner as banks and insurance companies described above. These risks usually offer electronic mail services and access to World Wide Web sites, Internet chat rooms and Internet news groups.

Other employments or operations assigned by analogy to Code 8810 include bank tellers; telephone answering services; designers, proofreaders and editors of newspaper publishers or magazine printers; employees engaged in computerized photographic composition or automated platemaking, which is used in the graphic arts industry as well as specialists engaged in such operations; drafting personnel of consulting engineering firms; clubs employing only clerical employees; horse and dog racetrack pari-mutuel clerks and cashiers; bus terminal ticket sellers; airline or helicopter ticket sellers and information clerks away from airport or heliport locations; and employees of highway toll roads confined to keeping books and records.

Check cashing businesses are assigned to Code 8810 provided that services offered by these operations are limited exclusively to check cashing and other financial services such as but not limited to the sale of money orders and lottery tickets, the making of loans, the sale of postage stamps, and the collection of bills due from utility customers. In the event check cashing businesses engage in the sale of any non-financial services such as but not limited to the sale of food, beverages or tobacco or the sale of services such as copying or faxing documents, the check cashing store is assigned in its entirety to the appropriate store code. Refer to Basic Manual procedures for classifications of banks to determine how support personnel such as guards and couriers employed by check cashing operations assigned to Code 8810 are classified.

Code 8810 is applicable to air traffic controllers and traveling auditing, accounting or other type clerical employees of business concerns such as manufacturers, chain stores, restaurants, hotels, gasoline stations, etc., who perform clerical duties at their temporary location. These traveling clerical employees, sometimes referred to as “internal auditors,” may travel to various branches and remain at these branches for a period of several days or weeks, auditing or monitoring procedures at these locations. These employees are not contemplated within the scope of Code 8803—Accountants—Traveling and are assigned to Code 8810. These employees are not classified to Code 8803 as their employers are not in the business of providing auditing or accounting services for others.

Artists whose duties are limited to creating original pictures or designs or preparing copy for reproduction, using pen, pencil, crayon or brush exclusively, and whose work is carried on in such a manner that they are not exposed to any operative hazard of the business, are classified as Code 8810—Draftsmen. For classification purposes, the following are not considered to be artists classified to Code 8810 even though such persons may be designated as artists in their various occupations. Such employees shall be assigned to the classification to which their work is incidental. These employees include: trade artists such as litho artists, engravers, photoengravers, retouchers, finishing artists or sign painters; employees who drape material or make or assemble models, miniatures, samples or patterns; employees who are engaged in any way in plant production or in reproducing designs prepared by others; or employees who are exposed to any of the operative hazards of the business.

In instances where clerical or drafting employees engage in any other duties, the total payroll of such employees would be assigned to the highest rated classification representing any part of their work. This is in accordance with Rule 2-G (Rule IV-E-2. 1996 edition).

As evidenced by this classification’s cross-reference phraseology, professional employees of public libraries or museums operated by any municipality, i.e., village, town, county, city or state, are assigned by analogy to Code 8810. Besides the inclusion of clerical employees of public libraries, this classification contemplates library professionals such as administrators, librarians, their assistants and page persons. In instances where employees of public libraries operate mobile library units, the drivers are assigned to Code 7380. Librarians who travel in their private automobiles from their homes to mobile library locations where they perform their normal duties are properly assigned to Code 8810 as they are performing the same duties as performed at central or branch public libraries. Besides the inclusion of clerical employees of public museums, this classification contemplates museum professionals such as administrators, curators, their assistants, librarians, tour directors and lecturers, who may at times conduct classes for public education. Museum professionals who engage in the preparation of various types of exhibits and the restoration of art works are additionally assigned to Code 8810.

It should be noted that even though the above references refer to public libraries and museums, private libraries and museums are classified by analogy in a manner similar to public libraries and museums.

Refer to Code 9101 for the classification of all other than professional or clerical employees of libraries and museums.

Certain Code 8810 operations are designated as “not otherwise classified” (NOC). These NOC operations shall apply to an insured only when no other classification more specifically describes the insured’s operations. The following is a representative list of classifications somewhat related in nature to Code 8810 operations that are not assigned to Code 8810:

8803	Auditors, Accountant or Factory Cost or Office Systematizer—Traveling
8820	Attorney
8861	Charitable or Welfare Organization—Professional Employees and Clerical
8871	Clerical Telecommuter Employees
8814	Federal Employer’s Liability Act: Clerical Office Employees
8800	Mailing or Addressing Co. & Clerical
8901	Telephone or Telegraph Co.: Office or Exchange Employees & Clerical

In addition to this representative list, one should review sources such as the alphabetical index in this manual to determine whether a classification other than Code 8810 or a classification other than one on the above list is applicable to the operations being reviewed for classification purposes.

State Addendum

Massachusetts —Code 8810 is applied to clerical office employees and clerical employees who engage in telecommuting activities provided these employees are not otherwise classified in the MA Manual. Codes 8861 and 8871 are not available (N/A MA).

Refer to MA Manual procedures for classifications of banks to determine how support personnel such as guards and couriers employed by check cashing operations assigned to Code 8810 are classified.

What is Remuneration?

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The following is the definition of “remuneration” (payroll) used by workers’ compensation insurance companies. This is an excerpt from the National Council on Compensation Insurance’s Basic Manual on Workers’ Compensation.

REMUNERATION INCLUDES:

a. Wages or salaries including retroactive wages or salaries;

b. Total cash received by employees for commissions and draws against commissions;

c. Bonuses including stock bonus plans;

d. Extra pay for overtime work except (additions to the hourly rate);

e. Pay for holidays, vacations, or periods of sickness;

f. Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans, such as the Federal Social Security Act;

g. Payment to employees on any basis other than time worked, such as piecework, profit sharing, or incentive plans;

h. Payment or allowance for hand tools or power tools used by hand provided by employees either directly or through a third party and used in their work or operations for the insured;

i. The rental value of an apartment or a house provided for an employee based on comparable accommodations;

j. The value of lodging, other than an apartment or house, received by employees as part of their pay, to the extent shown in the insured organization’s records;

k. The value of meals received by employees as part of their pay to the extent shown in the insured organization’s records;

l. The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay (refer to Exclusions below for certain fringe benefits [substitutes for money] not considered to be remuneration);

m. Payments for salary reduction, employee savings plans, retirement, or cafeteria plans (IRC 125) that are made through employee-authorized salary reduction from the employee’s gross pay;

n. Davis-Bacon wages or wages from a similar prevailing wage law;

o. Annuity plans;

p. Expense reimbursements to employees to the extent that an employer’s records do not substantiate that the expense was incurred as a valid business expense;

Note: When it can be verified that the employee was away from home overnight on the business of the employer, but the employer did not maintain verifiable receipts for incurred expenses, a reasonable expense allowance, limited to a maximum of $30 for each such day, will be permitted.

q. Payment for filming of commercials excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in print or is broadcast.

REMUNERATION DOES NOT INCLUDE

a. Tips and other gratuities received by employees;

b. Payments by an employer:

(1) to group insurance or group pension plans for employees, other than payments covered by Rule V-B.2.f. and Rule V-B.2.m; and

(2) into third-party pension trusts for the Davis-Bacon Act or a similar prevailing wage law, provided the pension trust is qualified under IRC Sections 401(a) and 501(a);

c. The value of special rewards for individual invention or discovery;

d. Dismissal or severance payments except for time worked or accrued vacation;

e. Payments for active military duty;

f. Employee discounts on goods purchased from the employee’s employer;

g. Expense reimbursements to employees to the extent that an employer’s records substantiate that the expense was incurred as a valid business expense;

Note: Reimbursed expenses and flat expense allowances, except for hand or power tools, paid to employees may be excluded from the audit, provided that all three of the following conditions are met:

(1) The reimbursed expenses or expenses for which allowances were paid were incurred upon the business of the employer, and

(2) the amount of each employee’s expense payments or allowances is shown separately in the records of the employer, and

(3) the amount of each expense reimbursement or allowance payment approximates the actual expenses incurred by the employee in the conduct of his or her work.

h. Supper money for late work;

i. Work uniform allowances;

j. Sick pay paid to an employee by a third party such as an insured’s group insurance carrier that is paying disability income benefits to a disabled employee;

k. Employer-provided perquisites (perks) such as:

(1) Use of an automobile;

(2) An airplane flight;

(3) An incentive vacation (e.g., contest winner);

(4) A discount on property or services;

(5) Club memberships;

(6) Tickets to entertainment events.

l. Employer contributions to salary reduction, employee savings plans, retirement, or cafeteria plans (IRC 125)—Contributions made by the employer, at the employer’s expense, that are determined by the amount contributed by the employee.

Workers’ Compensation Glossary

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Actual Excess Losses From the experience modification calculation. The amount of losses that exceed $5,000. A measure of loss severity.

Actual Primary Losses From the experience modification calculation. The first $5,000 of a loss. A measure of loss frequency.

Agent A legal representative of an insurance company. Role in the insurance transaction is to sell and service insurance. May be an employee. See also Independent Agent, Direct Writer and Captive Agent.

Agent of Record See Broker of Record

ARAP Assigned Risk Adjustment Program

Assigned Risk Adjustment Program Used in some NCCI states as a debit factor for risks with an experience modification over 1.00.

Assigned Risk Plan AKA Pool. This is a risk sharing mechanism set up by states to provide insurance for employers where no standard insurance company is interested. The problem may be with the risk (poor loss experience) or with the state’s workers’ compensation system (the state insurance has set up a system where insurers feel that they cannot make money.)

Audit Worksheet The document prepared by the auditor that outlines the payroll of your company. In many cases the worksheet will show the remuneration of each employee and the classification assigned to that individual. The information on the worksheet is what is used to calculate the final premium

Audited Premium The final premium based upon the audited, actual payrolls.

Auditor See Premium Auditor

Average Weekly Wage A wage figure used to determine the payout in lost wages to an employee injured in a workers’ compensation loss.

Ballast Value From the experience modification calculation. From a table of values published by individual states. The value increases with the size of the company as measured by expected losses.

BOR See Broker of Record

Broker An insurance professional who represents the insured in the insurance transaction. Sometimes used incorrectly as a synonym for agent.

Broker Of Record Letter A form letter used to indicate to an insurance company a policyholder’s preference as to which insurance agent will have exclusive rights to the insured. Excludes all other agents/brokers from accessing the insurance company in question for that policyholder.

Captive Agent An insurance agent who represents a single insurer or a single group of insurers. Captive agents may have to give their represented insurers first right of refusal or may be barred from accessing other insurers altogether.

Carrier The insurance company.

Casualty Insurance Classification of insurance dealing with losses caused by issues of liability through bodily injury, personal injury, wrongful acts or property damage. Includes:

--Auto Insurance

--General Liability

--Workers’ Compensation

--Professional Liability

--Director’s and Officer’s Liability

--Fiduciary Liability

Many casualty insurers also write surety business.

Classification See Employment Classification

Closed Claim A claim that has been resolved. No further payments or treatments are expected.

CNP Closed No Payment. Used on loss runs and claim reports to indicate that no payment was made on a claim and the file has been closed.

Commercial Lines Insurance A broad category of insurance indicating insurance for businesses, professionals and commercial establishments.

Compromise and Release Agreement Claim settlement that includes a payment (usually a lump sum) in exchange for a release of the employer from any future liabilities.

Controllable Mod The part of the experience modification that is controlled by the losses of an employer. It is the difference between the current experience modification and the minimum modification.

Coverage The scope of protection of an insurance policy. Used as a synonym for insurance.

D-Ratio Discount Ratio. From the experience modification calculation. Indicates the percentage of expected losses that are considered primary. Considers issues of severity of loss rather than frequency.

Deductible The part of a claim paid for by the insured. Can be for the entire claim, medical payments only or for indemnity claims.

Direct Writer An insurance company that does not work through independent insurance agents. Agents for direct writers are usually employees of the insurance company or in exclusive relationships with the insurance carrier. Liberty Mutual, State Farm and Allstate are direct writers.

Dividend A return of premium given after a policy has expired based on loss experience of the insured or of a group of insureds. Low losses results in higher dividends. Under most state laws insurers cannot guarantee dividends.

Domestic See Residence Employee

Domestic Insurer An insurer domiciled in a state in which the insured’s insurance is written.

Earned Premium Premium used in an insurance policy. In workers’ compensation, premium is earned as the employer incurs payroll expense.

Employers’ Liability The second part of workers’ compensation insurance policies. Provides protection from liabilities that arise out of the employment relationship but are not covered by workers’ compensation. For example, a spouse of an employee who becomes ill because of chemical residues brought home on employee’s clothing.

Employment Classification The job code or description used to categorize employees and exposures.

ERM-14 A form used to determine the ownership of related companies for the purpose of blending an experience modification so two or more insurance companies share a mod.

Estimated Premium Premiums determined at the beginning of a policy period based upon estimated payrolls. The insured pays for the policy based upon the estimated premiums then the audit determines the final premium

Excess Loss Premium Factor A part of retrospective rating programs. A factor to compensate the insurer for limiting the effects of losses over a certain amount, $50,000 for example.

Excess Losses Part of the experience modification calculation. The amount of a loss that exceeds $5,000. See also Primary Losses.

Exclusive Agent See Captive Agent

Experience Modification Factor A premium adjustment factor based upon the losses of a risk compared to losses of similar organizations. A ratio of expected losses to actual losses. Calculated by rating bureaus such as NCCI.

Experience Period Policy and claim periods used in the experience modification. Usually the oldest three of the past four years.

2008 mod is based on the claims and payrolls for policy years 2006, 2005 and 2004.

Exposure A vulnerability to loss.

Exposure Basis A unit of measuring exposure. In workers’ compensation the exposure basis is remuneration. In the case of some rates for domestic help the unit may be per employee.

Federal Employees Compensation Act Workers’ compensation act for federal civilian government employees. Overseen by the US government. Does not involve private insurers or state funds.

Federal Employers Liability Act (FELA) Applies to railway workers who are exempt from workers’ compensation statues. Cases decided on the basis of employers’ liability.

Fellow Servant Rule Archaic term used as a common law defense for employers prior to workers’ compensation laws. Held that employer was not liable for injuries to an employee if the injury was caused by a fellow employee.

Foreign Insurer An insurer domiciled in a state other than the one in which the insured’s insurance is written.

Form The contract of insurance that outlines terms and conditions of protection.

Governing Classification The employment class with the highest remuneration on a policy except for standard exception classifications.

Group Self Insurance Many employers banding together to insure their operations based on a pooling of exposures and risks. They become an insurer. Groups can be homogeneous (a plumbers’ workers’ compensation group) or heterogeneous (a plumber, a lumber yard and a manufacturer band together).

Guaranteed Cost A workers’ compensation program that is not subject to adjustments in premiums based on losses. Guarantee cost programs do include audits, and premiums are adjusted based on changes to remuneration

Hazard A situation that presents a chance of loss or an increase in the severity of a potential loss.

Incurred Losses The total of amounts paid and amounts reserved.

Indemnity Lost time payments. As opposed to medical bills.

Injury Code From the experience modification worksheet. Indicates the type of loss.

Code 1 = Death

Code 2 = Permanent total disability

Code 5 = Temporary total or temporary partial disability

Code 6 = Medical only

Code 7 = Contract medical or hospital allowance

Code 9 = Permanent partial disability

The impact of medical only claims is reduced by 30% in many states.

Insurance Adjuster The person who manages the claim process for the insurance company. May be an employee of the insurer or a contractor hired by the insurer.

Interstate Rating An experience modification that includes payroll and loss information from more than one state. Several states do not participate in interstate rating plans.

Jones Act Federal law that makes ship crews eligible for federal workers’ compensation.

Longshoremen’s and Harbor Workers’ Act See United States Longshoremen & Harbor Workers’ Act

Loss An accident or event that causes damage, injury, or illness.

Loss Adjustment Expenses Monies spent to investigate and settle losses.

Loss Control Practices and procedures used to minimize the severity of a loss. Also used to describe loss prevention activities.

Loss Prevention Practices and procedures used to keep accidents from happening. Prevents frequency of loss. Also used to describe loss control activities.

Loss Ratio Incurred losses (and loss adjustment expenses) divided by net premiums earned. Measures profitability. A measure of losses compared to premiums.

Loss Reserves Estimated amounts for future payments of medical and wage payments for a specific claim.

Loss Run A record of losses for a policy period.

Lost Wages Amounts paid for wages lost by an employee due to a workers’ compensation claim.

Manual Premium Calculated by multiplying payroll by rate before applying any modification factors, schedule credits or debits.

Maximum Retrospective Premium See Retrospective Rating

Medical-Only Claims Claims where there are no lost time/wages.

Merit Rating A credit applied in some states for accounts too small for an experience modification (under $4,500 in most cases) to adjust for a good or bad individual loss record.

Minimum Retrospective Premium See Retrospective Rating

Mod See Experience Modification

Modified Premium The workers’ compensation premium after the application of the experience modification but before other credits/debits are applied.

Monopolistic A state workers’ compensation system where no private insurers are allowed to compete for business.

Mutual Insurance Companies An insurance company owned by policyholders as opposed to stockholders.

National Association of Insurance Commissioners (NAIC) Association of state insurance regulators who administer state insurance rules and laws. NCCI promotes uniformity in regulation throughout the country.

NCCI The National Council on Compensation Insurance is the organization responsible in most states for administering classifications, experience modification factors, and collecting data used in ratemaking. NCCI is not connected with any state government. It is a rate and rulemaking organization funded by insurance companies that use their services. They report information to states and are certainly regulated by state insurance departments. It is not, however, a government run organization. It does act like one sometimes though.

Net Premium Premiums after all fees, charges and credits.

NOC See Not Otherwise Classified

Not Otherwise Classified A term used in the SCOPES classification manual and other rule books to indicate employment classifications that are not included in other class descriptions.

Occupational Disease An illness or disease arising out of a work hazard or condition.

Occupational Hazard A condition in a job or work environment that increases the peril of accident, sickness, or death.

OD Occupational Disease

Other States The section of the policy that describes how coverage will apply outside of the states listed in the classification page of your policy.

Partial Disability Impairment of a part of the body. May be permanent or temporary.

Payroll Audit An examination of employer records to determine final remuneration in individual employment classifications for the purpose of determining policy premium. Performed by an auditor.

Perfect Mod The experience modification you would have if you had no losses.

Permanent Partial Disability Partial impairment of a part of the body that is not reversible and will not heal. Amputation of a finger for example. May not impair work capacity for certain occupations. May remove an employee from the current occupation.

Permanent Total Disability Total loss of work capacity that is not reversible or will not heal.

Personal Lines Insurance coverage in property and casualty insurance for families and households. Personal auto coverage and homeowner’s insurance for example.

Pool See Assigned Risk Plan

Premium The price of insurance for a specified risk for a specified period of time.

Premium Auditor An individual who performs the audit of remuneration at the end of a policy period. May be an employee of the insurance company or a contractor hired by the insurance company.

Premium Discount A premium credit based on the size of the premium paid.

Primary Losses Part of the experience modification calculation. The first $5,000 of any loss. See also Excess Losses.

Rating Bureau An organization that compiles statistical and rate making information to determine premiums. See NCCI. Non-NCCI states have their own rating bureaus. See the Appendix of this document for a listing of NCCI states and the regulatory agencies for workers’ compensation in each state.

Rehabilitation Benefits Benefits payable to return an injured worker to work after a work related injury or illness.

Reinsurance Insurance purchased by insurance companies to provide a risk transfer mechanism. Also used by self insurers and self insured groups.

Remuneration Payroll and other compensation paid to employees. Used to calculate premiums. See the Appendix of this document for the full definition.

Renewal The reestablishment of an insurance policy after the expiration of a prior term of coverage.

Reserve Amount expected to be paid on a claim that is not resolved or closed.

Residence Employee A person who performs full- or part-time household services.

Residual Market See Assigned Risk Plan

Retention A risk held by the insured. Sometimes used as a synonym for deductible.

Retention Plan A loss-sensitive insurance plan that adjusts the premium up or down based on losses and associated costs.

Retrospective Rating A loss-sensitive workers’ compensation insurance program where adjustments are made to premiums after policy expiration. Adjustments can go up or down subject to premium minimums and maximums.

Risk Management The process of addressing in a systematic way the hazards and exposures of an organization. Risks can be avoided, reduced, transferred and retained.

Insurance transfers the risk (or a part of it) to an insurance company.

Schedule Credit/Debit Premium adjustment factors applied at the discretion of insurance company underwriters based upon individual characteristics of the risk. Issues such as managed care, quality of management, loss control efforts and insurance company appetite are included.

Scopes Manual A publication of NCCI that outlines the definitions of the 600 plus employment classifications.

Second Injury Fund A mechanism set up by states to minimize the impact of re-injuries. The theory is that employers will be reluctant to hire previously injured workers without such a system.

Sometimes funded by surcharges on insurers for death claims where there are low medical bills.

Self Insurance Retention of the risk usually in a formal, calculated way. In workers’ compensation, state regulations impose financial and administrative qualifications.

Short Rate Penalty A penalty assessed when an insurance policy is cancelled by the insured in the middle of a policy period. Workers’ compensation short rate penalties are high in the early months and gradually decline through the policy period. Short rate penalties in other property and casualty policies are usually 10% of the unearned premium

Sliding Scale Dividend A dividend plan that varies the size of the dividend payment based on the loss ratio of the insured.

Sole Remedy Workers’ compensation is said to be the sole remedy for an employee’s workplace injuries. In most states employees may not seek payment from employers outside of workers’ compensation for an employer’s negligence or liability for an injury.

Standard Exception Classifications Employment classifications that are allowed on most policies in addition to the primary business classes.

Clerical, Sales and Driver are common standard exceptions.

Standard Premium Premium after application of the experience modifier and schedule credits or debits, but before premium discount.

State Fund A workers’ compensation system run by a state. May be competitive with private insurers or monopolistic. Also synonymous with assigned risk fund or pool.

Statewide Average Weekly Wage (SAWW) See Average Weekly Wage

Subrogation The procedure under which an insurance company recoups losses paid from the insurer of the negligent or responsible party. A workers’ compensation insurer may, for example, subrogate against the auto insurer of the driver who caused an accident in which an employee was injured.

Tax Factor (or Tax Multiplier) A factor applied in retrospective rating for state premium taxes.

Temporary Partial Disability A condition where an injured worker’s capacity is impaired for a time, but he is able to continue working at reduced capacity. Full recovery is expected.

Temporary Total Disability A condition where an injured worker is unable to work at all while he is recovering from injury. Full recovery is expected.

Underwriter The individual who performs underwriting for an insurance company.

Underwriting The process an insurance company goes through to classify, analyze and price an insurance policy.

Unearned Premium The difference between the premium paid and the earned premium.

Unit Stat Card A form filed with a rating bureau by an insurance company to report remuneration and losses on a specific policy. Used to calculate the experience modification. Usually submitted based on losses shown at the six month point in a policy.

United States Longshoremen & Harbor Workers’ Act Federal workers’ compensation law that stipulates compensation for those who work in harbors and on wharves.

USL&H See United States Longshoreman’s and Harbor Workers’ Act

Voluntary Compensation An endorsement to the standard Workers’ Compensation insurance policy which extends coverage to employees not required to be covered under the state’s workers’ compensation law. Farm workers, domestic help, and business owners, for example. Usually has nothing to do with volunteers. The term refers to the voluntary addition of normally uncovered individuals.

Voluntary Market Insurance written outside of any assigned risk plan.

WC Workers’ Compensation

Workers’ Compensation 1. A state mandated program of benefits for injured workers.

2. An insurance policy designed to provide benefits based on a state’s workers’ compensation law.

Workers’ Compensation Score An employer’s perfect mod divided by the actual experience mod multiplied by 1000. The result is a score similar to a batting average.

Loss Control

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Preventing claims is the best way to control the cost of workers’ compensation. These tips are designed to help you eliminate or reduce the impact injuries have on your employees and company.

Post a Safety Statement On Your Bulletin Board

Let everyone see that safety is important to the leadership of your company. If you don’t have a safety policy, develop one. Some companies use a safety committee to develop the document. Others use a statement issued by senior management. See the Appendix of this book for sample language.

Assign the Responsibility for Safety to One Manager

There must be one person in an organization accountable for safety and loss control. This individual is the “go-to” person in the organization for safety issues and concerns. Everyone is responsible for safety. The safety manager coordinates and leads.

Lead By Example

If your company’s policy requires a hard hat, be sure you wear yours. If you have stretch breaks for workers, be out there with everyone else. Employees watch the boss and follow his or her example.

Supervisors and managers must show that safety is important in the organization.

Tour Your Buildings Quarterly to Uncover Safety Issues

A regular walk-through tour looking for problem areas keeps folks on their toes. Have a checklist of items that have been trouble areas in the past. Work to improve your operation’s safety record. The results of all inspections should be reviewed by senior management.

Hold Safety Meetings

Keeping safety in front of your people is important. Get your employees together once a quarter for a meeting on a safety topic. Keep it short – you can get a powerful message across in fifteen minutes if you prepare. Use your insurance company–they have videos and programs ready for such meetings. Hold them to a strict schedule though.

Encourage Employees To Shape Up

Healthy employees have fewer strains and sprains. People who are in shape have fewer accidents. The advantage of lower health insurance premiums can also follow. Some companies hold aerobics classes. Some have “Lunch and Learn” programs on nutrition or exercise. I know of one company whose president takes a two mile power walk at lunch – everyone is invited to join him.

Provide Employees Info Regarding Your W/C Premium

Most employees have no idea how much their employer pays for workers’ compensation. Post your premium on the employee bulletin board. Another way to get the word out is to divide your total workers’ compensation premium by your total payroll. The result is the amount you pay for workers’ compensation for every dollar of payroll. If the number is less than five cents multiply the numbers by 100. Three dollars per 100 dollars of payroll may be easier to grasp than three cents on the dollar.

Some employers treat workers’ compensation as an “employee benefit” by including workers’ compensation information in benefit statements distributed to all employees. The point is, the more spent on workers’ compensation, the less that is available to pay for other benefits.

Part of your insurance premium pays for loss control services. Take advantage of what your insurer offers. Ask your carrier to set a schedule of inspections, perhaps quarterly. See what other services your insurer provides – videos, safety posters etc.

Use the resources offered by your insurer and agent.

Find Out What Services Your Other Insurers Offer

Your workers’ compensation insurance company will offer safety inspections. Don’t forget to use the resources of your auto insurer, liability carrier, and property insurance company. While what they offer may not be directed toward employee safety, the results will prevent accidents. For example, recommendations that reduce your risk of fire in your plant also reduce the risk of an employee being injured in a fire.

For many companies, the risks of a severe injury are greatest from a car accident. Your auto insurance company will be glad to offer help.

Check Employee Driving Records

Employee injuries from auto accidents are covered by workers’ compensation. Auto insurance companies have proven time and time again that drivers who have had accidents and tickets have more accidents. What else can you learn from a driving record? Do you really want to hire a bookkeeper who has three tickets for driving an unregistered car? Have “new hires” go to the local police department for a copy of their driving record. Many insurance agencies also offer motor vehicle records as a service.

Obviously, major violations are a red flag. The real issue comes down to minor violations and accidents. To me, you look at the total person. We all know people we would never let drive our cars who have never had a speeding ticket. Conversely, I am a fairly safe driver and put 35,000 miles a year on my car. There is a speeding ticket on my license from two years ago – should that red-flag me?

I recommend that you require either a copy of an applicant’s driving record or obtain permission to run the Motor Vehicle Record (a service your agent / insurer should offer). Use judgment in the selection process with MVR info as part of your info. Consider requesting MVRs every six months on your drivers. Make it a part of your employee handbook too. Include a statement like, “If you drive for the company, your motor vehicle record affects our insurance program. We may periodically review your driving record for accidents and violations. A poor driving record may be cause for disciplinary action.”

Note: Some insurers and agents will not provide copies of driving record for fear of violation of privacy issues. Get written permission from all employees to review driving info. Consider including such in a statement signed at the time you are interviewing new employees.

Set Up a Bonus Program for Those With No Accidents

This doesn’t have to be too complicated. Have a simple certificate made up – you may be able to use your word processing software. Give an award every time an employee drives 20,000 miles with no accidents. When an employee hits 100,000 give them a gift certificate to a local restaurant. Recognize achievement and you reinforce the behavior.

Have Disposable Cameras In All Vehicles and All Locations

Buy a carton of disposable cameras. Have them available and encourage their use. Any time there is an accident, the scene should be well documented.

Hold A Driver Rodeo With Awards

This can be fun. The idea is to build teamwork and let your drivers show off their skill.

Divide your drivers into teams. On a Friday afternoon clear the cars out of your parking lot (or borrow someone else’s).

Using saw horses or other barriers set up an obstacle course. Speed is not the measure here! Have them try the course in reverse.

Set up a place to parallel park. Points are awarded for centering the vehicle and deducted for distance from the curb.

Place five eggs on the ground in a line, each egg about three inches apart – while one team member directs from outside the truck, another drives. The driver moves forward and must break the first egg but no more. Do the same event but have the participants back up to the eggs.

Have a ten-question test for each team member. Include company safety policy and traffic laws in the quiz.

Have your drivers compete with drivers from other businesses. Make it fun.

Send Your Employees to a Defensive Driving School

Any way you can remind your employees of the importance of safety will help prevent accidents. The defensive driving classes are a proven tool in reducing accidents. Your automobile insurance company may even put a class on for you. Invite employee family members to attend. Consider it an employee benefit.

Encourage Seatbelt Use

For all the reasons we all know… riders and drivers should wear seatbelts. Remind your people. Require compliance. Jump up and down while screaming it. This one act is the single most effective action anyone can take to minimize injuries in an auto accident.

Have Basic Safety Equipment In Your Vehicles

A first aid kit, blankets, road flares and the like can help keep your people safer. A fire extinguisher is also a good idea. Train your people to use the equipment too.

Have a Local Garage Perform Vehicle Safety Inspections

Periodic inspections can uncover potential problems. Worn tires, old shocks, low fluid levels if corrected can prevent accidents. Breakdowns can also expose your employees to the perils of standing on the side of the road.

Safety is a part of every employee’s job description.

Have at Least One Person on Each Shift Trained in First Aid

Better yet, train your whole crew. The Red Cross, for a modest fee, will do an in-house first aid class for your people and their families – another employee benefit. CPR classes can be held too.

Teach the Use of Fire Extinguishers

Many fire departments, for a small donation, will put on demonstrations at your location. Your employees will enjoy the chance to try out an extinguisher. Tie the whole thing together by offering home fire extinguishers to employees who attend the sessions. Better yet, have a safety rally with contests. Some companies have held such events at company picnics – train and have fun at the same time!

Be Aware of Workplace Violence Issues

Every year one million workers are assaulted by disgruntled customers or fellow workers. Violence costs American companies over $5 billion annually.

Domestic violence spills over into the workplace too. Be aware of what is going on with your employees. If you think there is a problem, there probably is. Get the employee help. Pay for it yourself if necessary.

Be aware of employees that have restraining orders against a spouse or former lover. This can be a touchy subject. However, we’ve all heard the horror stories… Protecting an employee’s privacy is important. So is protecting your employees.

Make it known that you’re supportive of victims and understanding of domestic violence. Such will make employees comfortable talking with you. Your receptionist needs to be trained to react to potential dangers.

Consider Security Cameras for Loss Prevention

Video recording technology is amazing now. With digital cameras and storage on hard drives, the systems are quite practical and useful. The cost has come down dramatically.

Work with a professional contractor when installing surveillance. They can help with the legal and privacy issues.

One of my clients installed a system in one of his locations. The first week the system was active, an employee claimed to have fallen off a ladder. A review of the tape revealed no accident. The employee decided not to file a workers’ compensation claim and quickly left the job. That system paid for itself with just that one incident.

Display Emergency Phone Numbers

Place emergency phone number stickers on the phones. Include emergency and non-emergency numbers for the police and fire departments. Don’t forget about Poison Control as well. The national hotline of the American Association of Poison Control Centers is 1-800-222-1222. All these numbers are available in the front of most phone books.

Have Your Insurer Inspect Your Site for Ergonomic Issues

Repetitive motion injuries can be avoided with properly designed work areas. Insurance company loss control specialists are trained in such issues. Use the resources available.

See the Appendix of this book for more info on ergonomic standards.

Ergonomic Issues Are The Fastest Growing Area Of Workers’ Compensation Claims. Plan To Prevent Losses.

Encourage Use of Telephone Headsets

More ergonomic tips… An added benefit here; people are more productive using headsets! Get several sample models that work with your phones – over the ear, over the head, two ear pieces. Let employees select the model they are most comfortable with.

Implement Stretching Programs

If your employees work at computers for extended periods, encourage stretch breaks. See the Appendix for a list of stretching exercises that can help prevent fatigue and repetitive motion injuries. Your insurance company can help too. We have used several computer programs that “pop-up” at set intervals to remind workers to stretch.

Regularly Review Workstation Setup and Design

Your workstations are one of the largest causes of repetitive motion/ergonomic problems. Keyboards should be at the correct height. Computer monitors should be properly adjusted and at the correct height. Chairs should be adjustable to assure proper positioning. Monitors should be directly across from the keyboard – not at a diagonal.

Claims Management

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Once a claim occurs, how can you minimize the impact the event has on your employee, premium, policy, and business? In most cases, quick resolution is the best course of action – get the employee back to work as soon as possible.

Develop a Claim Reporting Process

Every employer should have a specific, written procedure for employee injury/incident reporting. Every employee should know to whom they report accidents. Your procedure should be posted and included in your employee handbook. Supervisors should know (and follow) the procedure.

What Incidents Are to be Reported?

Many employers track incidents and report only injuries to their workers’ compensation insurer. An incident is an unusual event that either results in an injury or could have resulted in an injury. A person stumbling off a ladder is an incident. Tracking such can show problem areas in the operation. Why did the person stumble? Is the ladder unsafe or was it set up improperly?

Obviously only accidents resulting in injury are reported to your workers’ compensation insurer. However, tracking incidents may prevent future injuries.

In most states you must report incidents where there is medical attention provided or lost time from work. Check with your insurer on your state’s requirement.

Report claims quickly to your insurance carrier.

Put them to work fast.

Be Aggressive With Insurance Fraud

In most states insurance fraud is a crime. Here are some indicators that may point to a fraudulent workers’ compensation claim.

*The alleged injury occurred on a Monday morning or late Friday afternoon but was not reported until the following Monday.

*The accident occurred just prior to a layoff, strike or seasonal shutdown.

*There are no witnesses to the accident.

*There is a history of the claimant reporting previous questionable claims.

*There is a delay in reporting the accident.

*The claimant has recently purchased a disability policy.

*The accident is alleged to have happened outside of normal working hours.

The presence of two or more of the above may indicate fraud. Report your suspicions to your insurance carrier. Do not comment on your suspicions to the employee.

Pick a Physician to Treat Your Employees

Designate your health care professionals in advance. Many states allow the employer to select the injured worker’s health care provider for the first ten days after an injury. This provides control over the loss, right from the beginning. Develop a relationship with your provider. Let them get to know you. Most hospitals now have an occupational health center that is well versed in workplace injuries, therapies, and the workers’ compensation payment system.

Review Your Loss Runs Regularly

Your insurer can provide you with a listing of losses paid under your policy. Look for claims that are not yours. Also, review the amounts shown on the report. Any claim that is not yet closed will show “reserves” (what the insurance company expects to pay out). Do the reserves make sense? A one year old claim with payments of $1,500 and a reserve of $75,000 may warrant a second look. Work with the adjuster for explanations or to make any needed changes.
Have Your Insurer Assign One Adjuster to All Your Claims

If you typically have several workers’ compensation incidents a year, it is best to have one adjuster for all claims. Establish a relationship with the adjuster and let him become familiar with your operation. Some insurers will assign one adjuster or team to your medical-only claims and a separate adjuster on claims involving lost time.

Push Insurers to Subrogate Claims

Workers’ compensation is considered a sole remedy for workplace injuries. Employees may not (in most states and in most circumstances) sue their employers for their injuries. However, when a third party is responsible for the injuries, employees may seek a legal remedy from the third party. The workers’ compensation insurance company may also seek reimbursement; called subrogation. For example, an employee is driving to a sales call and is rear-ended by an inattentive driver. Workers’ compensation pays for the employee’s injuries. The workers’ compensation insurer should then go to the other driver’s insurance company for reimbursement of payments made.

Subrogation reduces the net losses paid by your insurance company. It also reduces amounts that show up on your experience modification calculation. Push your adjuster to subrogate any claim where other parties may be responsible for the accident.

Talk to Your Adjuster Quarterly About Open Claims

Plan to review your claims at least quarterly with your adjuster(s). Phone reviews work well. Three questions to ask for each claim:

*What have you done on this claim?

*What are you doing now?

*What are you going to do in the future?

Get Involved in Claims

The leaders of your company must be involved actively in workers’ compensation claims. Everyone in your operation must know that you take workers’ compensation and employee safety seriously.

Aggressive Claims Management Gets Employees Back To Work Quickly.

Use Return to Work Plans

It is almost always best to get an injured worker back to work quickly. Sometimes, light duty or a reduced work schedule are called for. Work with the adjuster and the treating physician to develop a plan that works for you and the employee. Prepare job descriptions that include the physical requirements of the employee’s job or proposed job. The treating physician can use these to approve light duty programs.

Stay in Touch With Injured Workers

If you have an employee out for an extended period of time, keep in touch. Don’t let injured workers feel forgotten. Have someone send a regular email with information on office/shop news. Make sure your employee (they are still your employee) knows about the things that go on in any workplace – new accounts gained, employee promotions, new babies, and the like. Arrange for injured workers to come by for lunch with the people in their departments.

The psychology of an injured worker is too deep for this book. However, too often, good employees feel like they are letting the team down by being hurt. The guilt turns into withdrawal. The withdrawal turns into self-pity. Which can turn into resentment. It is, at this point that claims can turn adversarial.

Regular contact with injured workers’ will help keep their morale high. The objective should always be to get them back to work.

Notify Your Insurer if You Suspect Fraud

Unfortunately the system is not perfect. Employees may fake or inflate a claim. Malingering can occur. Fraud costs insurers and ultimately insurance buyers hundreds of millions of dollars. You are the front line of defense against fraud.

Your Experience Modification

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Learn How Your Experience Modifications is Calculated

If you spend more than $4,500 on your workers’ compensation premium you probably have, as part of your premium calculation, a factor known as the experience modification. It’s a calculation that compares your actual losses to the average losses of companies like yours.

Ask your agent to work with you to review your experience modification worksheet for accuracy. Check the payrolls and losses that are a part of the calculation.

A modification of 1.0 indicates that your losses are average. An experience modification of 1.2 means that your losses are higher than average. A modification of .89 is reflective of loss experience better than average. Your experience modification factor is multiplied by your gross premium. So, a 1.20 mod increases your costs by 20%.

In the illustration you’ll notice that the document appears to be a matrix. It is actually several different charts within one matrix.

Sample Experience Mod Worksheet

Mod Worksheet Upper Section

The top section of the mod worksheet is labeled columns. You’ll notice groupings of policy years. Most experience modification worksheets include three years’ worth of data, each in a separate section of the worksheet. The mod calculation does not include the most recent year, as the claim information is incomplete at the time the worksheet is prepared. The 2008 mod will include payroll and claim data for 2006, 2005, and 2004.

In the first column, “code” means the employment classification. The example above shows codes 3113 and 8810. Respectively, Tool Manufacturing and Clerical. Your worksheet will show your codes as taken from your annual premium audits.

The second column is labeled “ELR,” expected loss ratio. This factor is determined annually by the rating bureau for each employment classification based on actuarial loss data.

The third column is the discounted expected loss ratio, “D-Ratio” for short. A large portion of the experience modification calculation focuses on the frequency of claims rather than severity. This part of the calculation deemphasizes the weight of large claims. The D-Ratio is actually the percentage of expected losses that are classified as expected primary losses.

Column 4 is your payroll, again taken right from your annual premium audits.

Columns 5 and 6 multiply payrolls by the ELR and the D-Ratio.

Columns 7 through 10 deal with your actual claims. Each line is a separate employee accident. The number in column 7 should correspond with the claim number assigned by your insurance company. Take a look at your insurance company loss run and you can identify each claim by its number.

The left side of the next column contains a description of the injury as a code. Here is the secret key:

Injury Code	Description
1	Death
2	Permanent Total Disability
3	Major Permanent Partial Disability
4	Minor Permanent Partial Disability
5	Temporary Total or Temporary Partial Disability
6	Medical Only
7	Contract Medical or Hospital Allowance
8	Compromised Death – CA Only
9	Permanent Partial Disability

The injury code is especially important in states where medical only claims are discounted within the mod calculation.

The right-hand side of column 8 indicates whether the claim is open or final. A final claim is a closed claim for which no further expenses are expected.

Column 9 shows loss payments for the specific claim. Amounts shown for open claims include payments made, plus an estimate of future payments, also called a reserve.

Column 10 contains the actual primary losses figure. It’s column 9 limited to $5,000. You’ll notice any claim with an incurred amount (column 9) over $5,000 is brought over in column 10 at $5,000. This is the part of the calculation of actual losses that recognizes the importance of the frequency of claim rather than severity of claim. Four claims at $2,500 has more of an impact on your experience modification than one $10,000 claim.

Mod Worksheet Lower Section

The bottom of the worksheet is where the actual calculation of the experience modification is made.

Math enthusiasts can follow the calculation using the algebraic equations included on the worksheet. In the example above, the final experience modification is 1.29, found at the lower right hand corner of the illustration.

Know Your Perfect Mod

Many consider a mod of 1.00 to be OK. After all, there is no surcharge.

I’m not satisfied with that. An experience modification of 1.00 means the employer is average. It’s the workers’ compensation equivalent of a “C” on a high school report card.

Your objective is the perfect mod, meaning the modification you would have if you had no losses. Measure your performance on that basis. How low your mod goes is a function of your industry and payrolls. Learn what an A+ is before you go patting yourself on the back.

I developed a tool to help insurance buyers understand the idea of the perfect mod. The software performs the calculation so you can see what an A+ would look like. The tool also provides information on the impact loss severity and frequency have on your experience modification. Go to www.Modmanager.com for access to the tool.

Know Your Workers’ Compensation Score

As your payroll and classifications change, your perfect experience modification changes. Frankly, you cannot compare one year to another, objectively, just by tracking your mod. As a factor, the calculation responds to many variables. Each year your perfect mod changes.

I developed what I call the workers’ compensation score. It’s your perfect mod divided by your actual mod. I express it as a whole number by multiplying the factor by 1000. The result is a score similar to a batting average.

W/C Score =

(Your Perfect Mod / Your Actual Mod) x 1,000

So, if your mod is 1.29 and your perfect mod is .906, your score is 623. You can perform the calculation for past years to see how your operation improved or not. This isn’t golf. A score higher than last year is desirable.

The same tool I mentioned in the above section performs the calculation for determining your workers’ compensation score. Go to www.Modmanager.com for access to the tool.

Check Loss Reserves at the Policy Five-Month Point

Your experience modification is calculated based on three years of experience (payrolls and losses). Your modification for 2008 is based upon payrolls and losses in 2004, 2005, and 2006. The calculation is based on losses at, approximately, the halfway (six month) point in the policy. Losses include what has been paid and any reserves on an open claim. (Recall that reserves are an amount the insurer expects to pay during the life of the claim.) Insurance carriers report loss information to the rating authority, The National Council On Compensation Insurance (NCCI). If you can reduce reserves prior to when loss valuations are reported, you can reduce the impact of the losses that go into your experience mod calculation. This reduces your mod and therefore, your premium.

Low Losses = Lower Experience Mod

Check Payrolls Used in the Experience Modification

Your experience mod uses information from your payroll audits. Your total remuneration in each classification is multiplied by several factors as part of the experience modification calculation.

Review your audits for the past three years. Be careful when adjusting payrolls for the past – such could increase your experience mod by spreading the same losses over lower payroll. Software is available to play “what if” with experience modifications. Never make a change to your audit payrolls without understanding the total impact – both premiums returned and any increase in your modification.

Check Experience Modification Losses

Get copies of your loss runs for the past four years. Match the claims on the experience modification worksheet to the losses shown on the loss runs. Do they line up?

Be Careful Changing Your Policy Date

There are times when, for a variety of reasons, insurance buyers want to change the date of their policies. Taking such action could cause your mod to increase. Again, make sure you have all the facts before making a change. Ask your agent to project your experience mod with and without the date change.

Policy Management

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The management of your workers’ compensation insurance program can be divided into three parts: Policy Management, Claims Management, and Loss Control.

Policy management includes all the components of the policy – payroll, credits, deductibles, experience modification, rate, etc.

Understand How Your Premium is Calculated

Workers’ compensation premium calculation is pretty straightforward. In short, the insurance company takes your payroll in the various classifications and multiplies it by a rate per $100 of remuneration.

If you have several different employment classifications on your policy, the above calculation will be done for each class.

Insurers may add surcharges or credits to the total before coming up with your final premium. Find out what credits your insurer has available. Ask what needs to be done so that you can qualify for maximum credits.

You may also have an experience modification. See our discussion on the experience mod in the next chapter of this book.

Most insurers have multiple rating plans – substandard, standard, and preferred. Ask your agent to identify your policy plan. Find out what needs to happen so you can qualify for a lower rate.

Check your policy credit structure. Talk with your agent to learn how you can qualify for better rates.

Agent’s Commissions

Most insurance agents receive a commission on the sale of policies. If your agent doesn’t get paid a commission (some are on salary), certainly your agency (the employer of your agent) gets a commission. Workers’ compensation pays among the lowest commission rate of any insurance policy. It isn’t uncommon for agents to get 2%. Average commission on auto, property and liability insurance policies are closer to 15%.

Check Your Policy’s Employment Classifications

Your rates are based on the business and industry in which you work. There are over 600 employment classifications in workers’ compensation for different industries; from “Abrasive Wheel Manufacturing” to “Zoo.”

Important point: your company receives a classification – not your employees. You may run a hotel and employ someone to do nothing but paint. That person will not be classified as a painter. He will be part of the mass of employees included in the hotel classification, along with your other maintenance people, sales staff, and housekeepers.

Each class has a specific definition that prescribes who gets classified in that “code.” The definitions for some classifications are several pages long.

Get a copy of the definition for each of the classifications you have on your policy. Are the descriptions correct for your company? Work with your insurance advisor to find a classification that is a better match (at a lower rate).

Proper classification of employees is key to controlling your premium.

Contractors Can Split Payrolls

The rules for most employers do not allow an individual employee to be divided up into different categories. For example, a restaurant employee who also delivers orders cannot have part of his payroll assigned to the restaurant code and the rest to the drivers code.

Contractors, however can split an employee’s payroll into separate employment codes. So, an employee who works as a carpenter and also does painting can be placed in two different classes, and therefore, you pay two different rates.

Contracting companies must keep detailed records to allocate payrolls.

Check for the Proper Classification of Clerical Employees

Office workers have one of the lowest premium rates of any code. Try to place as many of your employees as possible in the office/clerical class–within the rules of your state. If the clerical rate is $1.00 less than your other codes, you save $100 for every $10,000 of payroll taken from one code and placed into the clerical code. The employee must be doing “office” type work and be physically separate from non-clerical employees. Clerical employees don’t have to spend all their time in the office. Travel is permitted. The duties of the job, however, must be clerical in nature.

See the Appendix for a copy of the National Council on Compensation Insurance’s definition of Clerical.

Check for the Proper Classification of Salespeople

As we have stated before, the objective is to put each employee in the lowest rated code. In many industries, the rate for the sales code is less than the primary classification. Work with your agent to determine the best code for your workers – within the rules, of course.

Recall that inside salespeople are eligible for the clerical code, in most cases. Review your policy and, as was previously mentioned, obtain the classification description.

See the Appendix for a copy of the National Council on Compensation Insurance’s definition of Sales.

Check for the Proper Classification of Drivers

Same issue as above. In many cases the driver’s class rate is lower than your primary rate. Put everyone in the lowest possible classification allowed.

See the Appendix for a copy of the National Council on Compensation Insurance’s definition of Driver.

In most states it is insurance fraud to under report payroll or to misclassify employees to reduce your premium.

Understand What is Included in Payroll and What is Not

It is a bit misleading to say that “payroll” is the basis of workers’ compensation premiums. The actual basis is “remuneration.” The specific definition used by the National Council on Compensation Insurance is included in the Appendix to this book. It’s just too long to put here.

Has Overtime Been Excluded From Payroll?

When a worker receives overtime, the extra amount is not part of workers’ compensation payroll. For example, if a worker makes $8.00 per hour normally and $12 for overtime (time-and-a-half) the only payroll that is counted is the $8.00.

Make sure the extra for overtime has not been included in your payroll audit. Check past audits too. They can be corrected. Contact your agent for help.

Review Officer Payrolls

Workers’ compensation rules limit remuneration charged for executive officers. The actual limitation is determined by each state. It’s usually around $2,000 per week. If any of your executives are paid more than the maximum, be sure the premium is based solely on the maximum. The audit worksheets can tell you what remuneration was used for each employee.

Record keeping for Subcontractors’ Work

If you hire subcontractors or independent contractors make sure you have proper records showing that they have their own insurance. You should have certificates of insurance on file for each sub showing proof of their workers’ compensation insurance. In many states your workers’ compensation insurer can charge you for subcontractors who don’t have coverage. Talk with your agent to be sure your records and procedures are correct.

See the Appendix for a sample certificate policy and notice for subs.

Check Current Policy Payrolls

Seems simple, I know. However, it can make a big difference.

If your policy shows payrolls that are higher than what you will have at the end of the policy period, you’re letting the insurance company use your money at no interest. Remember, what your accountant calls payroll is not what your insurance company calls payroll. Don’t include the extra amount for overtime. Check that the payrolls include the executive officers’ salaries at the minimums and maximums as set forth for by your state workers’ compensation regulations. Make sure employees are properly classified.

It is important not to understate payroll either. Such could result in a large audit premium due next year – in addition to the premiums for the renewal policy. Intentionally understating payroll for purposes of reducing your premium is insurance fraud in many states.

Understand Your Audits

Each year, at the end of the policy period, the insurance company performs an audit. This may be done in several ways. The insurer may send a form letter asking you to send back a list of employees, their classification and payroll. They may call and perform the audit on the phone. The insurer may send an auditor to your office to review your books. Regardless of the method of audit you should review the audit bill. Compare it with your notes of the audit. If there is any question of what employees are placed in which category, get a copy of the worksheet used to determine your final premium.

Managing the audit process will pay off in lower premiums.

Get a Copy of Your Audit Worksheets

Ask your insurer to provide you with a copy of the audit worksheet prepared for your most recently expired policy. This document provides the details of how the insurance company determined your final premium. It lists employees, classifications and payrolls. Look for errors such as the inclusion of overtime and incorrect classification of employees.

Go Back Three Years to Check Audits

In most states, you can go back three years to correct errors made at audit. Use such strategies as limiting payroll for executive offices, checking to be sure the correct payroll is used, and making sure that premium was not paid on any overtime.

Spend Time Preparing for the Audit

In cases where audits are performed by an auditor at your site, you should spend a few minutes preparing for the visit. Review past audits. Review which positions were placed in the various classifications. Have records of overtime and job descriptions available. You’ll also need your payroll tax records to reconcile total payrolls.

Some bookkeepers prepare a spreadsheet that effectively does the audit for the auditor. The auditor then has everything laid out, making the job easy. This tactic also allows the bookkeeper to guide the audit.

Consider Deductibles

A deductible is the part of a claim you pay before the insurance company steps in. Put another way, a deductible is a way for you to retain a portion of the loss. The larger the deductible, the larger the premium savings.

Workers’ compensation deductibles are usually expressed separately for the two parts of a workers’ compensation claim: indemnity (lost wages) and medical.

Get the facts before increasing the deductible on your policy. How much will you save in premium? Are the deductibles on a per claim or per year basis? Run the numbers to see what the deductible would have cost you in the past three years based on your claims experience. Are the savings worth the risk?

Deductibles can also affect the losses that show up on your experience modification sheet. In many states a loss under the deductible is not included as an experience mod loss. This can have a positive impact on your premium down the road.

Consider Excluding Officers From Coverage

Many states allow officers who own more than 20% of the stock of a corporation to opt out of the workers’ compensation system. This is true of both “S” and “C” corporations. Make sure that both your health insurance company and your disability carrier realize that you have opted out of the workers’ compensation system.

“Owners” of limited liability companies might not be required to be covered by workers’ compensation insurance, depending on the state.

Partners and sole proprietors may or may not be considered “employees.” In most states they can, however, opt for coverage. While this increases the premium, it may be a valid tactic for someone whose health does not allow them to buy life and/or disability insurance – some coverage may be better than none.

I normally recommend that owners exclude themselves from coverage when possible. A solid insurance program of health, life, and disability insurance offers better protection for most business owners. Again, check with your health and disability insurers first.

The Difference Between an Employee and a Contractor

In most states employers must buy workers’ compensation insurance to protect their employees. Contractors are not employees. Therefore, you don’t need to buy workers’ compensation coverage for them.

Beware of trying to call an employee a contractor. If they look like employees and act like employees, they are employees.

Here is a common definition:

“Independent contractor means a person who performs services for another under contract, but who is not under the essential control or superintendence of the other person while performing those services.”

Here are some benchmarks:

Does a contract exist for the person to perform a certain piece or kind of work at a fixed price?
Does the person employ assistants with the right to supervise their activities?
Does the person furnish any necessary tools, supplies, or materials?
Does the person have the right to control the progress of the work, except as to final results?
Is the work a part of the regular business of the employer?
Is the person’s business or occupation typically of an independent nature?
The amount of time for which the person is employed.
The method of payment, whether by time or by job.
Does the person receive a paycheck or do they make a profit / loss from the job?
Does the person receive benefits similar to those of employees?
Does the person accumulate vacation time or paid time off?
Does the person purchase his own liability and/or workers’ compensation insurance?

The above are used as a whole to determine an individual’s status. Most state workers’ compensation laws include definitions or tests similar to the above. Talk with your insurance agent.

If you hire independent contractors, get a certificate of insurance showing that they have their own workers’ compensation so you don’t get hit with additional premiums at audit.

Last note on this topic. Falsely classifying an employee as an independent contractor is insurance fraud in many states. It can also land you in claim trouble if there is an injury. I can’t tell you how many times in twenty plus years that small company owners have winked and told me that they have no employees. It’s a dumb tactic that is more likely to land you in hot water.

Be Aware of Out-of-State Exposures

Your employees are eligible for workers’ compensation benefits in the state where they are injured. If your employees travel to other states, be aware that you may need to purchase coverage for those states. Many insurers provide coverage for other states right on your basic policy. Such is designed for incidental exposures. Check with your agent on the correct procedures.

Be Aware That “Other States” Does Not Mean “All States”

Let’s say that you are based in Maine. You have a workers’ compensation policy from a reputable insurer. The policy includes coverage for Maine and in a special box on your policy the entry says something like, “All other states except…” Those exceptions are the states that use monopolistic state funds for their workers’ compensation coverage. This means that the only insurer in those states for workers’ compensation is the state fund. No other insurer can provide benefits in that state.

The monopolistic states are: North Dakota, Ohio, Washington, West Virginia, and Wyoming. If you have workers in a monopolistic state you need to contact the appropriate state fund.

If Your Employees Work Around Water Read This!

Employees who work on docks and wharves may be eligible for benefits under US Longshoreman’s and Harbor Workers’ Compensation Act (also known as USL&H or LHWCA).

Employees on boats may be eligible for benefits as described by the Jones Act.

The Jones Act provides benefits to sea-based maritime workers (i.e., the master and crew of a vessel in navigation). USL&H provides federal workers compensation benefits as the exclusive remedy to land-based maritime employees.

Coverage under the Jones Act requires that the employee have “seaman” status and an “employment-related connection to a vessel in navigation.”

USL&H applies to persons engaged in maritime employment, including those engaged in longshore operations and harbor workers, including ship repairmen and shipbuilders. For the act to apply, the injury must occur upon navigable waters of the United States (including any adjoining pier, wharf, dry dock, terminal, building way, marine railway, or other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel). The master and crew of a vessel in navigation may not collect USL&H benefits. Their remedy is the Jones Act. Certain other employees are also removed from protection under USL&H – clerical and office workers for example.

Talk to your agent about your exposure and how your workers’ compensation policy or your marine protection and indemnity insurance policy can address your situation.

If Your Employees Work on a Government Defense Base…

The Defense Base Act mandates federal benefits to civilian workers on military bases. Janitorial services, roofers, electricians, etc. You have to add coverage to your state workers’ compensation policy for coverage to apply. Talk with your insurance agent.

If Your Employees Work or Travel Outside the US…

Workers’ compensation provides benefits for injured workers. The benefits paid are determined by the location of the injury and treatment. A person from Maine injured in a work related accident in Massachusetts is eligible for Massachusetts benefits. The Maine workers’ compensation policy will pay Maine benefits unless the policy lists Massachusetts as a covered state.

If a US employee is injured outside of the US most workers’ compensation policies will pay benefits according to their home state benefits. However, some expenses will not be covered for a worker outside the country. The biggest are repatriation expenses and endemic disease – a stomach virus from drinking tainted water, for example.

The solution is an international workers’ compensation policy. The costs are fairly reasonable. The expenses of airplane evacuation flights or other special transportation can be enormous. If your people travel outside the US on business, consider such a policy. Some travel accident insurance policies may help too.

Business Disability Insurance

Another issue for the business owner (though off the subject of workers’ compensation) is disability insurance to protect the business. Most owners are critical to the business they run. An auto accident that lays the owner up for a few months can be devastating. The right disability insurance plan can provide cash to weather that storm. Think about other key people in your operation too. Check with your insurance advisor.

Consider Excluding Family Members

Several states allow family members of owners to be excluded from workers’ compensation coverage. Family includes parents, siblings, children and spouse. Excluded family members must voluntarily waive coverage in advance of any claim. Such a waiver must not be a condition of employment.

Check with your agent to determine the law in your state.

Investigate Dividend Plans

Dividend plans return to the policyholder a portion of premium based on loss experience. The plan can be calculated on the claims experience of the policyholder alone, the experience of a group, or a combination of individual experience and that of the group.

For example:

No losses Return of 20% of Premium

Loss Ratio 10% Return of 10% of Premium

Loss Ratio 20% Return of 5% of Premium

Dividend plans are, many times, a gamble. As there are no guarantees of return premiums, dividend plans should rarely be considered in competitive situations other than to acknowledge that they exist. I generally look at such plans as a bonus rather than as a integral part of the insurance pricing mechanism.

Investigate Retention Plans and Large Deductibles

If your workers’ compensation premiums are over $700,000 look into alternative insurance plans. Retrospective rating plans or large deductible programs may be attractive. Look into so-called “self insurance” too. Review these options at least every few years. Much of your decision is dependent on market conditions. In the early 1990’s self insurance and other alternative workers’ compensation plans made sense.

As I write this, few companies are moving their workers’ compensation away from traditional insurance. In fact, many who were self insured have gone back to fully insured plans.

Investigate Group Self Insurance

Here is where the smaller employer may be able to help himself. A trade association or other group gets together to pool their financial resources to form, effectively, their own insurance company. The total group should have more than $2,500,000 of premium to work with.

One big downside – joint and several liability. If one member of the group is unable to meet his obligations, the remaining members must pay for his liabilities.

Get the facts before you move into self insurance. Other key issues include reinsurance, loss control services, and claims management services.

Take Advantage of Insurance Company Finance Plans

Can you spread your premium payments out any more than you are now? Some companies have monthly payment plans at no interest. However, you may have to ask for them.

Look at the true cash flow of the payment plans. How does the timing of payments line up with your business’s flow of funds? A large payment due in your off-season may cause problems. Can your agent or insurer offer better terms?

Workers’ compensation rates can be negotiated. Push for the best rates and the lowest premium.

Learn the Rating Plan of Your Policy

Most business owners believe that their workers’ compensation premium is payroll times the rate, times the experience modification. This is only partially correct.

Each insurance company has several workers’ compensation plans. Many have three – Preferred, Standard, and Sub-Standard. Some insurers have only Standard and Preferred. The difference is in the rates. Preferred rates are, naturally, lower than standard.

Find out what plan you’re in. Ask your agent what you have to do to get moved into a lower rated plan. Push your insurers to provide you with the best rate.

Learn the Credit Structure of Your Policy

In addition to the rating plans, insurers can include additional credits in the pricing of your policy. Most insurers allow underwriters pricing discretion of up to 25% above published rates and 25% below. Credits are used as competitive tools by insurers. They are often loosely tied to loss control and claims management programs. Find out what your credits are. Ask your agent how to get more.

Build a Work Comp Matrix

Track the elements of your policy in a matrix.

	Yr 1	Yr 2	Yr 3	Yr 4
Clerical Payroll
Mfg Payroll
Total Payroll
Clerical Rate
Mfg Rate
Experience Mod
Credits/Debits
Standard Plan or Preferred?
Total Premium
Number Losses
$ Losses

Use a spreadsheet like Excel so you can have calculations made automatically. Be creative. Determine average rate and average claim size. List claims from largest to smallest.

A matrix allows you to see patterns and trends. You can see where you can improve and where you are doing well.

General Information

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Review the Services Your Agent Offers

All insurance agents are not created equal. Frankly, there are some great agents out there, working hard for their clients. There are some dullards too.

Insurance agents can be either employees of the insurance company for whom they sell (called direct writers), or independent business people who work for themselves. Independent agents usually represent more than one insurance company. While each will tell you that their approach is best, I find that both independent agents and direct writers have a place in the market.

No two insurance agencies have the same abilities or resources. No two agents have the same level of knowledge and expertise.

Make sure that your agent can meet your needs. Here are some questions to keep in mind when reviewing an agent’s services:

*Who will manage your account on a daily basis? How long have the producer and service people been in the insurance business?

*Will the agent provide advice on all aspects of insurance?

*Does the agency have special expertise in your industry?

*How are claims handled?

*Will one person in the agency oversee claim incident reports?

*Who will provide help preventing losses—the agent or the insurer?

The most important part of the insurance transaction is the insurance buyer’s relationship with the insurance agent.

Have One Agent for All of Your Insurance

You will get better work from your agent if he or she handles your entire insurance account – workers’ compensation, property, liability, auto insurance, the works. You’ll also save time and aggravation. Having one agent means that you only make one call when you have a problem or a change in your business. Having one agent helps to prevent gaps and overlaps in coverage.

Insist That Your Agent Aggressively Work for You.

Your agent is being paid a commission for the policies you buy. He or she should work for you to earn that commission. If your agent is not meeting your needs, have a frank conversation with him. Early in my career I discovered that the most important part of the insurance transaction is the relationship between a business owner and the insurance agent.

As with any other relationship, there will be good times and bad. Let your agent know what you expect – set expectations and performance standards. Many agents prepare a stewardship report that outlines the actions taken on the client’s behalf over the past year. A great deal of work on an insurance account is done behind the scenes. A stewardship report allows both parties to see what is being done in a quantitative way.

Your agent should meet with you for a coverage review four months before your insurance renews. The discussion should include:

*A review of the current coverage provided.

*Any changes in your operation over the past year.

*Any changes you expect in the next year.

*A list of actions the agent will take for the renewal.

*A list of insurers your agent plans to approach.

*Dates when renewal quotations will be available.

Get Competitive Quotes Every Three Years

The single most important step you can take to control your premiums is competitive bids. Every three years put both your insurance agent and your insurance company in a spot where they may lose your business. The workers’ compensation marketplace changes quickly. When times are good, many insurers will want to write your policy. When times are bad, insurers are hunting for the exceptional risk. Use more than one agent. Allowing competition is the best way to make sure you get the best rates.

Understand the Broker of Record Process

Changing agents may makes sense if you are not getting the right service. You may also go through a bid process where other agents are involved.

Most insurance companies will only allow one agent to submit the business of a particular client. In other words, if Acme Cleaners is getting bids from Agent A and Agent B, the Podunk Mutual Insurance Company will only provide a quote to one of them. Usually, insurance companies provide sole access to the first agent who submits the business for a quote. The insurance buyer can select a different agent through the Broker of Record (BOR) process.

In many cases, an insurer will only offer proposals to one agent for you.

The BOR is a letter from the insurance buyer to the insurance company stating a preference for another agent. The letter excludes all other agents from the bid process.

Sample Broker of Record Letter

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

<Print on Your Letterhead>

RE:

To Whom it May Concern:

This is to advise that effective (Date), ABC Insurance Agency is appointed Broker/Agent of Record for (Insured Name) with respect to its (Type of Insurance) Insurance Program. This appointment rescinds all previous appointments, if any, and the authorization contained herein shall remain in full force and effect until cancelled in writing by us.

This letter also constitutes authorization to any underwriter to furnish ABC Insurance’s representatives with all information pertaining to any and all insurance contracts, rates, surveys, reserves, retention, or other data they might require.

Sincerely,

(Authorized Insured’s name and title)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Be cautious of the BOR process. It’s the messiest part of insurance bidding. Frankly, the whole procedure is antiquated and anti-competitive. Imagine not being able to get a quote on a Ford truck from a second dealer or not being able to discuss a flight on a particular airline with another travel agent. Unfortunately, it’s a part of the game and most agents fight to keep the status quo.

To avoid the mess of a Broker of Record letter, assign specific insurers to specific agents at the start of the bid process. Tell agents which insurance companies can be approached. Ask agents to come to you before accessing any carrier in a bid situation.

Be an Exceptional Risk

Getting good rates, in part, depends on you. Put your best face forward to your insurance company (current and potential). Show them you are a quality risk by having policies and procedures in place to control losses and manage claims.

Attractive, well managed companies pay less for workers’ compensation. What can you do to improve your appeal to insurance companies?

Stay Out of the Pool

The pool is another name for the assigned risk marketplace (also known as the state fund). If there is any way you can avoid it, don’t buy your workers’ compensation insurance from the pool, assigned risk, or state fund.

You may, however, have no choice. If you live in a monopolistic state where workers’ compensation is controlled completely by state government, you have no option. If you have a lousy loss record or live in a state that has made a mess of workers’ compensation, you’ll have no choice.

Talk with your agent or insurance advisor. Find out what the situation is in your state (and the states you do business in.) Usually, having workers’ compensation coverage in the pool means you’re paying higher premiums.

Consider Using an Insurance Consultant

Shameless self promotion! Yea, yea. However, using an informed specialist works. I have seen it help business after business. In the time I have been a consultant I have yet to see the perfect insurance program. Usually, my recommendations cover two pages. In some cases, five.

The insurance transaction traditionally has three players:

*Insurance company
*Insurance agent
*Insurance buyer

The complexities of the insurance world put the insurance buyer at a tremendous disadvantage. Few insurance buyers really understand insurance or the insurance marketplace. Most managers spend relatively few hours each year on insurance. A specialist levels the playing field. Quality cannot exist without equality of knowledge and information. A consultant brings such to the insurance buyer without the “entanglements” of an agent who works for an insurance company and a commission.

I suggest that you work with an insurance consultant who never sells insurance. He or she should never accept a commission, fee, or other remuneration from an insurance company or agency. In my own case, I don’t even let them buy me coffee.

An unbiased advisor will pay dividends in time, effort, and premium.

In the time I have been a consultant I have yet to see the perfect insurance program.

The Other Part of Work Comp – Employers’ Liability

When the topic of workers’ compensation is discussed the conversation usually concerns state mandated benefits for medical expenses and lost wages. There is a second, less well known, part of the policy – employers’ liability.

When a worker is injured, workers’ compensation pays the medical bills and lost wages. How about the affect the injury has on the employee’s family? Examples:

*A wife watches her husband fall from a roof to his death. She is emotionally devastated and sues the employer for the horrific scene she witnessed due to the employer’s negligence.

*A family of an vibrant man who is now a quadriplegic after a workplace accident sues for loss of support and companionship.

*A worker in a boat yard comes home each day with clothing covered in dust and chemicals. The family’s clothing is contaminated causing the children to become sick.

The above are all real claims made against employers. Each is excluded from coverage under the general liability policy’s provisions removing coverage for incidents arising out of the employment relationship.

Employers’ liability is the answer. It’s included in part two of the workers’ compensation policy.

Claims are rare (though growing less so). Workers’ compensation policies usually include limits for each accident, disease total limit, and disease for each employee.

Typical Limits for Employers’ Liability

Each Accident $100,000
Disease – Policy Limit $500,000
Disease – Each Employee $100,000

Some umbrella insurers require higher limits of coverage:

Each Accident $500,000
Disease – Policy Limit $500,000
Disease – Each Employee $500,000

Who is The National Council on Compensation Insurance?

The National Council on Compensation Insurance (NCCI) is the organization responsible in most states for administering classifications and experience modification factors, and collecting data used in ratemaking. NCCI is not connected with any state government. It is a rate and rulemaking organization funded by insurance companies that use their services. NCCI reports information to states and is certainly regulated by state insurance departments. It is not, however, a government run organization. It does act like one sometimes though.

Introduction To The Blook

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In many ways, workers’ compensation is like the income tax system:

-There are rules that determine how much you pay.
-You have no say in the makeup of those rules.
-Knowledge of the rules can help you save money.
-You can use your knowledge to pay less.

I’ve been in the insurance business since 1979. Twenty years of that time was spent selling insurance as an agent. I now consult with businesses, helping them manage their insurance programs as a fee-only consultant. I have worked with well over 1,000 employers in my career. I have found that very business can do something to help control the premiums paid.

Every business can do something to control their workers’ compensation premiums.

This book approaches workers’ compensation in four broad parts:
-Policy Management
-Your Experience Modification
-Claims Management
-Loss Control

Each section offers hint and tips that will help you manage your insurance better. Read the book straight through or use specific sections as you need assistance.
I hope the information here is helpful. Feel free to let me know what you like and what you don’t like about this guide. Please feel free to call me at (207) 284-0085 or email me at Scott@ScottSimmonds.com. I’m interested in your thoughts and comments.

Scott Simmonds, CPCU, ARM, CRM
Saco, Maine
November, 2007

How To Buy Work Comp Insurance - Start-ups

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This article is geared to small businesses and start-ups without workers' compensation insurance. I hope provide information that will help you find the right provider and the right coverage.

Your best bet is to start with an insurance agent that you already know. Hopefully your business has other insurance policies. Use the same agent.

If you're not buying business insurance at this time, you should. Property and liability coverage is an important part of your financial plan.

Finding an agent involves talking with friends and acquaintances who are in business. Find out who their insurance agent is. You can also talk with local chambers of commerce or trade associations for referrals.

Once you find an agent, she will review with you the information they need to provide a proposal of insurance.

For workers' compensation, the first step is to classify your business according to the type of exposure that you present to employee injuries. For example, construction, retail, small office, manufacturing.

There are over 900 different employment classifications in the workers compensation system. Your agent will find the appropriate classification for your company.

Your classification determines your premium rate per $100 of payroll. The higher your exposure is to an employee injury, the higher your premium will be. Construction workers carry a higher rate than office workers.

The policy term will be one year. Your initial premium will be based on your estimated payrolls for 12 months. At the end of the policy period the insurance company will audit your financial records to determine your final premium, based on actual payroll.

Most insurance companies will allow you to pay a premium in three or four installments over the year. This should help your cash flow.

Ask your agent to provide you with proposals from several different insurance companies. In some states, there is a competitive marketplace for workers compensation insurance. However, if you've been operating your business without workers compensation insurance, you may not be able to be choosy over which insurance company will provide you with coverage. You have probably been violating your state law by having employees without insurance.