Posts Tagged ‘severity’

The Politics of Workers Comp Rates

Wednesday, May 12th, 2010

Massachusetts has the lowest workers comp rates among the major industrial states and just about the lowest rates in the nation. The cost of comp in the other New England states is roughly double that in the Bay state. So you would think that the rates in MA would at best stay the same from year to year, or increase slightly. Well, think again. Martha Coakley (yes, that Martha Coakley), the current and future Attorney General, has brokered a deal for yet another rate reduction: an average of 2.4 percent across all classifications. The insurance industry had argued for an increase of 4.5 percent. I guess they did not exactly convince Martha.
The AG thinks that the insurers are overstating future losses. In my experience with carriers operating in MA, they are actually understating losses, but that’s a matter for the actuaries. If, as the AG argues, rates are too high in MA, what can you possibly make of rates in the other New England states and across the country? Are MA employers really that much better at preventing injuries and at getting injured workers back to their jobs? If you buy that argument, I have a nice bridge spanning the Mystic River that you might be interested in owning.
The trends in MA are no different from those across the country: while frequency is down, severity is rising at an alarming rate. In MA, severity is spiraling out of control. The state’s generous wage benefit structure, combined with a first rate (and pricy) medical system and a judiciary that tilts strongly toward the injured worker, are making six figure reserves all too common. It’s truly puzzling that the AG can look at the performance numbers for the insurance industry and conclude that rates are too high. They are way too low.
Politics: Local and Loco
It’s not hard to fathom why an elected official chooses to drive deflated rates even lower. It’s politically popular; any rate increase – even the marginal bump proposed by the industry – would be met with howls of outrage from small businesses, who are already under seige in a struggling economy. Strange to say, the depressed cost of comp is subsidizing the otherwise high cost of doing business in MA.
The AG is not finished with her rate scalpel: she thinks a few more points can be carved out next year. It will be fascinating to see how the carriers respond. Not too many folks think there is much money to be made in MA comp. And that rapidly dwindling club is about to get a lot smaller.

Older Workers and Comp: Low Risk and A Few Surprises

Tuesday, January 19th, 2010

NCCI has issued its latest report (PDF) on the status of older workers in the comp system, with a particular focus on workers 65 and up. If nothing else, the study reinforces the notion that older workers are safety conscious and a relative bargain. For employers worried about workers comp costs, older workers are not a significant problem.
In 1988 eleven percent of workers 65+ participated in the workforce; now 17 percent of these older workers are still working. That percentage will likely increase as the long-term effects of the financial collapse continue to resonate through the damaged economy. Some people continue working because they want to; many more continue because they have no choice.
Injury Prone?
The frequency rate for older workers varies by occupation: in construction, older workers appear to be safer than younger workers – they are injured at a 4 percent rate, compared to 12 percent for their younger colleagues. The results are flipped in retail/sales: older workers are injured at a 23 percent rate, compared to 15 percent for all others.
As you might expect, the leading cause of injuries for 65+ workers are slips, falls and trips – 47 percent of all injuries for this cohort. (Younger workers suffer these injuries at a 24 percent rate). For strains and sprains – the overall leading cost-driver for workers comp – the results are reversed: the frequency for older workers is 23 percent, compared to a whopping 38 percent for all others.
It does take longer for older workers to recover from injuries: they have a median days-away-from-work rate of 16, compared to 12 days for workers in the 55 to 64 group and 10 days for workers 45-54. Despite this higher rate, overall indemnity costs are lower. Why? Because older workers make substantially less on average than younger ones. Wages peak in the mid-50s and then fall off dramatically after age 65, down to the same level as the entry level 20 to 24 group. So much for the notion of paying for experience!
The only red flags in the study involve the retail trade and service/hospitality industries, where older workers are showing higher-than-average costs for comp. These jobs probably offer ample opportunity for slips, trips and falls, the number one cause of injuries for these workers, .
It will be fascinating to watch NCCI’s study evolve over the next decade. The percentage of workforce participation for the 65+ group is going to increase steadily. With this growth, the risks will be enhanced. There is likely to be an upward trend in both frequency and severity, but perhaps not as much as feared. Certainly, the NCCI study reinforces the argument that older workers are safe, reliable and motivated. There is no reason to discriminate against them. If anything, you could make a good case for preferring an older worker to a younger one. Fodder for further thought, indeed.
NOTE: Special thanks to reader Soon Yong Choi for spotting an error in an earlier version of this post (see comments). Given my checkered track record with numbers, I can only hope that Choi and similarly adept readers continue to cast a critical eye on any of my postings where statistics are involved.

NCCI report: frequency trending down; severity trending up

Monday, January 12th, 2004

Last week, NCCI reported on a recent study on workers’ compensation claim frequency and, as they reported last year, frequency continues to decline. They cite several potential reasons for this – employer safety initiatives, increased use of robotics and power assisted processes, and ergonomics, to name a few. Here is a breakdown by size of claim – note that the highest decreases are in the smaller claims, and the decreases in high-dollar claims are significantly less pronounced:

  • For claims less than $2,000, a decline of approximately 35%
  • For claims between $2,000 and $10,000, a decline of 18%
  • For claims between $10,000 and $50,000, a decline of 8%
  • For claims more than $50,000, a decline of 8%

The severity decrease is the good news. The flip side of the coin is that medical and indemnity costs are galloping full steam ahead in the wrong direction. Not so good at all.

In the early and mid-’90s following reforms, indemnity was relatively stable. But according to NCCI actuary Tony DiDinato, “The last seven years have seen the trend turn upward once again, with workers compensation indemnity claims increasing an average of 7.4% annually since 1996. In 2001 and 2002, respectively, claim costs rose 7.3% and 6.0%.”

DiDinato goes on to characterize medical claim cost trends are alarming, “with double-digit increases the last two years.” He attributes this to increased utilization and prescription drug costs.

Cleary, employers are making progress in workplace safety (although we would advocate that any injuries are too many injuries) but it would appear that they must do a much better job of managing injuries from the point they occur right on to an employee’s successful return to work. Perhaps the “buyer’s market” of the late 1990s lulled some employers into forgetting how vital this is?

It brings to mind an old Bob Dylan lyric: “And here I sit so patiently, waiting to find out what price you have to pay to get out of going through all these things twice.”

Measuring Success 2

Tuesday, January 6th, 2004

As I’ve said previously, a company that wants to have low workers’ compensation costs has to have effective ways to measure the performance of its safety and injury management efforts. In December, I wrote about the Cost of Losses per Full Time Equivalent Employees (FTE). Today, it’s time to talk about the Severity Rate.
In nearly all cases, time away from work drives the cost of losses more than any other determinant. This is why modified duty plays such a vital role in controlling costs. Therefore, the severity rate, which measures lost time, becomes the single best non-economic indicator of the overall effectiveness of a company’s workers’ compensation program. So, what is it, and how do we calculate it?
The severity rate is the number of days away from work due to workplace injury or illness per 100 full time employees (FTEs) per year. It sounds daunting, but the Department of Labor has made it easy to get and use this data.
For more than thirty years the Occupational Safety and Health Administration (OSHA) has required most companies to maintain what is called the “OSHA Log.” On this report, every workplace injury and illness is recorded along with the resulting time away from full duty, as well as time spent on restricted duty.
Every year, each company required to keep the OSHA Log sends a copy of it to the DOL, which includes it within a national database maintained by its Bureau of Labor Statistics. The BLS collates data from each Standard Industrial Classification (SIC Code) and publishes an annual national average rate of time away from work, or “severity rate,” for each SIC Code.
To calculate your severity rate, divide the total number of days lost due to occupational injury or illness by the total number of hours worked by all employees. Following this, compare your severity rate with the average for your SIC, published annually by the BLS. Remember, the average for your SIC is nothing more than the middle of the bell curve; it is neither good nor bad. You should set for your company a goal of maintaining a severity rate that is 50% less than your industry’s average.