Workers’ Compensation

Workers’ Compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment. Workers’ compensation is mandatory in all states except Texas. This section will examine some of the key concepts that make up a workers’ compensation policy and the claims process.

Workers’ Compensation and Employers’ Liability

Workers’ Compensation Insurance pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.

Employers’ Liability found under Part B of the Workers’ Compensation policy provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law.

Experience Modification (X-Mod)

Experience Modification is an adjustment that is made to the premium of a Workers’ Compensation policy for businesses that meet or exceed a certain size threshold. The size threshold requirement and the X-Mod calculation itself is usually done by the rating bureau tied to the state the business resides in. A companies X-Mod is determined by a formula that compares actual reported loss information of that employer with the average loss data for all employers in that state who use the same Workers’ Compensation classification codes. Most X-Mods use data calculated from three prior years, however shorter windows can be used. A 2013 X-Mod would be based off of policy years 2011, 2010, 2009. The insurance companies who supplied Workers’ Compensation insurance during those years supply the data to the appropriate rating agencies. The idea behind the modification system is to reward companies with good safety records with a discount, and penalize companies with bad safety records with a surcharge. A business with an X-Mod of .80 would receive a 20% discount off of their premium, while a business with a X-Mod of 1.20 would pay a 20% surcharge on their premium. New businesses with no prior X-Mod experience start with their policy receiving no adjustment.

Jason Holmes, ARM / Lake Insurance Agency can help a business’ bottom line by targeting the Experience Modification. Having an effective workplace safety program can help reduce claims and thus the X-Mod. It is also important to make sure the X-Mod is calculated correctly by the rating agency. Typically, a broker is the first and last line of defense for X-Mod accuracy. There could be numerous reasons for us to request a recalculation of the X-Mod which would lead to a return premium for the client.

Injury Illness and Prevention Program (IIPP)

An Injury Illness and Prevention Program is a health and safety program that a business implements for its workplace and workers. Many states require by law the establishment, implementation, and maintenance of an effective Injury Illness
Prevention Program.

A good IIPP would include the following:

  • Purpose
  • Program Responsibilities
  • Methods of Compliance
  • Methods of Communication
  • Hazard Assessment Procedures
  • Hazard Assessment Checklists
  • Methods For Correcting Unsafe Conditions
  • Accident and Exposure Investigations
  • Training and Instruction
  • Recordkeeping
  • Program Evaluation
  • Hazard Assessment and Correction Record
  • Accident and Exposure Investigation Record
  • Worker Training and Instruction Record

Jason Holmes, ARM / Lake Insurance Agency have had success lowering Workers’ Compensation cost, increasing the quality of goods and services, reducing overtime costs, avoiding damage to property and equipment, and avoiding regulatory fines thru the implementation of dynamic pro active Injury and Illness Prevention Programs. A successful IIPP can also improve productivity, employee relations, turnover rates, and public image and reputation.

Medical Provider Network (MPN)

California Senate Bill 899 allows every employer to require employees to use a medical provider network for work-related injuries. The MPN refers to the network of physicians and medical providers that are authorized to treat an injured worker. By requiring employees to use a medical provider in network the employer has greater control over treatment of the injured worker and can select honest, ethical physicians. The majority of Workers’ Compensation carriers in CA have their own medical provider networks already established, and require or strongly recommend their implementation.

Jason Holmes, ARM / Lake Insurance Agency can help a business’ bottom line by making sure the MPN is implemented correctly and within the scope of the law. This is extremely important because an applicant’s attorneys first act when taking over a claim is to get the employee out of the network due to a technicality. This allows them to be treated by a more applicant-friendly physician and a greater chance to perpetuate any fraudulent claim. As brokers we only work with select insurance companies who are strong partners with robust Medical Provider Networks.

Return to Work Program (RTW)

A Return to Work Program is a program that a business sets up to bring injured employees back to work as soon as possible, even though they might not be fit for the duties of their regular job. By bringing employees back to work sooner for modified duty a business can reduce claims, retraining, and medical costs.

Jason Holmes, ARM / Lake Insurance Agency have had great success in creating Return to Work Programs that have directly resulted in savings thru lower X-Mods. A RTW can be a very powerful tool in fighting fraudulent Workers’ Compensation
claims as well. Many employees will even drag out the time of a legitimate claim and receive unnecessary medical treatment for the benefit of receiving “paid time off”. By instituting creative RTW’s we have had great results in reducing claims that are fraudulent from the start.

Workers Compensation Insurance Rating Bureau of California (WCIRB)

The WCIRB is a California nonprofit association comprised of all insurance companies licensed to transact Workers’ Compensation insurance in the state of California. Some of the functions the WCIRB performs include: collection of premium and loss data on every policy written in CA, examination of policy documents, inspection of insured businesses, and test audits of insurer payroll audits and claims classification. This data is used by the WCIRB to propose guideline rates, which are used by the various insurance companies that write business in CA to determine the rates they ultimately charge their insureds. The WCIRB is also solely responsible for the calculation of X-Mods of California businesses. The rules for classifying employees and collecting premium in CA are determined by the California Workers’ Compensation Uniform Statistical Reporting Plan, which the WCIRB publishes.

National Council on Compensation Insurance (NCCI)

NCCI is an independent advisory organization that is largely funded by insurance companies that use their services. NCCI collects data on claims, provides Workers’ Compensation rates, monitors trends, and offers analysis to its member insurance companies. NCCI also produces various manuals that govern how premium should be collected and establishes rules for the classification of employees. NCCI is also responsible for calculating X-Mods for businesses located in NCCI designated states. The following map provided by shows the states that have designated NCCI as their licensed rating and statistical organization.

Monopolistic States

Currently there are four states that require Workers’ Compensation be provided exclusively by the state’s designed Workers’ Compensation program. These states have a closed market for Workers’ Compensation, and do not allow private insurance companies to offer coverage. These states include: Ohio, Washington, North Dakota, and Wyoming.


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